E-commerce companies are a dime a dozen in India nowadays. Google for any product, and chances are you’ll get multiple links on the first page to buy it online. But as the market matures and new customer acquisition becomes more expensive, the biggest challenge facing e-tailers is how to cultivate customer loyalty.
Unfortunately, that’s easier said than done. E-commerce and customer loyalty aren’t exactly made for each other. There are a number of reasons for this:
- E-commerce companies don’t own the product: Since their interaction with the customer lasts only a few minutes, they control a very tiny sliver of the overall customer experience of buying, owning and using a product. A sliver that is not important or big enough to cultivate loyalty.
- The biggest value e-commerce companies offer is price: Yes, they can focus on such things as product coverage, usability / design of the website, excellent customer service, etc. But ultimately when a customer is deciding where to buy the product, it all comes down to price.
- Deciding where / how to buy a product is a much more rational decision than choosing which brand / product to buy: The reason it comes down to price is simple: no matter where or how you buy it, the product you get for your money is the same. So there is a natural tendency to minimise the spend when the return on that spend is a constant.
- E-commerce is a thankless business: When the customer experience is flawless (the site is well designed; the price is competitive; the product is delivered right and on-time; customer service is excellent), it’s nothing more than what the customer expects. Yes, you might get is a congratulatory e-mail, or a tweet or two recommending your site. But the network effects of such commendation are limited. On the other hand, when something goes wrong, customers shout from the rooftops about it. And because social media is a cauldron of negativity, the bad reviews travel much farther and faster than the good ones. All that negativity tests customer loyalty severely.
- New entrants have an easy weapon to disrupt you: And that is price. All a new competitor has to do is offer the same products at a lower price, and they’ll be able to snatch a not-insignificant share of your customers. With VC money flowing in, this is easy to do in the first few months of running a new business, in the name of “building a customer base”. And when those new entrants become old and start focussing on profitability (and increasing their prices / delivery charges), a new entrant can in turn disrupt them. This is what Amazon is doing to Flipkart in India right now with their introductory offers of free delivery.
I wrote earlier about the difference between brand loyalty and brand preference. E-commerce is exactly the kind of low involvement offering that makes it difficult to create brand loyalty. The best that e-commerce companies can hope to achieve in a market as competitive as India right now is brand preference. They need to make the most of it.