How big data can help e-commerce companies cut costs, during a sluggish economy

In the last 4 years, e-Commerce companies have radically transformed the way India does business at every imaginable level and this swift transformation has primarily been riding on the heavy institutional investments.

By Suresh Sankaran

In the last 4 years, e-Commerce companies have radically transformed the way India does business at every imaginable level and this swift transformation has primarily been riding on the heavy institutional investments.

But the uncertainty about revenue and business models of e-Commerce companies across the spectrum is causing the investors anxiety and, finally prompting them to step back and carefully consider investments.

With fierce competition in the market, companies cannot pass the margin to the customers in any case. Since any cut in marketing spends might adversely impact growth, e-commerce companies must focus on optimising all costs to bring more operational efficiency.

Opportunity with data & analytics
Data Analytics is steadily making its way into operational cost cutting and can potentially change the face of e-commerce by making inroads into every aspect of business across strategy & planning, customer, marketing and supply chain. Here are some of the ways companies can leverage data and analytics to improve the bottom-line.

1) Marketing
Companies are trying to move away from mass marketing campaigns to effectively using marketing dollars for targeted outreach through personalisation. This requires capturing customer data from every touch point and understanding their behavior and intent. Many of the Indian companies like Flipkart, Snapdeal and Saavn are already doing personalised recommendations based on your purchase history.

Then, there are others like NordStrom, who are taking  personalisation to the next level by  combining online behavior with offline / store data. They have many initiatives like opt-in app for alerting the customer service team when entering a store, enabling a very personalised experience for customers based on past transactions and intent.

This requires building a complete customer journey from both online and offline channels. Many are enhancing their existing investments like CRM systems or investing in new platforms like customer data platforms (CDP) to consolidate customer data, derive insights and activate marketing initiatives.

2) Cash On Delivery (COD)
Another growth catalyst for e-commerce in India is Cash on Delivery (COD), especially in tier II cities, and an estimated 40-50% of the actual sales are COD. The major challenge in the COD is fraudulent orders, which could be as high as 40%.

Analytics can help reduce fraud by predicting its probability from historical transactions and customer demographics as well as past fraud orders. For example, calling up the customer before initiating delivery, in case of a suspect transaction, will help them save significant costs.

3) Product Returns
Another common challenge e-tailers face today is the large percentage of product returns. This poses a great logistical challenge to companies, as product returns cost 1.5 times of the actual shipping fee.

Every return is a great insight to e-tailers, though it costs them more. The ability to understand the reason for return (size mismatch, faulty product, not matching expectation etc.) is the key and advanced analytics can help in uncovering such patterns and predict the probability of a return.

For example, analysing products returns can answer questions like “what products are returned most?”, “what is the reason for return like size mismatch?”, “which seller’s products are returned mostly?”, “which city tops the product returns?” etc. Actions can be taken to avoid returns like suggesting the size of a product based on individual customers past buying pattern and return history, if any, and proactively calling up customers.

4) Supply Chain Optimisation
Supply chain optimisation is an area where Big Data and analytics have obvious applications. This is also an area where major global players like Amazon have an advantage over Indian players due to their tried and tested processes, policies and systems to support inventory optimisation, better delivery service and reduced product life cycle.

Here are some areas companies are focusing to save costs:

Warehouse & Fulfilment center optimisations
Predictive analytics are increasingly important to Supply Chain Management and companies are connecting the dots across various functions like marketing, sales, inventory and delivery. For example, Amazon uses big data and predictive analytics for its “anticipatory shipping” of billions of items from its 200+ fulfilment centers globally to nearest locations to reduce the cost. This is achieved based on purchase history and many other factors impacting sales like weather, season and economic situation.

Delivery Route Optimisation
Delivery route optimisation is another painful area where companies can bring in significant transformation, as 53% of the delivery costs are spent on last mile delivery.

This can be dealt with by optimising minimal cost/distance and appropriate route to be taken to fulfill all the given orders, in real time. Logistics companies like DHL have been using this for long time, but availability of more data from traffic, weather and GPS systems and ability to process that data provide more opportunity.

Customer Focus
While it is known that companies spend most of their time and energy in acquiring new customers, but interestingly, that effort and cost incurred is 5 times more than what is required to retain them. This is another focus area to analyze and predict the customer churn propensity based on his/her buying patterns, engagement levels and history of other customers over time, which will enable marketers to proactively reach out and plan personalized offers to retain the customer.

There is a clear focus shift to operational efficiency for Indian e-tailers in the last couple of years, triggered by stiff competition in the space.. Companies are investing in data & analytics to reap benefits across operations mentioned here and also investing in third party logistics companies to leverage the economies of scale. The trend will continue in the near future and will steer greater demand for companies and professionals working in the retail analytics space.

The author is Director – Technology, SapientNitro. 

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