Disruptive entrant in

Indian E-commerce

────

Introduction of COD
(Cash on Delivery)

────

Exclusive distribution
channel

────

Motorola Moto G and

first flash sale of MI3

────

Decision to be an App
only platform

────

Entry from Amazon.in

────

Expanding through

FLIPKART acquisition?

FIGHTING A GOLIATH
SECTION B - GROUP 4
Re-Inventing the Business Model  Chinta Nikhil
 Gharat Nikhil Dilip
 Gopinath Dhavala
BUSINESS MODELS – GROUP PROJECT SUBMISSION  Nitin Dammu
 Noolu Satish Chandra Srikanth
 Pokala Santhosh
Submitted to: 
1

Pranesh Bisen

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Prof. Prashant Salwan Rajagopalan K

Table of Contents
Abstract .................................................................................................................................................................3

MODULE 1 : Strategic Dynamics ....................................................................................................................4

External Industry Analysis 2010-2011 .......................................................................................................5

External Industry Analysis 2016-2017 .............................................................................................. 7

Competitive Profile Matrix ............................................................................................................... 9

Key and critical success factors in 2010-2011 .........................................................................................10

Key and critical success factors in 2010-2017 .................................................................................. 11

MODULE 2 : Logic of the Firm ........................................................................................................................14

Customer Value Proposition (CVP) ........................................................................................................14

Profit Formula ...................................................................................................................................16

Key Resources .............................................................................................................................................18

Key Processes ....................................................................................................................................19

MODULE 3 : Creating and sustaining competitive advantage and Business Model ...........................21

Creation of Sustainable Advantage ........................................................................................................21

Choices Made by Flipkart and its consequences .......................................................................... 24

Business Model of Flipkart ......................................................................................................................25

Comments, Suggestion and Learnings from the case of Flipkart ................................................ 26

References:...........................................................................................................................................................27

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 Abstract

Flipkart has contributed a major part in fostering the online purchasing behavior in India. It has become
the modern face of entrepreneurial spirit of India. Flipkart started with an initial investment of four
lakh rupees is now valued at nearly 16 billion dollars. This growth really reflects its potential in the
industry. It is the brainchild of two IIT graduates who decided to disrupt the established organizations
rather than following corporate dreams like their peers. Instead of working for some MNC flipkart
today generated employment for nearly thirty thousand people. Ever since its genesis flipkart’s growth
has catapulted through its groundbreaking innovations. It has taken certain initiative which stood out
to be game changing actions which other player in the industry had to follow. These initiatives changed
the dynamics of the industry. Flipkart’s actions were totally focused on customer’s ease to operate with
them and are really futuristic. When the concept of e commerce was emerging throughout the world,
flipkart has played its part in defining Indian ecommerce industry.

Flipkart’s understanding of the Indian market has led them to take head on head with international
giants like Amazon. Flipkart’s growth rate has totally utilized the internet penetration in India and has
spread the concept of online shopping to the rural corners of the country. Flipkart today has created a
solid marketplace for itself, shipping roughly 5,00,000 packages a day.

Flipkart’s innovation ranged on multiple fronts, from logistics to technology and app interface. They
were the first online platform to experiment with fully app interface. Their exclusive dedicated logistics
service with the name of ‘Ekart’ is a true indicator of their innovation in the industry. With majority of
Indian ecommerce potential being untapped (only 8.75% of population), opportunities for flipkart are
limitless. The company has faced a lot of problem along its course, some external and some being
internal disturbances. Some of the external hindrances being lack of infrastructure posing logistical
problems, low awareness of the service in the market. These factors led to increase in the cost of
distribution and marketing. The necessity to increase the base of suppliers is also a major concern for
the company. Starting with a connection of 4 suppliers in 2008, it has come a long way. Increasing the
base of suppliers is a very major requirement, because it directly determines the size of the catalog for
customers to browse from. From 2013 flipkart’s has grown with 150% CAGR leaving everyone in the
market awestruck. Flipkart attributes its growth rate to customer delight and word-of-mouth
marketing. They are totally driven by the motivation to provide best ecommerce experience to its
customers.

The industry of ecommerce in India is at infant stage and is totally driven by the experimental spirit.
Flipkart has experimented with their operations and has seen both positive and negative results. But
with the rate of e commerce growth every step can have a ripple effect on the future of the organisation.
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 MODULE 1 Strategic Dynamics
External Industry Analysis for the year 2010- 2011 (early 2010s)
Environmental Analysis:

Demographic trends:

When it came to online retail industry, for people to shop online, they needed to have internet. India
was third largest country when it came to internet usage after U.S and China. Above 200 million
people were using internet in 2014. Out of this, 110 million people accessed internet through mobiles.
In India, 8-10% of online users transacted online, which was close to 20 million people. And also, with
smart phones, tablets coming into picture, number of people who were going to use internet
increased.

Socio-cultural Influences:

Culturally, Indians tend to buy the products in physical stores. They want to touch, feel the product
before buying. If the risk associated with product is very high, like in purchase of Television, Laptop,
Washing Machine etc., they tend to go to physical store, then see the features and if satisfied, will buy
the products. Indians will mostly influenced by peers, friends while purchasing the products. They
will ask their friends or peers suggestions and only will buy the product. So, these factors are
negatively affecting online retail industry. But slowly, culture of buying is changing. They are going
for online purchases but this rate is less when compared to offline purchase. But with schemes like 30
day replacement guarantee, if the product is not functioning properly, and with the availability of
peer’s or friend’s feedback about products online, they are slowly moving from offline to online
purchases.

Technological Factors:

With the advancement of technology at a rapid pace around 2010-11, online retail industry benefitted
a lot. Several technological devices like smart phones, laptops, tablets etc. helped the online retail
Industry because with the penetration of these devices, Indian consumers moved to purchasing their
products online. Even Smart phone market grew at a very rapid rate in India. Other technology
which helped the industry are big data and “Predictive Analytics”. Since companies could gather the
data about their customers, they were able to use data to personalize the services by using predictive
analytics

Macroeconomic factors:

India’s GDP was 1.842 trillion $ and was tenth largest economy in terms of GDP at the time. Growth
4

Outlook: Economy poised for gradual recovery in 2014-15. Reserve Bank of India, an apex bank of
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India is expecting A GDP of 5.6% in the year 2014-15. So, on an economic front, this was going to help
online retail industry.

Industry structure analysis:

The e-Commerce industry in India is primarily divided into the following three segments:

Online ticketing:

This is the largest segment and includes websites or apps that allow customers to buy tickets for
travel (air, bus and rail), book hotel rooms, cruises, travel packages and to watch movies and events
etc. We do not include captive websites of companies in the above segments.

Online retail & marketplaces (e-retail):

This segment comprises portals selling retail products, wherein the company (either a traditional
retailer or an online re-seller) both offers as well as undertakes to deliver those products , either
through his own network or through a third party. In this model, the re-seller is usually required to
stock goods and thus bears inventory risk. However, holding of inventory provides the e-retailer
with flexibility in managing inventories compared with other e-commerce models.

The key difference between an online marketplace and an online retail store is that the former does
not take any inventory risk; it is merely an intermediary between buyers and sellers, and earns a
commission for providing the service.

Online deals:

This segment includes websites that offer deals (in the form of discount coupons) to customers on
various products and services, on behalf of the respective sellers. To avail the deal, the customer
typically makes a payment on the deal website before it is redeemed.

Five forces framework on e-retail segment (early 2010s)

Supplier power:

In this industry, suppliers are the manufacturers of finished products like Nike, Dell, and Apple etc.
Online retail companies sell various products ranging from books to computer accessories to apparels
to footwear. Online retail industry was just becoming important around this period, and so, was not a
very important channel for suppliers and hence, the supplier power was high.

Buyer power:

Buyers in this industry are customers who purchase products online. Since this industry was starting
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to get flooded with so many players around early 2010s, buyers had lot of options to choose from.
Switching costs were also less for customers since they can easily switch a service from one online retail
company to other one. Also, product and service differentiation was almost low and moreover there is
no loyalty towards any one e retail player, so, all these factors made customers to possess more power
as compared to online retail companies in the early 2010s.

Threat of New Entrants:

Threat of new entrants is very high in this online retail industry because of following reasons:

Indian government was going to allow 51% FDI in multi-brand online retail and 100% FDI in single
brand online retail. So, this means foreign companies can come and start their own online retail
companies. Amazon.in was one such entrant in 2013.

There are very less barriers to entry like less amount of money required to start a business, less amount
of infrastructure required to start business. All that is needed was to tie up with suppliers of products
and to develop a website to display products so that customers can order products, and a tie up with
online payment gateway provider.

Threat of substitutes:

Substitute for this industry is physical stores. Their threat is very high for this industry because
customers need a habit change for making online purchases instead of going to physical stores, which
was then a predominant channel (early 2010s). With the advent and penetration of internet and smart
phones, future in retail is favorable to online retail.

Rivalry within Industry:

Competition is very high in this industry with so many players like Flipkart, Myntra, Jabong, Snapdeal,
Amazon, Indiaplaza, Homeshop18 etc. in the early 2010s

From the above analysis, it can be observed that although the external environmental factors seemed
favorable for e retail companies (in terms of internet penetration and smart phone penetration) in the
future, the industry was not at all favorable as it required a behavioral change in the customers, this
was further substantiated by the high forces in the industry as studied by the Porter’s framework.

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External Industry Analysis of factors changed by year 2016 - 2017 (early 2017)
Macroeconomic factors:

The major factor currently affecting E-commerce in India is the FDI policy. India has allowed 100% FDI
in online retail consumer businesses that operate as marketplaces—companies that act as a facilitator
between buyers and sellers by providing a technology platform where as it is not allowed in inventory
based model. Most of the large e-commerce players in India operate as marketplaces. But these kinds
of companies will not be permitted to have more than 25% of their sales come from one vendor, even
if that vendor is the company itself. The government also said that e-commerce marketplaces will not
be allowed to influence the selling price for goods and services listed on their platforms.

Political and Demographic factors:

The number of Internet users in India is expected to reach 450-465 million, up 4-8% from 432 million in
December 2016, a report from the Internet and Mobile Association of India and market research firm
IMRB International said. India’s online population is increasing at a rapid pace, as is the number of
people accessing the internet on mobile devices. The improved infrastructure and thus, speed of
internet connectivity is surely a good opportunity for the e-commerce industry. With the introduction
of Jio network, huge rural population has got access to the Internet through mobiles. The dramatic
growth of Indian e-commerce will no doubt have been heavily influenced by Narendra Modi’s
demonetization of the Indian economy, which left many people with little choice but to shop online.

Socio-cultural Influences:

Several companies succeeded in gaining the trust of people in their brands through providing good
customer experience over the years. The increased sales is a proof of the improved perception about
these online retailers among the customers. It has become easier to reach the customers through
mobiles and promote several offers and sales. With the change in lifestyles of population, more and
more people are choosing the convenience of shopping from home.

Technological Factors:

Improvements in technology has helped the company to improve the customer experience. Apps are
now affording retailers an opportunity to connect with consumers that goes beyond the boundaries of
a brick-and-mortar business. Brands no longer have to wait for consumers to walk into their shop or
spot an ad that prompts them to engage with the business. Companies are constantly trying to
personalize the shopping experience for each customer. Yesteryear’s email notifications are swiftly
being crowded out by marketers in favor of smartphone push notifications. These features and their
apps allow marketing teams to command consumer attention as never before. To better serve
customers, ecommerce sites are finding they must adapt to the new customer service standards set by
technological improvements. This means servicing customers on the various channels they have access
to. Brand websites, email, Facebook, Twitter and even Instagram are all being used by customers to
7

connect with brands.

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Legal factors:

E-contracts:
The Indian Contract Act, 1872 ("ICA") states that valid contract should have been entered with a free
consent and for a lawful consideration between two adults. But, can’t deny the fact that minors
entering into contracts increases, more so with the increasing usage of online medium among
teenagers (read minors here) and their preference to shop online.

Stamping of contracts:
An instrument that is not appropriately stamped may not be admissible as evidence unless the
necessary stamp duty along with the penalty has been paid. But payment of stamp duty is applicable
in case of physical documents and is not feasible in cases of e-contracts. However, as the payment of
stamp duty has gone online and e-stamp papers are available, which made to look possible for e-
contracts as well.

Data Protection:
Security is always a major concern of the information provided during the online transaction and
other phases of online shopping. Under section 43A of the IT Act "Reasonable practices and
procedures and sensitive personal data or information Rules, 2011" have been proposed, which
provide a framework for the protection of data in India. Payment gateways integration is yet another
challenge in online transactions.

Intellectual Property Rights:

E-commerce websites are designed and made by other parties and often the content is also created by
third parties. Unless the agreements between the parties specifically provide the IP rights, there can
be serious ownership issues of IP rights. There are enormous possibilities of trade mark, copyright or
patent infringements in online medium. Which is a better practice that must do.

Consumer Protection:
Under the Information Technology (Intermediaries Guidelines) Rules, 2011, the intermediaries have
the obligation to publish the rules and regulations, privacy policy and user agreement for access or
usage of the intermediary's computer resource by any person.

Competition:
Competition, which is the major cause for changes in the current world of e-commerce with ever
increasing players and acquisition of several old players in the market and has enabled development
of new services, new distribution channels, and greater efficiency in business activities. Potential
issues for e-commerce players would be price fixing or tacit collusion or anti-competitive
8

discrimination or refusal of access to third parties. E-commerce players already refraining from
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collusion and excessive pricing and they should do it constantly.

Competitive Profile Matrix
For building a business model, understanding the external environment of an industry is very crucial.
Hence, to study the external environment and the competition in the market, most of the firms use
Competitive Profile Matrix (CPM). This matrix identifies key competitor and compare them with
them competitor using industry’s critical success factors. It also analyses the firm’s relative strengths
and weakness against the competitors.

Competitive Profile Matrix

Critical Success Factor Weight Flipkart Amazon Snapdeal

Rating Score Rating Score Rating Score
Market Share 0.25 4 1 2 0.5 3 0.75
Technology 0.05 2 0.1 3 0.15 2 0.1
Delivery Time 0.2 4 0.8 4 0.6 3 0.6
Stock 0.05 2 0.1 4 0.2 2 0.1
Customer Loyalty 0.2 3 0.6 3 0.6 2 0.4
Financial Strength 0.15 3 0.45 4 0.6 2 0.3
Advertising 0.1 3 0.3 3 0.3 2 0.2
1 3.35 3.15 2.45

Weight Meaning: 0.0= least important; 1.0 = most important

Ratings meaning: 1 = major weakness; 2 = minor weakness; 3 = minor strength; 4 = major strength

Flipkart’s top two competitors that were chosen to analyze CPM are Amazon and Snapdeal. Looking
at the total score, there is relatively small gap between Flipkart and Amazon, while the score of
Snapdeal is comparatively low. These scores show that these companies are better able to use their
resources and strengths which lead them to a good strategic position in the market.

In case of Flipkart, market share is most important factor in terms of firm’s success. Customer loyalty
and delivery time are next important factors. Although other elements are of much critical, too. But,
these three factors are truly critical while considering firm’s success.

In terms of competition, Amazon is the closest competitor. Flipkart is performing well against
Snapdeal. Amazon is the biggest competitor in terms of all the factors mentioned above. Flipkart and
Amazon nearly have same ratings. Flipkart has maximum market share in India. It has around 45%
market share in 2016. While Snapdeal’s market share was 26% and that of Amazon was 12%.
According to CPM, Flipkart’s weighted average score is 3.35 which is clearly above average. On the
9

contrary, Flipkart lags in technology and stock management. Improvement in these factor can lead
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them to firm’s profitability.

Key and critical success factors in 2010-11
Boom in smartphone sales and Data:

The usage of the Internet and Smartphones started penetrating in almost all the areas in India,
Especially rural India where 70% of the population situated. This helped the online retailers to expand
their services to Tier 2 cities and few of the rural places as well.

First mover advantage:

Flipkart was already established in online retail space by starting with sales of books. It is the first
choice for Indian consumers when it comes about buying a book in online. It registered in customers’
mind with its diversified product portfolio and the quality service.

Cash on delivery model:

Flipkart read the virtual Indian customer behavior; the Indian customers are skeptical about revealing
their banks details to the third person. So the Cash on Delivery model (COD) helped Flipkart to
establish trust in the consumers’ mind. The cash-on-delivery model has undoubtedly got them with
going with the web conservatives

Emphasis on Marketing:

Though it was initially started with word of mouth publicity, the founders of the company carried the
momentum well. Flipkart not only invested in technical, operational and logistical capabilities but also
it invested hugely in the marketing activities like any other major brands. This effort created a huge
brand visibility in the market.

Convenience factor (Easy to buy):

This one is the one of the key success factors for Flipkart. Again the buyer will not be interested in
buying if the platform is difficult to use. Flipkart allowed customers to buy without registering into the
Flipkart and the customer can book using their Facebook and twitter sign in. This makes its user to buy
a product without registering and remembering another online password. It provided free delivery for
the orders which are greater than Rs 200 and ensured quick deliveries.

Expertise of Founders:

The founders of the Flipkart are ex amazon employees. The expertise in the ecommerce space helped
Flipkart in the beginning years to run and grow.
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Key successful factors in 2016-17
Strong brand value:

As mentioned earlier Flipkart has its first mover advantage and created a strong brand value in the
online retailing space. Flipkart is the primary choice for the customers who want to shop in online. The
company remains a dynamic retailer and its value share in internet retailing registered very strong
positive growth in 2016

Availability:

Availability of products is one of the key successful factors in ecommerce industry. If the product is
not available for the long time the customer may get disappointed and the company may lose the
potential customer to the competitor.

Flipkart has diversified product portfolio in apparels, consumer electronics, footwear etc. As the
importance of product availability has increased Flipkart started expanding its warehousing. In
October 2015, Flipkart announced plans to invest $2.5 billion over the next five years in supply chain
network. Of this, the company intends to invest $500 million for setting up 80-100 fulfilment centers
across India (it currently has 17 fulfilment centers) 1.

Private labels:

Private labels are becoming profitable for online retailers because these private labels offer huge margin
compared to other branded products. Flipkart has three private labels in namely Flippd, Digiflip and
Citron. These private labels are targeted at the lower end, price sensitive segment and they are purely
within the budget price range, targeting a mass consumer base

Private label Category Notes

brand
Flippd Apparel and Budget price
footwear
Digiflip Consumer Budget price
electronics
Citron Consumer Budget price
appliances

Aggressive sales of Electronics:

Flipkart promoted the sales of Consumer electronics like Smart phones, TVs and Laptops through its
channel, which brought new customers to the company and helped Flipkart to build its system to
support quality products to the consumers to reduce the product returns from the customers. For
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example it allowed big brands like Samsung, Sony etc. to sell their products through Flipkart and
Flipkart came up with exclusive sales of few brands like moto g, Lenovo through their platform.
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Delivering high quality customer service:

Flipkart success can be attributed to the level of customer service it offers. Easy return policies like 30
days return policy and 10 days return policies are helping the Flipkart to become a credible brand and
providing convenience to the customers. Further, the systems are well equipped to handle customer
specific queries about the progress of the transactions within 24 hours. Apart from that options in
transaction reversal providing the customers better experience.

Acquisitions:

E-commerce market space in India is highly competitive and various companies are mushroomed in
this market. So it will be very difficult for E-commerce companies to differentiate themselves from
others. For the last few years Flipkart acquiring many E-commerce companies to increase their
offerings and to become the one stop solution for online retail.

They have acquired companies like Myntra, Jabong, Appiterate, Letsbuy, Mine360, chakpak.com, were
ad and the latest one being UPI-based payments start-up PhonePe. These companies are helping it in
enhancing its functional capabilities

Source: Crisil Research

Aggressive advertising:

Flipkart continued to be an aggressive advertiser among the E-commerce players. The lion share of its
investments belongs to the advertisements since it increases the brand equity and brings new customer
base. Flipkart not only did conventional advertisements but also concentrated on digital marketing and
brought window shoppers online to click to buy the button.

Strong support from investors:

Since the initial period of E-commerce companies are mostly loss making there should be a strong
monetary backup from the investors. There are many E-commerce players either shutdown their
12

business or merged with other players because of lack of support from the investors. Since the
beginning Flipkart is being supported by the investors though it didn’t turn out to be a profit making
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still.
Total funding till July 2016:

Source: Crisil Research

Government policy:

Government opened the gates for FDI; it is allowing 100% FDI on online market place models in
India.

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 MODULE 2 Logic of the Firm
Customer Value Proposition (CVP)
Target Customers:

The target group of Flipkart can be categorized into two segments

1) Suppliers: Manufacturers and retailers who place their merchandise display on the website.

The retailers are the ones who would like to reach out to larger customer base or who would like to sell
to customers in different geographic areas without setting up a physical store

2) Consumers: Individuals who visit the Flipkart website and purchase the items available in stock.

Customers are generally of middle class group who are familiar and comfortable with online shopping
experience. Majority of the customers are the ones who are professionals and busy with job/business
and would like to purchase online to save time and money. Flipkart has diverse product range and will
target all age groups and those can be students, office going people, homemakers etc.

Customer Market Segmentation:

Primarily customers can be categorized into 3 segments

 Geographic Segmentation- To cater to Tier 1, Tier 2, Tier 3 cities

 Demographic Segmentation - 15-34 years of age group people because 75% of online users are
in this range
 Behavioral Segmentation– people who have access to internet and are web friendly and Flipkart
target these people by display of ads.

Value propositions:

Flipkart value propositions include: accessibility, convenience, price, risk reduction, and brand/status.

Accessibility:

The company increases accessibility by making it possible for retailers who do not have a website or
reach to larger customers, to sell their products through its channel. This is beneficial especially for
many small retailers.

Convenience:

The company creates convenience for consumers to buy online and at a single platform by offering a
wide variety of items (over 30 million products) in numerous categories (70+) from multiple vendors
(over 85,000) in a centralized channel.
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It also provides flexibility to buyers by enabling them to pay using a variety of methods, including
credit cards, e wallet, debit cards, gift cards, and cash on delivery.
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For merchants, Flipkart offers convenience by guaranteeing payments (deposited directly) within 5-7
business days of processing an order.

Price:

The company is able to offer consumers a lower price than the customers would receive from physical
outlets because it has lower operating expenses as the medium is able to remove many of the
middlemen.

It does not have to worry about many overhead costs, allowing it to pass the respective savings onto
customers by providing products lower products and at discounts compared to the ones available in
physical stores.

It also implements frequent promotions such as “Deals of the Day.”

Risk Reduction:

The company reduces risk by providing the customers with an option of “Flipkart Advantage.”

This is a label given to certain merchants that confirms that the products from the respective merchants
have been checked thoroughly for quality by Flipkart.

The items are also supported by a 30-day replacement guarantee and a same-day delivery option for
the customers.

For vendors, it offers the Seller Protection Program, which protects retailers from losses due to failed
payments from the customers.

Brand/Status:

The company has established a strong brand due to its huge success, marketing activities, innovative
activities like flash sales and exclusive sales, and thereby bills itself as India’s leading online retailer.

It has more than 75 million registered customers who make 10 million visits to its website daily. Further,
it makes more than 8 million shipments a month to more than 1,000 cities.

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Profit Formula
Revenue Streams:

Web-portal:

By providing a web platform to its sellers, Flipkart charges a commission for all the services given to
them. This is the basic source of revenue of Flipkart.

Listing and convenience fee:

Flipkart charges some amount of listing fee to its sellers and convenience fee to the buyers for faster
delivery. The convenience fee also includes the gift wrapping charges, billings that add up to the total
revenue of the company.

Logistics:

This is an amount collected from the sellers for shipping their products. It provides services to its sellers
which are similar to other delivery courier companies. The charges of delivery services vary from place
to place and the distance required to be covered.

Digital media:

Flipkart sells ads to the sellers or brands as well as various products such as co-advertising, co-branding,
etc. Revenue from digital marketing business in FY2015-16 was $ 1 Mn, which increased 4 fold in
FY2016-17.

Cash and carry:

This is the wholesale division of Flipkart. The revenue earning methods is same as it earns from the
B2C transactions. The only difference here is that here B2B transactions take place.

Myntra:

Myntra is a website owned by Flipkart which is another online fashion portal that boosts up the overall
fashion category of Flipkart. Myntra earns a huge amount of sales on its fashion products and has been
measured to be higher than the fashion sales of Flipkart. The revenues earned by the website Myntra
are accounted in total earnings of Flipkart.

Cost Structure:

The largest expenses for the Flipkart consists of Supply chain cost, warehouse management and
logistics. Its logistic network employees 15000 employees. Flipkart is trying to increasingly make use
of technology for improving its warehouse space utilization.
Direct Cost:
Cost of products paid to seller and shipping cost.
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Indirect Cost:
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It includes salary paid to employees, infrastructure maintenance cost, and affiliate program cost, cost
for warehouse maintenance etc.

Margin Model:

The margin model of flipkart is based on following equation:

Settlement Amount=Order Item Value - Marketplace fee - Service Tax on Marketplace
Fee

Where,
 Settlement Amount: The amount paid to seller
 Order Item value: Selling Price and Shipping charge paid by the customer and excludes
discount offered by the seller
 Service Tax on Market Place Fee: 15% of Marketplace fee include Swachh Bharat & Krishi
Kalyan cess
 Marketplace fee = Commission fee + Shipping fee + Collection fee + Fixed fee
 Shipping Fee goes to Ekart, which is owned by flipkart
 Also, Collection fee goes to PayZippy, payment gateway, owned by flipkart.
Thus, entire marketplace fee goes to flipkart
 Collection fee: 2% of item value
 Fixed Fee:
Selling Price Fixed Fee (in Rs)

<500 10
500-1000 20
>1000 40

 Shipping Fee:

Shipping Fee for Bronze sellers Local (In Rs.) Zonal (In Rs.) National (in Rs.)
<0.5 Kg (Per 0.5 Kg) 35 45 65
0.5-3.0 Kg (Per 0.5 Kg) 20 25 30
> 3 Kg (Per 0.5 Kg) 5 7 10

Shipping Fee for Silver sellers Local (In Rs.) Zonal (In Rs.) National (in Rs.)
<0.5 Kg (Per 0.5 Kg) 31.5 40.5 58.5
0.5-3.0 Kg (Per 0.5 Kg) 18 22.5 27
> 3 Kg (Per 0.5 Kg) 4.5 6.3 9

Shipping Fee for Gold sellers Local (In Rs.) Zonal (In Rs.) National (in Rs.)
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<0.5 Kg (Per 0.5 Kg) 28 36 52

0.5-3.0 Kg (Per 0.5 Kg) 16 20 24
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> 3 Kg (Per 0.5 Kg) 4 5.6 8

Key Resources
People:

Native Developers Capable of developing web environment in accordance with the demand of Indian
customers. A large number of them being Indians, know their customer in a much better way, an
advantage which comes handy while designing User Interface or deciding how to show a product on
a website.

Partnership, Alliances:

Flipkart’s investors include Tiger Global, Naspers, Accel Partners, Dragoneer Investment Group,
Sofina, ICONIQ Capital, DST Global, GIC and Morgan Stanley Investment.
Acquisition of Weread, social book recommendation engine tool, provided access to large user base.
The acquisition of Mime360, digital content platform factory, in 2011 enabled Flipkart to enter into
digital distribution domain. Acquisition of Letsbuy.com in 2012, paved the way for establishing its
position in consumer electronic space. Appiterate, mobile marketing startup, acquired in 2015 enabled
Flipkart to strengthen its mobile platform.

Technology:

Deep knowledge and granular data on the local user, based on its seven-year head start, drives
engineering and innovation—the zillion lines of code that lure customers into buying more, or
revealing their preferences so that they can be shown things they may want to buy. Whoever controls
this data controls the market. For greater transparency, customization and control, Flipkart has
developed its own Enterprise Resource Planning software. At the same time, Flipkart, following the
footstep of Facebook, has opened a part of its platform, inviting coders to build new application on it.
Phantom being the first application (used for automatically queue requests to various servers) opened
up on GitHub. Automated assembly lines have enabled faster processing time in its fulfilment and
logistics center.

Channel:

Logistics/distribution Company, Ekart, is owned by Flipkart itself. It enables Flipkart to get full control
over its distribution arm and can easily modify it from time to time so as to improve efficiency over a
period of time.

Brand:

Flipkart has innovative brands strategies. The “big billion day”, “ No Kidding, No Worries”, “Fair-
Tale”, “Shopping ka Naya Address” , “Shop Anytime, Anywhere” are the successful campaigns that
helped the company in creating top of the mind awareness. Also Flipkart has more 13 in-house brands
with products in 70-80 category. In private label, Smartbuy is its umbrella brand, which is one of the
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most important pillars to become profitable, as margin is 15-20% higher in case of private label brands
as compared to external brands.
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Key Processes
These are the process along with rules, metrics and norms that makes the delivery the customer value
proposition repeatable and scalable for the Flipkart.

Processes:

Inventory Management:

Flipkart has implemented many models like being a warehouse model to being a just marketplace and
to be a mix of both and also implements effective inventory management models to reduce wastages
and increase the effective usage of storage space.

Logistics and Delivery:

Flipkart has owned and also tied up with many logistics companies to provide effective and efficient
delivery to the customers to even remote areas of India. Flipkart offers order fulfilment through more
than 120 pick-up hubs while using over 10,000 delivery employees.

Marketing:

Initially from zero marketing (word of mouth ), Flipkart has moved to aggressive marketing though
effective promotional statements like “Shopping ka Naya Address”, “The online Mega Store”,
“Original Products Original Warranty” so as to increase the awareness among the larger Indian
customers and merchants and also to build the brand as a trusted place for the customers

Customer Support:

Customer support is very effective in maintaining good customer experiences especially in the three
broad metrics: trust in a brand; product assortment and prices; and the overall buying experience in
terms of ease of using the e-commerce platform, delivery speed/consistency of orders and ease of
product returns or cancellations. Flipkart has increased its importance in customer support which will
ultimately lead to good experience and great sales.

Website design:

Easy to navigate through wide range of products (millions), easy to search, easy to compare and easy
to order with secure payment mechanism. Additionally it allows customers to track the order.

After sales service:

Easy returns/replacement and 30 day money back guarantee for the customers. Flipkart also provides
good reporting and analytics services for the suppliers/retailers to improve their business.

Hiring and Training:

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Flipkart hires young and bright minds from prestigious institutes and provides them with good
training programs to helps them in improving the management activities and building an effective
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brand image among the customers and implementing effective strategies so as to counter the
competitions

IT:

Flipkart used latest IT so as to perform analysis on the customer data to provide customized solutions
to the customers. It also suggests recommendations to customers based on their browsing data. Also it
provides consulting services through descriptive analytics to merchants in improving their business.

Infrastructure Management:

Flipkart maintains an effective infrastructure maintenance in order to provide nonstop service through
24/7 website presence and storage of customer information

Rules and Metrics:

Supplier Terms:

For merchants, Flipkart offers convenience by guaranteeing payments (deposited directly) within 5-7
business days of processing an order. Also for vendors, it offers the Seller Protection Program, which
protects retailers from losses due to failed payments from the customers.

Margin requirements:

Flipkart also maintains good margins over the various products and also collects some fixed and
variable fees from the retailers in displaying the products and in the delivery of the products to the
customers to Flipkart fulfilment model. As of now, due to its low price offering and huge discounts
and heavy marketing expenditures, Flipkart is yet to become profitable but on observing the
marketing conditions, it believes to become profitable in a short period in the future

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 MODULE 3 Creating sustaining competitive advantage & B-Model
Creation of Sustainable Advantage

Flipkart has been a pioneer in the Indian e-commerce industry spearheading the transition of
mainstream public towards purchase of goods online. From the time flipkart entered the picture, they
have been trying to create a sustainable advantage.

The following are few of the steps flipkart took believing that they are trying to sustain their leadership
position:

1. Trust in being a continuous Disruptor in Indian E-commerce:

Flipkart is a disruptive entrant to the e-commerce sector in India, by being the 1st fully owner online
marketplace. However in the years of succession, the move by the government to block fully owned
marketplaces came as a big blow. In order to aid small retailers to sell their goods online has forced
both Flipkart and Amazon to open up their website to listings from 3rd parties. This has in turn
increased the complexity of work load on the staff at flipkart.

Amazon leveraging the scalable staff base across its international staff base, managed to transition itself
from a fully owned to a full-fledged marketplace. Further flipkart has tried to diversify their interests
by extending offerings across clothing line and accessories ranges.

Evaluation of move:

Valuable: Yes, The move made was made to increase the value being provided to customers

Rare: No, The same move was made by all the other players too

In-Imitable: No, The move is easily imitable by other players with similar capabilities

Non-Substitutable: Yes, the move led to an organization wide change across Flipkart

2. Introduction of CoD (Cash on Delivery):

India is primarily a cash driven economy. Plastic card penetration is extremely low in India (<1%). The
public might despise this fact, but it will not change. Instead, as a business they have to adapt to it –
sustainably. Existing payments infrastructure in India is abysmal. Where incidents like having their
card debited, while the train/air ticket failed to materialize was a daily chore.

Security around existing payments infrastructure was also weak. And most importantly - because
customers wanted it. What matters is not that the customer is using CoD because they mistrust you, or
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whether they mistrust online transactions, or they just don't have the cards? The bottom-line is there is
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customer behavior that they can influence, and behavior that they cannot. They were not here to teach
India to use plastic cash. They were here to help them shop in the easiest possible fashion.

What's worth noting is that Flipkart was not the first company in India to do CoD, but as far as we can
see, they were the first ones to do it sustainably.

Evaluation of move:

Valuable: Yes, The move made was made to increase the value being provided to customers

Rare: Yes, The other players in the sector did not have the logistical capabilities to pull off such a move

In-Imitable: Yes, although the move was imitable by other players, they did not have the capability

Non-Substitutable: Yes, the move led to an organization wide change for Flipkart

3. Exclusive distribution channel (Motorola Moto G exclusive launch):

The Motorola Moto G was launched in India. For the first time, the company has collaborated with an
online retailer for a launch. Curious to know that Motorola and Flipkart have done a brilliant job with
it. The 8GB model is priced at just INR 12,499 ($200) and the 16GB model is priced at INR 13,999 ($225),
unlocked without any contract and inclusive of all taxes and shipping charges. It must be noted that
the Moto G sold in India was a dual-SIM variant, unlike the one sold in the US. This is a departure from
the model sold elsewhere. For then, Flipkart has an exclusivity deal with Motorola to sell the Moto G
in India but that changed in the near future.

Evaluation of move:

Valuable: Yes, The move made was made to increase the value being provided to customers

Rare: Yes, The other players in the sector did not have the exclusive contract to pull off such a move

In-Imitable: Yes, the move was not-imitable by other players, they did not have the capability

Non-Substitutable: No, the move did not lead to an organization wide change for Flipkart

4. First flash sale of Items (Xiaomi MI3 – Flash Sale):

Following Motorola, Xiaomi entered India with multiple phones and has displayed their other range
of products too. Again being exclusively to pre-order their phones on Flipkart. Hugo Barra quoted in
the press conference that Redmi Note has the same performance as Galaxy Note 3. It was officially
announced that Xiaomi is partnering with Flipkart in India for initial launches. But the interesting fact
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was that Xiaomi was also looking out for other partners in the long run too. Flipkart was offering
exclusive pre-order of Mi3 at Rs 13,999. This was a good grab considering the phone’s specifications
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and the attractive price. Also to beat the perception of Chinese phones and the bad servicing
accompanied with it, Xiaomi again with flipkart has released a list of 30+ easily accessible service
centers in 20 cities in India.

Evaluation of move:

Valuable: Yes, The move made was made to increase the value being provided to customers

Rare: No, The other players in the sector did have the ability to pull off such a move

In-Imitable: No, the move was imitable by other players, they have the capability

Non-Substitutable: No, the move did not lead to an organization wide change for Flipkart

5. Decision to move to be an App only platform:

Myntra, owned by ecommerce leader Flipkart, went app-only. From mid-May 2016 onwards, anybody
who tried accessing the Myntra mobile site on a browser was redirected to its app. The company said
it was meant to improve personalization, but there was a competitive strategy behind it – forcing users
to download the app and shutting out rivals. Amazon quickly took advantage. It gleefully thanked
consumers for making it the most visited ecommerce site in India. Flipkart was going down that path
with its main ecommerce app too. Its Big Billion Day sale last year was app-only. “On the desktop, the
browser was king. Not so in mobile. We’re already seeing that. You win in mobile apps, you win
everything,” said Flipkart co-founder Sachin Bansal, who was the CEO then, at a panel discussion in
Bangalore. But the strategy backfired badly. Flipkart’s global rival Amazon issued full page ads in
newspapers, gleefully thanking consumers for making it the most visited ecommerce site in India.
While Flipkart fiddled with its mobile strategy, the US giant had stolen a march on the web.

After being in denial for a while, Flipkart abandoned its app-only plans by year-end to launch Flipkart
Lite, a redesigned mobile site which the company called a “progressive web app.” Whatever that meant,
it was clearly a reversal in strategy. After nine months of being app-only, Flipkart reopened its site.

Evaluation of move:

Valuable: No, The move made was not made to provide any value to customers

Rare: No, The other players in the sector did have the ability to pull off such a move

In-Imitable: No, the move was imitable by other players, they have the capability

Non-Substitutable: Yes, the move did lead to an organization wide change for Flipkart

6. Expanding through acquisition:

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The move by flipkart to expand by acquiring other e-commerce portals by using the funding from their
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private equity players was observed critically. Flipkart acquired companies like Myntra.com,
LetsBuy.com etc., to better their presence in the market. With the entry of Amazon.com in India, the
competition between the companies has seen many takeovers. Flipkart’s journey from a small book e-
retailer to India’s largest e-commerce platform inspired a generation of start-ups, which were later
acquired. In a country where stereotypes are common, Flipkart managed to break the norm and change
the ecommerce industry in India forever.

Evaluation of move:

Valuable: Yes, The move made was made to create value on the long run.

Rare: Yes, The other players in the sector did not have the ability to pull off such a move

In-Imitable: Yes, the move was not-imitable by other players, they lack the capability

Non-Substitutable: Yes, the move did lead to an organization wide change for Flipkart

Choices Made by Flipkart and its consequences

Choices 1st level of Consequences 2nd Level of Consequences

Low prices Increase in customer base More sellers on the platform

User friendly website, Good Customer experience Increase in customer base
security in payment
Effective Customer support Good Customer experience Increase in customer base
before, during and after sales
More sellers on platform Great Assortment Increase in customer base
Good supplier terms More suppliers on board Wide range of products
Cash on Delivery Customers trust Increase in customer base
Exclusive sales (Mobiles) Increase in customer base
Private labels Low prices Increase in customer base ->high
margins
Support/Funding from Aggressive Marketing and Increase in customer base
investors Low prices of products

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Business Model of Flipkart

Customer Value Proposition

Target customer
Suppliers who display their products on Flipkart
Customers who purchase available products on Flipkart
Job to be done
Value propositions include: accessibility, convenience,
price, risk reduction, and brand/status.
Offering Wide variety of items (over 30 million
products) in numerous categories (70+) from multiple
vendors (over 85,000) in a centralized channel

Profit Formula
Revenue Model
Web-portal, Listing and convenience fee,
revenue from Logistics, Digital media, Cash
and carry, revenue from other acquisitions
Key Resources Cost Structure
People: Developers and Supply chain cost, warehouse management
employees from different and logistics costs.
departments Direct Cost: Cost of products paid to seller
and shipping cost.
Investors: Funding from the Indirect Cost: It includes salary paid to
investors is necessary until employees, infrastructure maintenance cost
Flipkart starts generating profits. and affiliate program cost, cost for warehouse
maintenance etc.
Technology: Update to date
technology relevancy should be Gross Margin Model: Settlement
present so as to maintain Amount=Order Item Value - Marketplace fee
competitiveness. - Service Tax on Marketplace Fee
Resource Velocity: Attract more sellers and
Partners: Success depends on the customers to utilize the market place more
effective relationship between the frequently
partners in delivering the
proposed value proposition to the
customers

Brand: Improving brand equity so

as to attract and retain value Key Processes
customers Processes
Inventory Management, Logistics and
Delivery, Marketing, Customer Support,
Website design, After sales service, Hiring and
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Training,
IT, Infrastructure Management
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Rules and Metrics

Supplier Terms, Margin requirements
Comments, Suggestion and Learnings from the case of Flipkart

Consolidation
Among the most popular names, Flipkart has acquired E-Commerce companies including, but not
limited to, LetsBuy, Myntra, Jabong, eBay and looking forward to Snapdeal. The biggest advantage
Flipkart has with these acquisitions is that they can continue to experiment with strategies (like mobile-
only with Myntra, which failed) with each of the standalone subsidiaries and check what works for
them. Another advantage is carving out unique positioniing for each of these subsidiaries, like Jabong
for International Brands, and Myntra for Private Labels, some other for Exclusive Merchandising, etc.
If Flipkart wants to operate these subsidiaries as individual companies, they have to differentiate each
of these with regards to the positioning for each.

EBay Deal
EBay’s is a classic win-win situation for both the companies, or it’s at least what they think it is. If
anything. It is reminiscent of Yahoo China’s acquisition by Alibaba. While Flipkart adds another feather
to its ‘acquisition’ cap, eBay walks out of India with its head held high, retaining its brand name, while
somebody else operates the brand, and to top it off, with a stake in the parent company, that is Flipkart.

Competition
With everything that has transpired with Flipkart and the companies it has acquired, it has clearly
come out as the big dog in the Indian E-commerce space, and while at that, the only one standing up
to Amazon India.

The acquisitions will save Flipkart some time from being publicly scrutinized against the companies it
has now acquired. The focus now shifts to Flipkart vs. Amazon India, a battle of the only two big dogs
in this market now. Essentially, Flipkart can now invest all their energies into coming across as a winner
with its battle with Amazon India.

Also, with a unique proposition for each of its subsidiaries, Flipkart can use each to come out on top in
specific categories, markets, etc.

Operations
One clear disadvantage of running these subsidiaries independently is the missed out opportunity of
providing for a consistent pricing for products listed on each of these platforms. Not to mention the
inventory management, where a sale is lost when a customer is not referred to another platform where
the same product is available.

Lastly, with at least 3 different brands operating independently (Jabong, Myntra, eBay), and potentially
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Snapdeal as well, this $1.4B will be spread thin across each of these.
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Flipkart’s journey forward, with just one major competitor to face in a heated battle.
References:

1. E-Commerce industry comprises multiple segments based upon varied business models[28
Dec 2016] - CRISIL Report
2. Player Profiles: Flipkart India Private Limited -16-Dec-2016- CRISIL Report
3. http://www.nextbigwhat.com/indian-smartphones-market-july-september-2013-297/
4. http://in.reuters.com/article/2014/02/17/indias-economic-outlook-seen-improving-i-
idINDEEA1G09420140217
5. http://www.rbi.org.in/scripts/PublicationsView.aspx?id=15716
6. Crisil Research
7. Euromonitor International from company reports
8. https://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-cpm.html
9. http://www.business-standard.com/article/companies/flipkart-and-snapdeal-retain-top-
spot-morgan-stanley-report-116021900831_1.html
10. https://www.scribd.com/doc/90866697/External-Factors-Evaluation-Matrix-of-Amazon-com

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