Group Assignment – Case Analysis

Flipkart: Transitioning to a Marketplace Model

Retail Management

Submitted to:

Prof. Subin Sudhir

Indian Institute of Management, Indore

Submitted by:

Group 6 | Section B

Deepanshu Agarwal 2019PGP495

Manav Kapoor 2019PGP235

Mayank Kumar Poddar 2019PGP246

Shubham Jana 2019PGP508

Bhavisha Thakkar 2019PGP440

Viny Sharma 2019PGP470

 Flipkart: Transitioning to a Marketplace Model | Group 6

Case Analysis - Flipkart: Transitioning to a Marketplace Model

Context/Case facts: Flipkart co-founders were rethinking about their business model and looking towards
migration from inventory heavy, limited product selection model to an asset light marketplace model with
thousands of sellers with wide range of assortments. Firms like Alibaba already demonstrated the effectiveness
of the marketplace model in China, having quite a similar market to India. But an incident related to quality of
sellers came into picture in the marketplace model, making them review their next steps again.

Problem Statement: Should Flipkart move towards the marketplace model with thousands of sellers or should it
stick to its current inventory led model?

Framework used: Four advices to retailers in the reading “Should you Invest in the Long Tail?” by Anita
Elberse have been used to arrive at the possible solutions which are as follows:
1. If the goal is to cater heavy customers, broaden the assortment with long tail.
2. Strictly manage the costs of offering products that will rarely sell. Try to incur costs only if customer
does a transaction (only variable costs).
3. Acquire and manage customers by using your most popular brands.
4. Resist the temptation to direct customers to the tail too often, just for higher profit margins, as it may
lead to dissatisfaction among them.

Alternatives: Flipkart has the following alternatives:

1. Shift to the pure-play marketplace model –
Pros:
 This model will help reduce inventory costs and would reduce the risk on Flipkart as the onus of
products lies on the sellers.
 It would also bring a larger variety of products and more sellers on the platform which would
enable the customers to have a wider assortment. 
 Flipkart will have to deal only with the variable costs which would lead to increase in order
value and cart value and they could achieve higher margins too.
Cons:
 Shifting to a pure-play marketplace would lead to larger complexities of handling a large
number of sellers which could result in lower efficiencies. 
 It could be difficult to assure quality standards for service and products which is a major
complaint of customers of Flipkart.
 Building loyalty for Flipkart is difficult in this type of a model because it is just a facilitator and
there are sellers from which customers could directly buy.
2. Stick to the current inventory-led model –
Pros:
 Inventory model is currently being used by Amazon as well who is our direct competitor right
now. So, this way we can actually make buyers & sellers to easily retain & shift from them to
us.
 65% of online shoppers are actually unhappy with the marketplace model. Maintaining this
model will actually increase our reliability especially in Indian context.
 We are already facing complaints about our services & product quality supplied to customers.
This model helps us to keep a close check on sellers & maintain minimum quality standards for
the products supplied/sold.
Cons:
 Maintaining this inventory model will increase our expenses for maintaining the quality of our
products and services being offered. We are already operating on thin margins due to which
additional expenses are going to hit us hard.
 Flipkart: Transitioning to a Marketplace Model | Group 6

 Inventory model actually poses a constraint as we are not able to leverage the long tail & we
have to maintain a small number of assortments which are huge in demand. 
 Behaviour of Indian consumers & sellers closely resembles that of China, where the marketplace
model is already flourishing. Maintaining & investing in the inventory model which can easily
get outdated in the upcoming years is a huge risk when margins are thin industry wise.
3. Move forward with a hybrid model with inventory focus for majority products and marketplace model
for the long tail –
Pros:
 The hybrid model will lead to the combined benefits of the two models - the Inventory model
and the marketplace model with Flipkart focusing on keeping the inventories of popular
products and having multiple sellers for other categories hence creating a balancing between
incurring inventory costs and maintaining the quality they promised.
 This model has been a success for competitors like Amazon and can be beneficial for Flipkart if
implemented with proper imitation, following the same path.
 This will lead to Flipkart maintaining the market share in the major product categories and
capturing new customers by fulfilling their demand in the case of other categories .
Cons:
 The demographics of India and China are considered different from the West so the pure
marketplace model implemented by Alibaba which was better suited in China, might be efficient
in the long run than the hybrid model for the Indian crowd.
 The lines of segregation for the product categories to be put into the marketplace model or
inventory model are not very clear and there can be instances where the products do not fit into
either of the models.

Recommendations:  Based on the analysis of pros and cons of all the alternatives, it is suggested that Flipkart
should go with a mix of inventory and marketplace model (also known as the “Managed Marketplace model”).
For migrating to this new model, few points should be kept in mind to mitigate the shortcomings and facilitate a
smooth transition:

 90% of India’s retail segment comprises the unorganized businesses. While expanding even more into
the tier 2 and 3 cities, Flipkart should leverage the marketplace model by providing perceived values to
the customers. This can be done through:
- Providing loyalty programs to retain the customers by giving out beneficial services (such as discounts,
loyalty points, preferred delivery)
- Investment into verifying the sellers and pushing the products of the sellers first which have the
“Flipkart Guarantee”
- Using KPIs like on-time delivery, Customer Satisfaction (CSAT scores) to ensure quality suppliers and
penalize and take action against the poor performers.
- Initial rollout of marketplace model with hassle-free, no-questions asked returns to facilitate better
customer satisfaction. In the meantime, flag the customers and suppliers with problematic behaviors
using data analytics tools. Shift to return policy with conditions once the model is stable.
 After the above measures have been taken, Broadening the assortments in product categories such as the
Smartphone and the Apparel segments which have 44% and 21% market share in E-tailing (as per
Exhibit 2), Flipkart can establish a stronghold in these segments to capture a larger market share and
receive a positive brand image over a large customer base.
 To further take advantage of the marketplace model, Flipkart can foray into other long tail areas which
are generally ignored by physical stores for being unprofitable like music and movies content, OTT
content etc. which will cost Flipkart largely if the customers makes the transaction, otherwise, its costs
would be very less. Also, these long tail segments might cumulatively have larger market share and
 Flipkart: Transitioning to a Marketplace Model | Group 6

margins than the majority categories, as mentioned in the reading.