Re-Imagining commerce for India - the case for a different Social Commerce model

social commerce Jul 07, 2020

As any entrepreneur will tell you, each day of an early stage company's life is about cracking an 'insight' on market, user behaviour, or sales channel that is generally not known but is immediately obvious in retrospect. Cloud computing and social media marketing were insights for a while. The lift that lifestyle products recieve from influencer placements is another. GPS and mobility is a famous example.

Early in our journey at Sair, we saw the power of human selling to bring trust into the sales process and move people towards closing the sale. We saw fascinating variations - In travel the farther they were from being a commercial entity, the better they sold! Eg: In amateur organizers vs 'polished' planners - amateurs won hands down. In education the more they seemed to be 'experts' rooted in local settings the better.

This relationship between selling and trust was one of the most fascinating parts of my learning. I believe that social commerce, especially in India (with the nuances of a lack of rule of law and poor belief in state systems), will be the key to unlocking the next wave of modern commerce. Doubly so for the non-trusting and non-transacting Indian coming online today.

Before I dive into the questions that Sair Mall tackles on an everyday basis, let me share my understanding of how different commerce models have unfolded and then talk th why I feel that social commerce in particular will be crucial to the next evolution of the retail sector. I end with 2 questions that we are obsessively try to solve at Sair Mall and a request for you-the-reader to share your thoughts and questions with me.  

The dominance of ‘fast-moving’

The statistics around retail and commerce in India tell the story of a market that is titanic in proportions and largely under-penetrated by Modern trade or newer models such as e-commerce. Retail is estimated to be $0.7 Tr in 2019, out of which more than half is food and grocery retailing. ~5% is online players, 10% modern trade, and the rest is dominated by traditional players.

Now Food and grocery are high frequency purchase items and customers are extremely price and quality sensitive. This leads to complex operations and localized consumption models in higher-margin sectors such as Fruits and Vegetables or low margins in sectors such as staples. And so it seems that we see cost management innovations such as private labeling, farm-to-table in this sector.

Traditional commerce has a long supply chain which distributes the risk of demand and the cost of transportation. Customers invest their own money/time too - transport to the shops and back. Where traditional commerce makes its returns is on turnover on the capital invested - low margins multiplied by turns leads to a sustainable and massive distribution network. One that is currently unparalleled by modern trade or e-commerce.

Enter the e-commerce players

This strength seems to turn into a constraint when we turn to a lower-frequency of purchase item such as apparel and electronics. That would appear to be one reason that the low inventory model of e-commerce shines in these areas. Second, the inroads made by e-commerce into different sectors seems to have a strong relation to what is feasible to drop-ship to a customer. We can see that high value to weight products such as makeup, apparel, electronics, etc have been the first to be cracked.

However due to a lack of trust, too large a premium gets placed on first to market or brand leaders in this system. Innovations beyond warehousing and shipping are therefore related to trust forming - reviews, returns and refunds. For a manufacturer this may turn into a quality vs marketing decision. Aside from this, lack of access to data and lack of comfort with online formats have capped the overall penetration of e-commerce into India.

The future is ‘Social’ ..

Even in mature markets such as the USA and China, there is a clear plateauing of the in-roads that search based platforms can make. Talk about the future of modern retail involves a lot of discussion around Voice (Eg: Siri, Alexa, Niki), Vernacular (Eg: Local language support in Amazon, Flipkart, Sharechat), Video (QVC, Taobao, Bulbul, Simsim), Super Apps (PDD itself is a feature within Wechat, Grab, GoJek, Whatsapp + JioMart), and Social (Shops in Facebook + Instagram, Buy/ Sell groups, XingSheng, Pinduoduo).

.. but what is ‘Social’

At Sair Mall we believe that the constraint actually lies in trust in online formats and shipping costs. Both of these factors are addressed head-on by social commerce, with regional variations arising from the cultural variations in norms of trust.

IMHO, the field is just starting to see interesting innovations. The last five years have seen over 50 investments and 4-5 models hoping to make the next break-through in retail commerce. However, while PinDuoDuo’s meteoric rise in GMV and valuation may have piqued early interest and activity in India, few of the India models have been truly ‘social’. Eg: Resellers have started campaigns to limit the advertising of Social commerce companies as they got cannibalized by their own customers; Group buying players, early in the India e-commerce cycle were unable to turn deal-users into repeat-purchasers. This is very different from China where PDD’s dominant model is user-initiated group purchases and almost 15% of its GMV comes from sales of Fruits and Vegetables.

The constraints then appear to be:
1. What is the marginal value added by a reseller over and above discovery?

2. How can we profitably drop ship items with low unit prices or thin margins to individual purchasers of a group deal?

Exhibit 1: Models of commerce and constraints 

An offer you can’t refuse

Many of the innovations we are seeing are related to demand side sustainability or distribution or supply side development. As evidenced by the investment trends, logistics players such as Shadowfax, ShipRocket, Dunzo are expected to be another part of unlocking the future for commerce by drastically reducing per mile shipment delivery costs.

At Sair Mall we see Social Commerce as a natural solution to reaching out to ‘India 2’ and we are working on innovations that address these two questions. If you have insights on this or if you would like to work on these problems with us, reach out to me either in DMs or comments.