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Flipkart company analysis and strategic & tactical recommendations

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  • 1. Sumit K Jha FLIPKART- COMPANY ANALYSIS AND STRATEGIC & TACTICAL RECOMMENDATIONS
  • 2. Published on 10th Feb 2014 Contents Introduction ...............................................................................................................2 Company analysis and Competitive positioning ...................................................................2 SWOT Analysis ..........................................................................................................2 Strengths ..............................................................................................................2 Weaknesses ...........................................................................................................2 Opportunities .........................................................................................................3 Threats.................................................................................................................3 Competitive positioning ..............................................................................................3 Industry analysis ..........................................................................................................4 Porter’s five forces model...........................................................................................5 Conclusion and recommendations ....................................................................................6
  • 3. Published on 10th Feb 2014 Introduction FlipKart is one of the pioneers in the online retail (eCommerce) sector in India. According to its filing at the registrar of the companies, it had a sales of INR 1,345 crores in fiscal year 2012-13, which is approximately equal to USD 217.4 million. This is an increase of 2.7 times the revenue that it generated previous year. According to even the conservative estimates, Flipakart is on its way to achieve its coveted goal of reaching USD 1 billion in revenue by the end of fiscal year 2015. Profitability, though is still not in sight and Flipkart had a loss of INR 192 crores or USD 31 million in the fiscal year 2012-13, which is substantially higher than the previous fiscal year. Company analysis and Competitive positioning FlipKart has sailed ahead of other eCommerce players in India and has been quick to latch on to new changes in the industry. It is one of the pioneers in the recent changes that have shaped the industry 1) Cash on delivery to gain customer confidence, 2) creating marketplace to lure small and medium businesses (SMBs) and 3) backward integration to own the logistics of delivery SWOT Analysis Strengths  Industry has shown tremendous growth (49% from 2007 to 2011) and continues to grow at high rate. According to a Deutsche Bank report, the industry would grow at a CAGR of 10% to reach US$111 billion by 2020  FlipKart itself has grown very fast increasing its revenue 2.7 times in fiscal year 2012-13 compared to previous year  Has confidence of the investors with recent investments of USD 200 million from a consortium of investors  Not heavily dependent on courier services, have developed delivery network  Customer services and exception warehouse delivery system  Variety of payment options, making it convenient for customers to order  Strengthened CoD options through partnership with Ekart  Features among the top 30 websites  Concentration on customer satisfaction, logistics and distribution  Wallet (prepaid) feature is introduced to make online shopping easy and increase customer’s switching cost Weaknesses  It had losses of INR 192 crores or USD 31 million in the fiscal year 2012-13  CoD option is not as successful as anticipated  The size of business is still very small compared to foreign counterparts. This will create problem if entry of foreign players is allowed in the Indian market  It takes time to build confidence among the customers in the internet business where feel of the goods and exchange cash has been a norm in the market  Average transaction value is low as the customers still prefer traditional stores for expensive purchases
  • 4. Published on 10th Feb 2014 Opportunities  M-commerce is the next development in the related market to reach higher customer base  Increasing internet penetration and high-speed mobile internet connection opens up interesting opportunities for expansion  Spending behavior of the new generation is favorable  Demographic dividend of India can be tapped and younger customers of the internet era can be accessed through social media advertisements and branding  High interest is shown by the Venture capitalist/private equity firms  Favorable regulations by government as the foreign players are still not allowed. No Foreign Direct Investment (FDI) in B2C eCommerce market, so, sheltered from foreign competition Threats  Indian customers are taking time to get comfortable with the concept of online payment  There is fierce competition in every product category by different set of players  Early starters in mCommerce can poach the customers  100% FDI in B2B eCommerce market and pressure on government to allow FDI in B2C market  Entry of Google in online e-books and movies market  Competitors capturing alternative market through innovative strategy (e.g. Buildbazar by Infibeam) Competitive positioning Score out of 10 Weighted score Parameters Weightage Traditional stores FlipKart Snapdeal Infibeam Traditional stores FlipKart Snapdeal Infibeam Competitive pricing 0.1 8 8 8 9 0.8 0.8 0.8 0.9 Quick Delivery 0.1 10 9 8 7 1 0.9 0.8 0.7 Safe payment 0.125 10 8 8 8 1.25 1 1 1 Payment options 0.1 3 8 8 8 0.3 0.8 0.8 0.8 Customer Service 0.125 7 9 7 7 0.875 1.125 0.875 0.875 Ease of replacement 0.075 6 7 7 7 o.6 0.7 0.7 0.7 Variety 0.075 4 8 8 7 0.3 0.6 0.6 0.525 Quality 0.075 7 8 8 8 0.525 0.6 0.6 0.6 Convenience/ ease of use 0.075 9 8 8 8 0.675 0.6 0.6 0.6 Trustworthiness 0.125 9 8 7 9 1.125 1 0.875 1.125 Total 1 73 81 77 78 7.3 8.1 7.7 7.8 *0 is the least score and 10 is the highest score * Competitors we selected based on their size, innovativeness and growth potential FlipKart has scored well against its closest rivals. However, a new set of analysis will have to conducted when more mature players such as Amazon and eBay enter into the market.
  • 5. Published on 10th Feb 2014 Company Revenue (2012-13) M&A partnerships People Employed Size of operation Started in Investors FlipKart 1,345 WeRead (2010) Mime360, Chakpak.com (2011) Letsbuy (2012) Partners with Ekart Logistics to extend CoD option 4500 Coverage: 95 Cities, Warehouse in 10 Cities, Registered user base: 2 million 2007 Accel Partners, Tiger Global, MIH(Nasper Group), Iconiq Capital Snapdeal 600 Grabbon.com (2010) Esportabuy.com 1500 Coverage 50 cities and times 2010 Nexus Venture partners, Indo- US Venture Partners, Bessemer Venture Partners Infinbean NA 2011- Launched ‘Buildbazzar’ 600 NA 2007 NA The competitive space is expected to undergo a major change with players like Amazon entering. Amazon and eBay and other large e-retail players have a tried and tested business model that can bring profitability to the Indian eCommerce industry that still alludes the Indian eCommerce industry. FlipKart whose promoters started their careers with Amazon will have to get to profitability or at least should be able to lay out a plan to get to profitable business structure soon. Industry analysis India’s consumer-facing e-Commerce market (B2C-C2C) grew at a whopping CAGR of 49.1% from 2007 to 2011 to reach a market size of US$9.9 billion. On the other hand, the B2B market is a small contributor to the overall domestic e-Commerce market, and it was estimated at US$50.37 million in 2011.
  • 6. Published on 10th Feb 2014 The country’s B2C e-Commerce sector can be split into two broad categories — travel and non-travel. Online travel is the largest domestic B2C e-Commerce segment, accounting for 81% revenues in 2011. e-Commerce ecosystem Enablers falling in; Devices, Internet and payment landscape undergoing change Porter’s five forces model Forces Parameters Grading Supplier Power Supplier Switching costs Medium Degree of differentiation of inputs Medium Presence of substitute inputs High Supplier concentration to firm concentration ratio Medium Threat of forward integration High Cost of inputs to selling price of the product Low Customer power Buyer concentration to firm concentration ratio Low Bargaining leverage Medium Buyer volume Medium Buyer switching costs relative to firm switching costs Low Buyer information availability Medium Ability to backward integrate Low Availability of existing substitute costs High Buyer price sensitivity High Intensity of competitive rivalry Number of competitors (Limited) High Rate of industry growth High Exit barriers (Cost involved) Medium Diversity of competitors High Informational complexity and asymmetry Medium Level of advertising expenses (Print, media) High Sustainable competitive advantage through improvisation Mediumm Threat of new entrants Existence of barriers to entry (Regulations etc.) Medium Brand equity High Switching costs or sunk costs Medium Capital requirements Medium Learning curve advantages Medium Expected retaliation by incumbents Low Government policies High Threat of substitutes Buyer propensity to substitute High Relative performance of substitutes High Buyer switching costs Low Perceived level of product differentiation Medium In totality, the industry is easy to enter but difficult to sustain. The high volume and low margin business has to be carefully managed. This amply shown in the high churn rate in the industry where many players have entered and then went bankrupt. With profitability still alluding the players the industry entrants need to be careful. In totality there are 5 themes in the industry that will pan out next fiscal year  Growth- Product portfolio expansion and geographical expansion will be the major growth drivers  Profitability- As the industry becomes more acceptable, customer trust will become less of a challenge. The questions of showing profitability or a plan to show profitability will become more pertinent. Industry may see some consolidation this year but definitely next year  Platforms- mCommerce will make an impact and interfaces will become more interactive and intuitive
  • 7. Published on 10th Feb 2014  Business models- Marketplace will be a key driver but many of the companies will start carrying inventory  Backward/forward integration- Owning the supply chain including delivery logistics to take the control from the unreliable courier company will be the key. Self-branded products will enter the market Conclusion and recommendations In the broader context, FlipKart has to chalk out a plan to become profitable in the next five years by squeezing the costs, expanding geographically and demographically and getting the business model right. Based on the analysis, FlipKart should take the following 10 steps:  Enhance mCommerce capabilities o Build applications and/or website for mobile platform o Develop and include mobile payment as one of the payment options  Increase market reach o Target the young. Connect with the young generation through a robust social media presence o Enter the untapped market of tier II & III cities  Do away with 35% dependence on courier services and build an independent logistic/ delivery network as it is one of Flipkart’s competitive advantages  Educate people to make a safe online payment. Tie up with banks to simplify the payment procedures and make them more trustworthy  Price high value products more competitively to encourage its purchase, which would increase the average transaction value  Acquire small players operating in niche areas  Treat suppliers as partners but make only short term contracts, as the customer behavior towards a product can be very transitory  Use predictive analytics to predict a product’s demand in the future. This is important as Flipkart follows an inventory-based business model and they need to keep their inventory in line with the future demand  Increase the switching cost for the buyers by offering them heavy discounts and exclusive offers through online wallet facilities  Tie up with traditional retail stores to leverage their trust and collective reach in the market References In new data, Flipkart sees slowing sales growth, still sells $217 million worth of stuff in 1 year http://www.techinasia.com/data-flipkart-sees-slowing-sales-growth-sells-2174-million-worth-stuff-1- year/ The Growing Pains of Indian E-Commerce: What You Need to Know http://www.forbes.com/sites/morganhartley/2013/01/24/the-growing-pains-of-indian-e-commerce- what-you-need-to-know/ How E-commerce Companies are losing Out in India? http://thetechpanda.com/e-commerce-companies-losing-india/#.Uwlqmc46vak
  • 8. Published on 10th Feb 2014 What Indian E-Commerce Companies Plan To Do http://www.medianama.com/2014/01/223-outlook14-what-indian-e-commerce-companies-plan-to-do/ Strategic Analysis: Flipkart Competitive Position and Analysis http://geniicon.blogspot.in/2013/05/strategic-analysis-flipkart-competitive_27.html Rebirth of e-Commerce in India (Ernst & young)