Binny Bansal charts a fresh course for Flipkart
Bengaluru: Binny Bansal wants to do an Amazon.
In an interview, the chief executive of India’s best-known e-commerce brand Flipkart, stressed the importance of wide product selection, low prices and fast product delivery—the keys to Amazon’s success elsewhere, and in India, where it has eaten into the share of Flipkart and another competitor, Snapdeal.
Bansal, a former employee at Amazon’s Indian operation (long before the company launched Amazon.in) who launched Flipkart in 2007 with friend and colleague Sachin Bansal (now executive chairman of Flipkart), is pushing the company’s managers to sharpen their focus on pleasing customers by offering a wider range of quality products and fast delivery.
Flipkart’s customer service levels and brand image suffered last year as it shifted to a marketplace model, where it tried to have tens of thousands of sellers generate most of the business on its platform. Now, the company is consolidating supply of products among a few sellers in key categories such as mobile phones, large appliances and men’s fashion and making its logistics network more efficient as part of its efforts to sharply improve service levels.
Overall, Flipkart’s biggest priority is to be “very, very consumer-focused”, Bansal said in the interview at one of the company’s offices in Bengaluru.
“Everyone at Flipkart now has net promoter score (NPS, a key measure of customer satisfaction and loyalty) and customer satisfaction as their most important metrics. NPS breaks down into what product selection is available, how fast it is available, whether it is available all the time, and at what price. And of course, the other big focus is on execution. E-commerce is a business where you’re selling products every day. So you need the execution rigour to make sure that every day, we are providing the best customer experience,” Bansal said.
In January, Flipkart changed its CEO, promoting Binny Bansal to the hot seat while Sachin Bansal moved on to the role of executive chairman. Three of its senior-most executives, commerce platform head Mukesh Bansal, chief business officer Ankit Nagori and product head Punit Soni have left the company since.
The changes at the top were partly driven by the fact that Amazon India won significant market share over the past 15 months at the expense of Flipkart and Snapdeal. Analysts have speculated that unless Flipkart improves its customer service levels, there’s a strong possibility that it may be overtaken by Amazon over the next year.
Bansal played down the chances of that happening. Flipkart declined to share sales or market share numbers.
“Overall, we have an enough-and-more lead. Given our plans of (improving) customer experience and growth, I don’t see a challenge in maintaining our market leadership,” Binny Bansal said.
This year has been particularly challenging for Flipkart. Apart from leadership changes, the company has faced difficulties in raising fresh funds. Mint reported on 14 April that Flipkart has held funding talks with several investors over the past six months, all of whom have refused to invest in the online retailer at its preferred valuation of $15 billion.
Having raised a mammoth $2.6 billion over the past two years, the company has sufficient money, but it needs to keep raising cash every year to refill its vault to keep up spending on discounts, advertising and logistics.
Additionally, four of its mutual fund investors including Morgan Stanley and T. Rowe Price have trimmed their estimates of Flipkart’s valuation by anywhere between 15% and 40% over the past three months. Flipkart’s markdowns are part of the wider slowdown in start-up funding.
“We’ve not asked them (why they have marked down the valuation). They’re very small investors. It’s a global phenomenon; it’s not specific to Flipkart. The funds have their way of (calculating valuations) which isn’t clear. If in future they mark up our valuation by 30%, it’s not like we’re suddenly going to be happy. The way we look at it is that when we raise money, that’s when we get a valuation,” Bansal said.
Bansal said he didn’t know how this would affect Flipkart’s chances of raising money—simply because the company wasn’t trying very hard to raise money right now.
“We’re not in the market that much. And the market isn’t very good either for raising funds. We’re very focused on getting the right customer and growth metrics,” he said.
“We keep talking to investors. We like to raise money on our own terms. We were lucky to raise money when the market was good. The good thing is that we’re not in any tearing hurry to raise or we’re not in dire need of raising money,” Bansal added.
In March, India allowed 100% foreign direct investment in online retail of goods and services under the so-called “marketplace model” through the automatic route, seeking to legitimize existing businesses of e-commerce companies operating in India. However, the government said marketplaces cannot influence pricing of products and services on their platforms directly or indirectly, curbing the discounts that have driven the growth of e-commerce in India. The new regulations also prohibit any one seller from contributing more than 25% of the sales of any marketplace.
Potentially, the new rules affect discounting by Flipkart and other online retailers as well the relationship between Flipkart and WS Retail, a key seller on Flipkart that contributes more than a third of its business.
When asked whether the two new rules regarding discounts and seller contribution will force Flipkart to change its operating practices, Bansal said, “It’ll be about commission rates to sellers rather than discounts. And we’ve ramped up other sellers on the marketplace in a big way. So I don’t see a challenge in complying with regulations.”
Keeping Amazon at bay won’t be easy. Amazon’s market share gains have accelerated this year as it reported a rise of 150% in shipments in the March quarter, even though growth slowed in the broader e-commerce market.
The company is also stepping up its pace of investments. In February, Amazon Seller Services Pvt. Ltd (Amazon India) nearly doubled its authorized capital to Rs.16,000 crore, exceeding its massive capital commitment of $2 billion made in July 2014 and indicating the company’s intent to splash whatever cash is needed to become the country’s largest e-commerce firm.
Yet, analysts said if Binny Bansal can succeed in improving Flipkart’s product range and quality and service levels, the company has built a strong enough brand with Indian shoppers to maintain its leadership position in India’s e-commerce market.
“It won’t be easy (for Flipkart to stay No.1) but if the company improves its delivery speed, reliability and other parts of fulfilment then they can do it. The market is maturing, albeit gradually, and people want good service. Most people would also like choices and India is likely to be a market where more than one player will exist,” said Harish H.V., partner at consultancy Grant Thornton.