27 June 2017 12:10:21 IST

A management and technology professional with 17 years of experience at Big-4 business consulting firms, and seven years of experience in high-technology manufacturing, Rajkamal Rao is a results-driven strategy expert. A US citizen with OCI (Overseas Citizen of India) privileges that allow him to live and work in India, he divides his time between the two countries. Rao heads Rao Advisors, a firm that counsels students aspiring to study in the United States on ways to maximise their return on investment. He lives with his wife and son in Texas. Rao has been a columnist for from the year the website was launched, in 2015, and writes regularly for BusinessLine as well. Twitter: @rajkamalrao

What a dramatic fall for Snapdeal

Snapdeal failed to read the Indian market and places its bet on quantity rather than quality

Recent news reports about Flipkart and Snapdeal have not been good. The latest is that Flipkart is planning to acquire Snapdeal for $400 million.

What a story of ups and downs Snapdeal’s has been. The company was launched by two bright young men, one with an MBA degree from the prestigious Wharton school and the other from IIT Delhi, to bring e-commerce to the teeming Indian masses. It was a brilliant idea because back in 2011, not even Amazon or Flipkart knew the potential of the Indian market, or who would survive, or how the market would divide among the major players.

This promise attracted investors from around the world who poured cash into the company. Over 12 rounds of funding initiatives, Snapdeal received a total of $1.9 billion in investments from heavyweights such as Softbank (Japan), Ali Baba (China), eBay, and Intel Capital (US). Eighteen months ago, Snapdeal reached its peak valuation, of a whopping $5 billion.

So what happened? What made a company valued at $5 billion settle for a buyout of just $400 million? What happened to the $1.9 billion in equity that helped prop the company up for nearly six years and expand into new markets?

A B-school case study of Snapdeal could unearth various opinions, but three factors stand out.

Amazon enters the market

First, Snapdeal ran head-on into Amazon. There are very few companies who have survived a fist fight with the Seattle-based monster which has slayed much bigger competitors en-route to complete market domination in industry after industry. Amazon decimated Barnes and Noble, Borders and hundreds of independent booksellers; beat Barnes and Noble’s Nook e-reader with its Kindle device; took on the likes of crosstown rival Microsoft, Google and IBM in cloud computing with Amazon Web Services and is now the dominant provider. More recently, it also acquired Wholefoods to take on mighty Walmart in the grocery business.

With India’s nascent and emerging e-commerce industry, Amazon had the luxury of defining what would make a successful online seller. With nearly a dozen years of experience in selling online in the US and other countries, Amazon knew that four things are paramount to a retail buyer: choice, price, reliability and customer service. Snapdeal could undercut Amazon on price, thanks to its deep-pocketed investors, but could not match it when it came to in reliability and customer service.

Which brings us to the second factor: customer service.

It is no secret that end-to-end customer service at both Flipkart and Snapdeal is poor. Both companies have invested heavily to help the online shopper during the initial parts of the sales cycle, but once a product is delivered, they don’t seem to care very much and treat the customer suspiciously.

Take product returns, for instance. Both companies impose arbitrary return window policies of seven days, in the case of Snapdeal and 10 days, in the case of Flipkart. Once the return-grace period expires, the return box on these sites is unceremoniously greyed out, disallowing all communication even if there may be genuine reasons. Amazon does this too, but there are ways to contact the company if this happens — a senior Amazon executive once told me that many customer complaints are personally reviewed by Jeff Bezos, the company’s CEO.

Snapdeal is worse. Even if one is luckily within the seven-day return window, the returns are not processed automatically. They have to be “confirmed” by a phone call from its Gurugram call centre. What is there to verify if a consumer has taken the time to request a return? If the call centre is unable to contact the consumer after three attempts - never mind that people may be in meetings or may purposely refuse to accept calls which appear to be marketing-related - Snapdeal automatically closes down the refund request. The returns box will stay greyed out for ever.

Beyond the returns window, if one clicks on Snapdeal’s options under the “Contact Customer Care” tab the categories simply refers the user to another part of the site providing generic information, such as a description of the return policy. How can a customer type into a free text form to address a specific grievance, have the issue trouble-ticketed and looked into? Alas, this simple task is just not possible.

Poor customer service

The much-promoted 24x7 Snapdeal call centre is bad too. Annoying voice responses shunt you from pillar to post and the slightest error will kick you out of the system altogether.

These are not the kinds of experiences that customers sign up for when they click to buy a product in good faith. A customer who is shut out from contacting the company to discuss a genuine problem will never build enough trust to buy from the company again. This is a serious concern because every marketing textbook says that the cost of churn is a lot higher than the cost of initial acquisition. Which is why, while Snapdeal’s revenues grew through 2015, its losses were growing even faster. One report placed its losses for 2015 to be five times higher than the previous year. This was not sustainable.

The third factor indeed is sustainability. Snapdeal appears to have read the Indian consumer wrong. Relying on loads of investor cash to offer deep discounts and acquire customers, Snapdeal assumed that the Indian consumer is cost-conscious above all else. But time and time again, it has been proven that the Indian consumer holds “value” in much higher esteem than sheer bottomline cost. And value when buying branded products such as mobile phones and tablets — not differentiated items like clothing or jewellery — ultimately comes down to the full customer service experience. Not lip service, or rhetoric, or glorified marketing, but a genuine, concerted effort to help the customer by doing everything to keep him happy, through every aspect of the sales cycle.

Still a chance

For a company deemed to offer value, the benefits are huge and sustainable. Word-of-mouth promotion by its customers lowers new customer acquisition costs. A satisfied customer may be even willing to pay slightly more for the same product. At a minimum, a happy customer is a repeat customer. Just ask the millions of mom-and-pop stores who do everything from taking orders for a special item, to home delivery, to extending short term credit without any collateral — all to cultivate a lifelong customer relationship that sometimes spans generations.

Amazon learned this lesson early, plowed in billions to conquer the market and improvised. It made end-to-end customer experience the hallmark of its brand. Indian customers warmed to this model, a model they had rarely seen in their lives.

Not all is lost, however. India needs vibrant competition in the e-commerce sector and despite its numerous problems, Flipkart still has a chance. It should one-up Amazon on a 24x7 customer service chat portal and a vibrant call centre staff who are genuinely eager to help the customer after a sale. No tricks, or no gimmicks, or no ads even. The country is waiting to see a duopoly work well rather than a monopoly, even with one as sophisticated as Amazon.