Traditional channels vs Dropshipping, who wins?

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According to a KPMG report in 2014, direct selling as a business model has existed in India since 1995. The report estimates that out of the five million direct sellers in India, 3.5 million are women looking for an additional source of income. With the rise of cheap smartphones and society becoming increasingly social media-savvy, e-commerce experts believe that this is the same market that Meesho is now leveraging.

The seller-supplier conundrum

Meesho earns its money from suppliers. It charges them a 15% commission on every sale. Sellers, thus far, haven’t had to cough up as Meesho wants to keep the entry barrier very low for them. This is a pivotal part of Meesho’s strategy—keeping sellers happy.

They’re even able to sell and promote their own products or those of non-Meesho suppliers on the platform. However, this inventory will not be eligible for Meesho’s logistics and payment platform, according to Aatrey. For Meesho, this is a necessary deterrent to keep sellers dependent on its suppliers, but it also has a limiting effect and may dissuade new sellers from signing up.

But if Meesho didn’t do that, its challenge would be this: How do you grow a nascent social-media-based re-selling model without charging a commission from sellers as well? On one side, Meesho will have to bring in continuous sales leads for its 22,000 suppliers, and on the other side, it has to bring enough variety across different categories of goods depending on sellers’ choices.

Aatrey says that Meesho’s model has brought the acquisition cost of end customers down to zero since each seller finds buyers on their own. However, this is an oversimplification of things. The actual cost of acquisition is in training sellers to sell better and more.

Thriving and doubling

To this end, Meesho has zeroed in on geographies where social re-selling is thriving and doubling down on these places. “We also launched mentorship programs wherein the top sellers from each geography coaches new incoming sellers,” says Aatrey. In Aatrey’s experience, it takes around two months to train and grow a new seller to a successful scale.

And it isn’t just growing re-sellers to scale that’s a challenge. Growing its re-seller base is also an uphill task. Aatrey believes that the zero investment policy is what leads re-sellers to the platform, with word-of-mouth being the most common means of re-seller onboarding. Without really advertising to re-sellers, the business has grown to cover over 550 cities in terms of goods movement. And while the company has continued to grow, it has found that growth has come at a heavy cost.

According to data sourced from company research platform Tofler, Meesho saw a 5X increase in its revenue from FY17 to FY18. From around Rs 1.1 crore ($156,508) in FY17, revenue jumped to Rs 6 crore ($853,713). But to achieve that rapid growth, Meesho spent a whopping Rs 10.98 crore ($1.5 million) in FY18, while returning losses of Rs 4.97 crore ($711,433). In FY17, Meesho’s losses were just around Rs 45 lakh ($64,025) while expenditure was at only Rs 1.6 crore ($227,656).

This isn’t going to get easier for Meesho either. According to a top executive from an online re-seller platform, who asked not to be named, the majority of re-sellers on a platform like Meesho are aspirational entrepreneurs. For them to grow beyond their threshold of 150-200 customers, they might need to start owning their own inventory.

Providing small capital loans

The entrepreneur might have to put in her own money, or the platform might have to start providing small capital loans. But this breaks the point of social commerce that Meesho is pioneering: the zero investment model for re-sellers. Aatrey insists that Meesho would never provide financing to its re-sellers.

E-commerce experts, however, say that Meesho may have to make some concessions. What we see today, they point out, is only the first wave of social commerce in India. To bring the next wave of re-sellers onboard and maintain its current growth, Meesho will have to innovate to continue to bring re-sellers on board.

“You can expect a lot of users who never tried online selling before to come in and try out platforms like Meesho. And for this wave to pick up, platforms may need to start offering incentive programs, discounts, etc., to help sellers reach their target audience,” says Chowdhri.