MUMBAI: Indian ecommerce is growing rapidly, but industry insiders warn that current media spending has to be curtailed sharply for the sector to be sustainable.
According to the Economic Times, internet use in the country and 3G penetration will grow at a compound annual rate of 60% over the years to 2015, resulting in over 180m people in India with access to online retailing.
However, as companies seek to tap into this market they have been heavily reliant on traditional media, such as TV or billboard advertising, which has pushed up costs and further eroded margins in what is already a relatively low-margin business.
Seema Gupta, assistant professor of marketing at IIM Bangalore, noted that while Amazon spends 3.5% of its revenue on marketing, Indian counterpart Flipkart spends an unsustainable 20%.
Nevertheless, ecommerce sites continue spending on traditional advertising at levels last seen during the dot-com boom, according to Dr Subho Ray, president of the Internet & Mobile Association of India, who suggested that they believe the necessity is to stoke unrivalled brand awareness.
Meanwhile, Dr Alok Kejriwal, CEO of games2win, suggested that ecommerce companies need to build up brand loyalty and recognition virally and that differentiation by customer service rather than just placing adverts is essential.
Nevertheless, the big deals go on. Jabong.com, another e-tailer, recently tied up with Bollywood stars to launch a clothing range connected to the stars of the film "Yeh Jawani Hai Diwani".
Flipkart, meanwhile, has created brand awareness based on an advertising campaign that places children in more grown-up situations. Ravi Vora, vice president for marketing at the firm, said: "Advertising has helped us in creating interest amongst the target base. Now the challenge is to continue being relevant to them."
But Kejriwal disagreed with this point of view. "Imagine if a Flipkart spent some of that budget sending customers a surprise gift with a purchase... that will get them loyalty better than some cutesy film featuring kids with adult voices," he said.
Data sourced from Economic Times; additional content by Warc staff