What does it take to Compete in a Nearly Hopeless Market? Amazon has the Answers.
It looks like Amazon is at it again. Just when you thought the online giant couldn’t get any bigger, it is growing, and in a major fashion. Amazon has recently taken initiative to expand its network into the countryside of India, in hopes of attracting many prospect customers. These customers are limited to their access of retailers, so Amazon has come in to save the day for them (and to drive up their sales).
Amazon may not be the most profitable company out there (due to the massive investments Amazon makes in buying other companies and growing in new areas, spending a lot of money), but its revenue is certainly high enough. One of Amazon’s reasons for lacking in profits has been its international online retail sales, as according to theverge.com. Amazon seems to be spending significantly more than it is returning. That loss, according to theverge.com, was $622 million back in April of 2018, even though sales grew 34%.
So, to fight this international curse, Amazon has taken to become more vertically integrated and increase its network effects by placing itself in a more weighty role in India. As wsj.com states, there are more than 800 million prospective customers in India’s rural areas, who are just hungry for some nice online shopping, as all of us are around the world. With all that money Amazon has, why not spend a little to explore an untapped area to make even more money!
Only 40% of India takes part in online shopping, according to entrackr.com. This is mostly in urban areas. Just think, India is home to over 1.3 billion people, and only 40% of those people are shopping. That leaves a lot of untouched people waiting to be served with the luxury of online shopping. Boy has this paid off for Amazon. Last year, according to Wall Street Journal, India’s rural shoppers made up $400 billion of retail sales. Amazon is working hard to tap into this market and grow its only $7 billion gross merchandise volume for the fiscal year 2017 (wsj.com).
Some of the operations Amazon has invested in India include warehouse and logistics network, technology, customer and seller recruitment, and staff and content development structured for Amazon Prime. Amazon invested $5 billion for these enhancements. Amazon’s biggest competitor in India was Flipkart, who was the Amazon of India. Flipkart was bought in 2018 by Walmart, a $16 billion acquisition, which increased competition. Amazon’s investment into India has put a major crack in Flipkart’s market, through the advertising and discount attacks Amazon made to attract customers. Amazon is trying to enter into another’s market, just like Ebay tried to do in Japan before losing out to the already-established Yahoo.
One of Amazon’s big moves has been to open up small stores to help in ordering from the Amazon marketplace. Business Insider goes into great detail on this strategy. Customers go to these Amazon stores and present a picture of the product they want or get help on choosing a product. There is help along the way in purchasing the item, which allows customers who don’t know much about online shopping. The stores also have other roles, in acting as pickup points for customers to try out orders and return or collect them. This is a way to bring sales revenue to Amazon and make customers more comfortable with online shopping.
Another big part of Amazon’s integration has been in adjusting its site to better suit the needs of the India customers. Back in September, Amazon added the Hindu language as a preferred language for consumers unable to understand the language. Over 35,000 products were translated to Hindu. Amazon also added videos to offer descriptions for its best-selling items. These videos serve to keep customers on the site instead of going to other websites to find out about the product, for better tracking of customers and better pull-in. There are more icons to allow shoppers to have a more accessible way to find items.
A last significant move by Amazon has been enhancing its distribution network in India. For sales, it has been hard to sell to people outside of the city, where average retail outlets are small stores that offer a limited selection of poor quality, expensive items. To make a major purchase, you need to make a trip to a specific city to find special products. Amazon is using the small stores to act as package stops and learning centers for prospective customers. Amazon is hitting the hard to reach areas to grow its network to rural areas that are untouched by other businesses. They are diving into unknown territory and hoping to find gold. After partnering with over 20,000 of the small stores, Amazon is now more accessible and a bigger player in the market.
So, Amazon has come a long way. According to entrackr.com, Amazon now has 10 million subscribers in India, with expected growth to be 100 million by 2022. Also, the e-commerce market in India is worth $36 billion now, with an expected growth of over $100 billion by 2022. Amazon is taking its vertical integration and putting it to new levels, allowing itself to become a major competitor in India. In the end, it looks like Amazon can never stop growing, and the online retail market is still the king of the crop.
Bellman, Eric. “Amazon, to Win in Booming Rural India, Reinvents Itself.” The Wall Street Journal, Dow Jones & Company, 31 Dec. 2018, www.wsj.com/articles/amazon-to-win-in-booming-rural-india-reinvents-itself-11546196176.
Keyes, Daniel. “Amazon Is Trying to Expand Its Reach in India's Soon-to-Be $200 Billion e-Commerce Market.” Business Insider, Business Insider, 3 Jan. 2019, www.businessinsider.com/amazon-driving-adoption-in-india-2019-1.
Liao, Shannon. “Amazon Is Wildly Profitable but It's Still Taking Huge Losses Overseas.” The Verge, The Verge, 26 Apr. 2018, www.theverge.com/2018/4/26/17286942/amazon-q1-2018-earnings-international-retail-losses-overseas-sales.
Singh, Jitendra. “Amazon Is Building Logistics Network to Score Lead over Competition in Rural India.” Entrackr, Entrackr 2018, 4 Jan. 2019, entrackr.com/2019/01/amazon-building-logistic-win-rural-india/.