Inventory vs MarketPlace

'Inventory or Marketplace ?', this is one of the pertinent questions of our times in the context of ecommerce. While the inventory model means that the ecommerce site has to carry inventory of all products it sells, the marketplace model requires the ecommerce site to act as a exchange platform between buyers and sellers and it charges a commission. The upside of a inventory model is faster delivery times and a consistent customer experience while this also means higher inventory and supply chain costs. The marketplace model shift most of the inventory risks and costs to the sellers but it becomes a continuous challenge to manage seller and buyer expectation in a consistent and fair manner.

Though both models look like chalk and cheese, it is important to remember that that the basics are the same from a business model perspective :

1) Efficient Inventory Management - For a great customer experience, having just the right amount of inventory is very important. Nothing is as annoying as telling a customer after two weeks that his or her order cannot be serviced. For websites that carry inventory, this means 'sell what you have' while for marketplaces, it is manage sellers to create a structure where sellers who manage their inventory well are incentivised (this can be done using feedback systems)

2) Efficient Delivery - Getting orders delivered in reasonable time is important for ecommerce. While for inventory based models, this is about managing inventory efficiently, for marketplaces, this is about not overdoing checkpoints and reducing unnecessary logistics costs.

3) Customer Management - Though customer service is paramount, it is worthwhile to remember that there are segments of customers that are still not ready for Ecommerce. 

At KraftInn, we have had some experience in both models - We use the inventory model for our website -www.kraftinn.com while we participate in the marketplace model in marketplaces like Ebay as a seller.

As a seller, we feel it is important to get the right balance between seller satisfaction and customer satisfaction and there are certain things that marketplaces should not do. Here is a small list :

  There are three key stakeholders in a marketplace model and it is important to get the right balance between the three.

 No matter whether its the inventory model or the marketplace model, the ecommerce space is hyper competitive and the ones which get the right mix are the ones that will work. We are a very small player and this is just the beginning of an exciting journey :) 

Will the internet kill all large traditional businesses ?

The other day, I dropped by Coffee Day(indian coffee chain - startbucks equivalent). Adjacent to it was the well loved Crossword store and I clearly remember that there was a connecting glass door somewhere which let people who had come for coffee to stroll by and look up books and dvds and vice versa. I could see some books lying about but the place looked empty and the glass door seem to have vanished. So, I casually asked the Coffee day guy and he told me something to the effect that the place was shutting down. It was kind of a gentle shock for me and though I could hardly remember buying a book from Crossword, hanging about in bookshops has been one of the idle pleasures of urban life.Then it struck me, that though I dont read a lot these days, there was a time I spent a couple of thousand rupees on books every month and most of it was at Crosswords. In the last six months, that spend had got diverted to online stores like flipkart and in many cases I could just read for free - flipboard etc. I have no idea whether the store actually closed down due to business reasons or whether it was just a phase of temporary shutdown due to renovation etc but like in the US, book businesses everywhere seem to be facing major challenges and most if not all is due to the internet.

The internet is quite puzzling. Consider this :

1) Email is free - only a decade or so ago, people used to send telegrams and pay per word. Its weird that a service that is many many times faster and reliable is actually cheaper - well not just cheaper, free.

2) There was a time only 15 years ago, when we used to attend book festivals to buy editions of Enclyclopedia for thousands of rupees. Now you just get a million times of that content for free. Also, searching this mammoth knowledge base again is free.

3) Music is basically free. If you are a music lover with generic tastes like most of us, gaana.com gives you almost everything you need - For free.

In short, the internet has turned most industries on its head :

1) Book industry - Why would you buy a book if you can download it ? Traditional booksellers are just looking one way and that is down.

2) Music industry - It was only ten years ago that you could just walk along Planet M at Brigade Road, Bangalore and sample out music before buying. Now, its difficult to imagine people buying CDs

3) Post Office - The Indian Post office just stopped the telegraph service.

Which ones will be next ? The movie industry, the retail industry , enterprise software products.

All this obviously means that if someone is losing out, someone must be winning. So who should be the winners, obviously the internet companies - but if you look a bit closer at the internet companies, if you leave out the leaders, most are struggling to make money...Giving things free actually costs money, giving discounts actually cost money. The internet can be a democratic force giving the small guy a chance to compete but it has probably made the race so competitive that its a race towards the bottom and may kill a lot of industries in its run and maybe hurt itself on its way. The good part is you dont need a license to join the race.

Customer Segmentation

It's always interesting to analyse your customers. Though there is direct relation between a website's traffic and actual customers, it often throws up results that are quite different from web traffic analysis.

Here are some interesting things we found out(based on last 3 months data) :

1)  67% of our customers are male - Our website traffic indicates that the male:female ratio is almost 50:50 so this may mean two things :
      - Men are more likely to purchase things online
      - In many cases where women make a purchase, the men make the payments.

   Not sure which one is true, but I am sure this statistic has also to do with the fact that we dont do cash on delivery.

2) More than 50% of our customers are from Mumbai, Delhi and Bangalore. I guess this means people in large cities are much more comfortable purchasing online (especially if no COD is involved) and if it is a small niche website like ours.

3) Our top 3 products indicate that there is a curious mix of pricing, value, images of products that make certain products much more appealing. We have some excellent products that look great - touch and feel wise but somehow they get lost in the online world. Another observation is though people look at creative items more, it is usually the simpler items that people tend to buy.

Image : kraftinn.com statistics Source : www.kraftinn.com

Amazon.in

That it would happen was never in doubt, the question was when and how. With the indian government dilly dallying in whether to allow FDI in retail ecommerce (its another story that most of the investment has been FDI anyway considering most ecommerce websites are founded by foreign VCs), Amazon finally seemed to reconcile to the idea of launching as a marketplace instead of an inventory driven store. Like Junglee, it has been a soft launch without too much brouhaha. They intend to start with books, DVDs and TV shows from what we hear.

As you would imagine, they have got most things right from the very beginning :

1) Selling vs fulfillment - Interesting they do both while most other indian marketplaces tend to stick to one. There are some vendors like us who like to do the fulfillment (cost effective both for us and customer) as our stuff is pretty large compared to others and cost of goods,storage and returns are pretty high. However, I am sure there are lots of vendors who would like to pass on the fulfillment part to Amazon especially in categories like books where the size, cost and logistics form a smaller part of price compared to the content or marketing. Looking at the options, both look pretty simple and easy to understand, exactly the way one would imagine. This seems to be a global best practice for them but nonetheless, bringing it to India is important.

2) Pricing - Pricing is extremely simple or so it seems - No listing fees and interestingly, the closure fee and the commissions) seem reasonable

3) Feedback and Guarantee Program - This is pretty lousy in most marketplaces and only Ebay does this well. Amazon will surely bring best practices here from around the world.

4) Goodies for Sellers - The fulfillment prices seem to be very good and this may be a promotional thing for the time being but many vendors will like this.

Overall, it seems like an amazing platform for Manufacturers and Sellers and we can't wait to get onboarded :)