Flipkart A Transitioning To A Marketplace Model Case Solution

2. Challenges faced by Flipkart

The business model of Flipkart is B2C where the company acts as the platform to connect buyers with sellers and does not own much inventories. This business model has been successful as the company has been able to gather the majority of the market share even in presence of global competitors.

However, it is facing some challenges in terms of the exploitation of indirect network effects that the company is facing. Indirect network effects refer to the benefits that an existing user or partner of the platform can get by the inclusion of a new user or partner (Johnson, 2021). In the case of Flipkart, these effects are the increasing number of consumers that can be added to the network through the inclusion of new sellers. Below are some of the main challenges the company is facing:

i. Service Quality Issues

The main problem that the company was facing was related to the product and service quality. In the marketplace model company was providing a platform to a large number of sellers, the majority of which re the local mom and pop stores. Since Flipkart widen its network it had included the sellers from remote areas and the main problem was the timely delivery of the products. Flipkart's name was at stake while it could do little to actually control the entire process since it was not holding inventories. To make the situation graver, customers used social media to raise their voices and it was a toll on the company’s reputation. In one case a customer mentioned that while ordering a pen-drive he received an empty box. He made the delivery guy stay and made a video of the entire incident to post on social media (Social Samosa, 2014). The event caused a backlash on social media and had a negative impact on the company’s reputation.

Another similar issue as mentioned in the case study is related it the fake discount offered by a seller on a pair of sneakers. This incident also went viral on social media. The company was unable to maintain the quality of both offered products and services because of the large number of sellers and their increasing remote locations. While Flipkart's main focus was to integrate the technology to facilitate both buyers and sellers through its platform it had little control over inventories and product quality (Business Standard, 2021). Although the company was very selective and had a rigorous procedure to include sellers into its business it still faced issues in terms of quality which damaged the company’s reputation.

ii. Logistics

As the company grew it increases its consumer base which goes beyond the major cities of India. Initially, Flipkart was dealing in 10 major cities but later it expanded its network to more rural areas which had its own challenges. Apart from poor infrastructure facilities, one major issue was the address system in India. Unlike Western countries, there were no proper address systems including the society, housing scheme name and lanes and house numbers rather the company had to deal with complicated addresses with not much longitudinal or latitudinal details (Bhushan, 2018). The problem was not only with the complicated addresses with no prominent landmarks or road network to reach them but also with consumer’s illiteracy and attitudes. Consumers from the same place can use different landmarks, points, and words to describe an address. Moreover in order to avail of the discounts and limited-time pr place offers fraudulently used to rig the address making it more difficult for the company to differentiate and serve the genuine consumer properly (Bhushan, 2018). These issues were the main reason that the company was unable to exploit margins from its indirect networks.

To overcome come the hurdles Flipkart builds a strategy around its strength of using AI and robotics to solve the address puzzle. However, these investments in software and systems are also capital intensive and take time to deliver ROI. The company worked on advanced data analytics and also partnered with local map servicing companies like Map My India for improving its logistics (Bhushan, 2018). The conventional machine learning and deep learning models were used to improvise margins. The company was trying to make the most of the marketplace model since it had the potential of high-margin play but the problems related to fraudulent activities and the address system were hindering its ability to make profits.

iii. Intense Competition

India’s E-commerce market was booming and has shown tremendous potential, especially in the last decade. The numbers of people using the E-commerce services were rapidly increasing along with the number of market players who are providing these services (Exhibit 1). Below is the growth trend and projection for the E-commerce boom in the Indian market.