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Amazon vs. Flipkart: The Race to Dominate Indian E-Commerce

Posted by Charlotte Lee | January 31, 2018

Indian e-commerce company Flipkart is in fierce rivalry with Amazon over the country's online retail market. Both have unique advantages, but the true test will be which company can best tailor its offerings to the Indian consumer’s palate.

Amazon has comfortably dominated America’s e-commerce market for years, but the Indian market is still uncertain ground. Another player has emerged to rival the company's Indian arm: Flipkart, a domestic company and Amazon's biggest competitor on the subcontinent, is also vying for the loyalty of a population numbering 1.3 billion.

Founded in 2007 by two former Amazon employees, Flipkart is now tasked with the challenge of maintaining its market-share lead over Amazon India. On its website, the e-commerce engine claims to be the country's "leading e-commerce marketplace with over 80 million products across 80+ categories" and approximately 100 million registered users. Amazon's catalog, however, trumps that of Flipkart, with over 168 million different product offerings available in India.

In one of the fastest-growing markets in the world, the stakes are high. As online shopping platforms continue to gain traction among a young population four times the size of the U.S., the Indian e-commerce market is estimated to reach $200 billion by 2026. The potential for serious profit isn’t lost on either company. Both Amazon and Flipkart have already funneled billions of dollars into expanding infrastructure and delivery capacity in the country.

Flipkart has made several high-profile acquisitions over the past few years including eBay India, PhonePe, and online fashion retailers Mynta and Jabong, although talks to acquire e-commerce engine Snapdeal fell through late last year. The Softbank-backed company also has reading portal WeRead, electronics e-retailer Letsbuy, and Bollywood news site Chakpak under its belt.

Amazon, on the other hand, has relied less on acquisitions and more on strategic partnerships with local logistics companies to bolster business. Nearly 45 percent of Flipkart’s sales currently come from smaller towns and cities, a customer base that the company has an advantage over because of its understanding of how to market to an Indian audience. But Amazon doesn’t have this advantage.

In response, Amazon has targeted larger cities with more metropolitan customer bases while also trying to localize its marketing strategy. Approximately 65 percent of its sales come from larger metropolitan cities in which it has been able to generate loyalty through Amazon Prime. India became Amazon's fastest-growing market for Amazon Prime in 2017, having grown nearly 5 times in size between the beginning of the year and October.

The so-called "everything store" is already aware of the cultural nuances that distinguish the Indian market from its American counterpart. It has tailored its strategy in India to cater to distinct characteristics like the dominance of mobile transactions, the high volume of small and medium businesses, and the popularity of Cash-on-Delivery (CoD) payment models. In 2015 it introduced the Amazon Chai Cart, a mobile tea cart that navigated city streets, serving refreshments to small business owners while simultaneously spreading word of the benefits of selling online. By the end of the campaign, the carts had engaged with 10,000 sellers across 31 cities. 

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Major Discounts Kick Off Q1

The two companies have already locked horns in an online showdown as the first quarter of 2018 kicked off. Amazon's 'Great Indian Sale' and Flipkart's Republic Day sale took place in late January. Both sales featured discounts of up to 80 percent on fashion items, mobile phones, large appliances, and home furnishings. On top of these savings, Amazon sweetened the deal by offering 10 percent cashback to buyers using Amazon Pay or HDFC cards, while Flipkart offered 10 percent cashback to Citi card users.

Thus far, Amazon has been successful in poaching customers from its biggest rival by offering lower prices across a number of categories, often to the detriment of its overall revenues. Manish Tiwary, Vice President of Category Management at Amazon India, announced that it had secured twice the orders of the nearest competition. Flipkart countered this figure with a reminder that it continues to lead the pack in terms of market share, with 60 percent control of Indian e-commerce. Analyst estimates, however, peg this figure closer to between 40 and 45 percent.

 

Regulatory Hurdles

Flipkart has the advantage of being a homegrown company facing fewer legal constraints than its foreign competitors. But Amazon's success is impressive given its relatively late start to the game; its foray into India began in 2013 following a series of regulatory hurdles aimed at constraining foreign direct investment before Narendra Modi’s “Make in India” campaign changed the way foreign companies were welcomed in the country. Since then, the company has been able to catch up to local competitors, thanks in part to localized services. These include taking orders by telephone and conveying items directly from sellers to customers via Amazon motorbikes. Such offerings, by matching Indian expectations of customer experience, have bolstered the company's success in a place where personalization is a must.

New regulations like stricter packaging compliance laws are expected to accompany the expansion of e-commerce in India, which remains in its infancy despite rapid growth over the last few months.

While the two companies duke it out for market dominance, they must both respond to broader trends of rising internet and smartphone use as disposable income grows among Indian consumers. Many experts believe that at its current rate, Amazon's share of the market will surpass Flipkart's by the end of 2019. While the jury is still out on which e-tailer will come out on top, a decisive factor will be each company's ability to control burn rates and decrease reliance on predatory pricing in favor of a more sustainable revenue model bolstered by exclusive offerings and expansion into other verticals.