India’s social commerce sector, which is a $1.5 to $2 billion Gross Merchandise Value (GMV) market today, has the potential to grow to $16 to $20 billion in just five years, increasing to $60 to $70 billion in revenue by 2030, says a new report titled, ‘The Future of Commerce in India – the rise of social commerce’,
The report released by Bain & Company in partnership with Sequoia India says, India’s social commerce sector will be two times the size of the current e-commerce market within ten years, driven by formats ranging from conversational commerce on chat platforms to video-led commerce, or a vibrant social reseller community.
Commenting on the report, Arpan Sheth, Partner and Leader of Bain & Company’s Asia-Pacific Technology, Vector, and Advanced Analytics Practices, says, “Social commerce in India is broadening India’s e-commerce sector and paving the way for a model that’s built on community, connection and trust. While traditional e-commerce will continue to flourish, social-led models will broaden the reach of e-commerce for Indian consumers.”
Indian e-commerce, powered by cheap data, supply-side innovations, and digitally savvy customers, has become a $30 billion GMV industry in the fiscal year 2020 (FY20). In addition, India has the second-highest number of connected users globally, at around 572 million with substantial room for growth (41 percent penetration). However, we are in the early stages of online commerce, with only 8 percent of Indians (about 105 million) who shop for products online, accounting for an average spend of $286 per year, much lower than other markets.
Shraeyansh Thakur, VP, Sequoia Capital India LLP, believes the rise of online commerce has just begun, “Social commerce is playing a key role in democratizing online commerce, connecting brands, consumers and small businesses directly through social platforms and meeting the modern consumers’ need for personalized, differentiated products. Social-first models have been able to scale with much lower customer acquisition costs globally and we are seeing similar trends with Indian startups experimenting in this space. While early in its evolution in India, it’s set to scale rapidly in the next 5-10 years, offering a huge opportunity for innovative new products and business models.”
This trend was validated by early signs identified in the study, which shows that digitally connected Indians spend an average of over three hours per day online, of which around two hours are consumed by messaging, social media networking, and watching videos. Social and video platforms have more universal usage for both online transactors and non-transactors. By leveraging the popularity of these formats, millions of small retailers are finding innovative ways to sell directly to consumers. However, for about 400 million non-transactors, lack of trust is the biggest impediment to online commerce.
“Social commerce presents a great opportunity for customers and sellers to discover one another. Almost half of the consumers do not know what they are looking for and are not loyal to specific brands. Nudges or recommendations from relatives and friends are a big driver of action, and impulse purchases present an opportunity for sellers. Unstructured, long-tail categories make up the bulk of this landscape. Fashion is the most popular social category, followed by Beauty and Personal Care, then Food and Grocery,” Radhika Sridharan, Partner, and Leader in Bain India’s Customer Strategy & Marketing Practice adds.
Moreover, social commerce has the potential to empower over 40 million small businesses and entrepreneurs across India. The ability to share multiple product images helps sellers make a compelling case, while the wide geographic reach of underlying social platforms enables them to connect with buyers who might not otherwise have discovered their store.
Today, 85 percent of sellers using social commerce are small, offline-oriented retailers who have found that social channels open new avenues for growth. A subset of resellers are often first-time entrepreneurs earning 5,000 to 10,000 rupees a month and leveraging the power of their existing social networks to sell to friends and family. This stands in sharp contrast to the larger, organised seller base on e-commerce platforms. For most of these sellers, social commerce represents the ability to create incremental value over and above their existing business. However, because the process of initiating contact with the customer, negotiating, and then closing a sale often spans multiple platforms, a more streamlined order-management process and better customer analytics are the biggest asks from sellers.
Bain & Company and Sequoia India’s analysis highlights a unique set of needs being met by this rising sector, which has led to its continued and exponential growth:
- Social commerce satisfies unique consumer needs. For categories like Fashion and Home Decor, social commerce fulfills consumers’ need for variety and customisation, community connections, and fun shopping experiences. Convenience, trust and cheaper options drive social commerce purchases in categories like Food and Grocery.
- Social commerce is a tool for discovery and therefore purchase. Nearly half of India’s consumers do not have a specific product or brand in mind when shopping via social channels; they discover products through peer recommendations and other influences.
- Unstructured long-tail categories dominate. Fashion is the most frequently purchased category, followed by Beauty and Personal Care, then Food and Grocery.
- Trust is a hygiene expectation. Nearly 75 percent of purchases are made from a known entity. Trusted mediation before purchase (e.g., through seller interactions, videos, or peer recommendations) is more valuable than post-purchase mediation.
- Increased ease of use is key to bringing in more consumers. Over 90 percent of social commerce customers today also transact via e-commerce. Increased simplification and ease of use enable the growth of this user base beyond early adopters to current non-transactors.
- Small sellers are the backbone of social commerce. About 85 percent of sellers are small retailers who primarily sell products offline, with up to 35 percent of their revenue coming from social commerce. Ease of sales (e.g., sharing catalogues, ease of customer interaction) and platform reach are the biggest drivers of adoption.
-Order management and customer insights are key. The order-taking and management processes are key pain points for social sellers and consumers alike. Further, the use of better consumer insights to enable curation is a key experience driver for both buyers and sellers looking to scale.
“The time for the true democratization of e-commerce has arrived in India. Small sellers who are now able to sell to first time online buyers, will form the backbone of this sector. We encourage the entire Indian retailer ecosystem, 85 percent of whom are currently small retailers selling their products offline, to internalise the findings of this report and embrace social commerce in order to stay ahead of the curve,” says Mohit Bhatnagar, Managing Director, Sequoia Capital India LLP.
The report concludes with a number of key findings for this untapped market while laying out key imperatives for brands seeking to tap the full potential of social commerce:
- Cohesive social commerce strategy. Synergistic roles of channels; choice of selling model/platform archetype tailored by category
- Experience over product/services. Simplified shopping experience; consumer intimacy through engaging and trustworthy content; enhanced engagement formats (e.g., one-to-one video-based selling augmented reality)
- Optimal assortment. Coherent assortment across archetypes; assortment plan tailored by social commerce platform archetypes
- Pricing strategy tailored by value proposition. Premium pricing for personalised and high-touch brands or services; special group pricing or bundling to drive impulse sales
- Social commerce-ready supply chain. Seamless backend integration with platforms; cost-effective and scalable hyperlocal solutions
The optimistic social commerce landscape in India is ready to scale and the four crucial levers to unlock this opportunity are simplified shopping, scalable engagement, and trust-building propositions, made-for-commerce propositions, and smart curation, product discoverability. The sector also offers limitless prospects for entrepreneurs to build new social-led business models by developing new tools and applications for sellers, unlocking new consumer segments, reimaging high-value categories by building social-first models, and creating solutions for enablers such as logistics and payments for the social-commerce ecosystem.