Homemaker Asha Sinha is hesitant to buy an LED television set online. Yet, she’s more than willing to shell out triple the amount while booking her tickets online for the London Olympics.
Homemaker Asha Sinha is hesitant to buy an LED television set online. Yet, she’s more than willing to shell out triple the amount while booking her tickets online for the London Olympics.
“It is not easy to buy a Rs45,000 LED television set online. What if they do not deliver the right product or (deliver) a faulty piece? I have my friends narrating cases where the right product was not delivered to them. Whereas, while buying tickets online, there is not much that can go amiss,” she contends, when asked if she is ready to make big purchases online.
This dichotomy probably explains why travel portals in India are making money while online retail players are yet to break even. The online travel players occupy about 60% of the `2,000-crore ecommerce market in India.
If we funnel down the Indian internet user base, it is estimated that about one crore users transact online. About 70% of these make transactions only on travel sites. Therefore, when we compare the two segments, the travel e-commerce companies have a much larger customer base, which gives them a much better return on investment.
In the travel trade, believe experts, margins are low and it is a volume game. According to Nikhil Gupta, director, Travel Bazaar, online travel agents have this to their advantage as they are able to reach every city in the country instantly without opening offices there or having set-up costs.
The profitability also has a lot to do with the way both these sectors differ in terms of their functioning. For instance, the inventory cost for retail players is a lot more than what it is for the travel companies.
“Online travel portals have a distinct advantage over retail players. We have virtual inventory; whereas retail portals need warehouses to stock their goods. The larger the catalogue, the bigger the warehouse they need and some of the stocks may need special conditions to stock. All these take the costs up,” points out Phanindra Sama, CEO of redBus.
The bottomline of non-travel ecommerce companies is also affected by the cost of delivery (CoD). “Lower credit card penetration and an inherent preference to pay the courier in cash, on delivery, results in ecommerce companies incurring up to Rs70 per CoD transaction,” argues Amit Nawka, associate director of consulting firm PwC.
Sandip Biswas, director, Deloitte, believes that the fact that the travel industry is not bound by the ‘touch and feel’ factor—unlike in the retail space—makes it easier to gain customers’ confidence and trust.
“When I purchase a ticket online, I am sure of what I am buying. I do not have to worry about its quality or the way it will be delivered. Hence, there will not be any inhibitions about the product. This is not true in case of commodities like televisions,” says Biswas.
Even on the cost front, the online travel portals seem to hold an edge. Aurvind Lama, co-founder and director of Travelyaari.com, a bus-ticket booking website, feels that after the initial investment on inventory is made online, the transaction fee is not high as the server is updated by service providers like makemytrip or cleartrip.
“The inventory availability gets updated real time. The only major investment we incur is on brand promotion,” says Lama, and goes on to ad that the investment is negligent when compared with retail portals’ running costs.
Marketing cost
Manpower, maintaining servers that host the site and marketing the brand are among the other major expenses borne by these portals.
“To gain customer loyalty, we have to invest a lot in marketing a brand. That is a very big investment for us,” says Noel Swain, executive vice-president, Cleartrip.com.
Also, the unsold inventory in the case of ecommerce companies has to be immediately disposed of at a throwaway price because otherwise they continue to cost the company on the warehouse front. This problem does not exist for online travel companies.
The online travel sector is booming across the globe. Take, for example, the US, where 76% of the travellers book online, and 57% in the UK. InIndia, the figure is a modest 20%. “Given these figures, we can see there is a huge potential for growth,” says Sama.
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