Betting on Value: How E-commerce Platforms Are Winning First-Time Buyers and Sellers

Betting on Value: How E-commerce Platforms Are Winning First-Time Buyers and Sellers

India’s rapid rise in internet penetration and digital literacy has created a new wave of online shoppers, especially in smaller towns and cities, looking for affordable products. E-commerce giants like Amazon and Flipkart are capitalizing on this trend by revamping their seller policies and growing their affordable product assortments to attract the next generation of online shoppers.

Targeting the Next Set of Shoppers

Both Amazon India and Flipkart are recalibrating their strategies to cater to first-time buyers, many of whom are from Tier II and Tier III cities. In March 2024, Amazon India introduced changes to its seller policies, focusing on affordability for products priced under Rs 300. Among these changes was the removal of referral fees (the commission sellers pay for every sale), particularly for low-value goods. Referral fees, which previously ranged between 2% and 14.5%, were eliminated for such products. Additionally, the platform introduced other concessions, such as reduced shipping and weight handling fees for bulk orders.

Flipkart also made adjustments to its seller rate card in May 2023, simplifying the structure and offering a "competitive rate card". This move aligns with Flipkart’s strategy of enhancing the customer and seller experience, particularly for everyday low-cost items. A spokesperson for Flipkart shared that their new initiatives aim to reduce price fluctuations, a major driver of order cancellations and returns, benefiting both sellers and customers.

The Rise of Hyper-Value Commerce

Both platforms are making a concerted effort to tap into the growing trend of hyper-value commerce. According to a joint report by Bain & Company and Flipkart, the share of ultra-low-cost shopping grew from 5% to 12% of total e-retail over four years. Products priced under Rs 500 are becoming more common in online shopping carts, particularly among lower-middle-income households.

During Amazon’s Great Indian Festival in 2024, over 60% of new customers came from smaller cities. Amazon’s zero-commission model for products under Rs 300 targets high-frequency, everyday items bought by customers more regularly, in contrast to higher-value, occasional purchases.

In response to this trend, both Amazon and Flipkart launched dedicated platforms for hyper-value commerce. Amazon Bazaar, launched in April 2023, focuses on goods priced under Rs 1,000, while Flipkart’s Shopsy, introduced in 2021, targets affordable products with a no-commission structure. These platforms aim to simplify the process of buying low-cost goods, without the added complexity of commission fees.

Competitive Pressure from Meesho

Amazon and Flipkart’s recalibration is partly in response to Meesho, an e-commerce platform that has built its success on a no-commission, low-cost seller model. Meesho, founded by Vidit Aatrey, has become a popular platform, particularly among Tier II and III cities, by allowing almost anyone to become a seller without complex onboarding processes. This has enabled Meesho to offer a wide range of products at rock-bottom prices, attracting price-sensitive customers.

Meesho’s unique positioning appeals to first-time digital buyers, with 80% of its shoppers coming from smaller cities. According to Meesho’s Smart Shopper Report, during its blockbuster sales, 45% of customers came from Tier IV cities, highlighting its popularity in emerging markets.

Interestingly, while Amazon and Flipkart have embraced no-commission models, Meesho has introduced a fee-based model called Meesho Mall, where branded products carry a 2% platform fee. This shift highlights the varied approaches e-commerce platforms are taking as they experiment with different revenue models to meet the needs of a fragmented market.

Monetizing the Zero-Commission Model

While the shift to a zero-commission model might seem like a loss of revenue, platforms are betting on higher frequency purchases and scale efficiencies to make up for it. Amit Nanda, Director of Selling Partner Services at Amazon India, explained that as sellers grow their businesses, technology-driven efficiencies will help generate additional value for both sellers and platforms.

Platforms are also leveraging auxiliary revenue streams such as advertising, logistics, and fintech services to offset the loss from commission-based earnings. For example, Flipkart’s advertising business grew by 50% in FY24, accounting for about 30% of the marketplace’s total revenue. Additionally, logistics services contributed 20% to the revenue.

Furthermore, D2C brands are adapting to this shift by allocating more of their budget to advertising on e-commerce platforms like Flipkart. Gujarat-based apparel brand Fuaark, for example, now spends 15-20% of its marketplace revenue on advertising, compared to just a few percentage points previously.

Conclusion: The New E-commerce Model

As e-commerce continues to penetrate deeper into India’s heartland, platforms like Amazon, Flipkart, and Meesho are recalibrating their business models to cater to the next generation of online shoppers and sellers. The focus on affordable products, zero-commission structures, and advertising revenues is reshaping the digital retail landscape. As competition heats up, these platforms are finding innovative ways to capture a larger share of the growing first-time digital buyer market, ensuring a more accessible and sustainable e-commerce ecosystem for all.