Why Flipkart, Snapdeal CEOs are talking up customer satisfaction

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Bengaluru: Chief executives of Flipkart and Snapdeal, two of India’s largest e-commerce companies, are now touting their efforts at satisfying and retaining customers rather than talking up their sales numbers.

Flipkart CEO Binny Bansal said in an interview on 23 May that net promoter score (NPS, a key measure of customer satisfaction and loyalty) had become the most important metric at the company since he took over in January.

Snapdeal CEO Kunal Bahl told The Economic Times in an interview published on 26 April that the online retail firm will replace gross merchandise value (GMV), or gross sales, with the number of “high-quality” users as its key measure of performance.

Bahl said Snapdeal’s main aim is to increase daily users to 20 million over the next five years from one million at present.

So, what explains their new-found, or renewed, focus on customer service?

The answer lies in the gold rush of 2015, when investors helped fuel valuations of Indian start-ups to unprecedented levels.

In the one year leading to the middle of 2015, Flipkart and Snapdeal saw their valuations jump manifold, as their investors, both new and existing, bet their flying sales growth will continue. Flipkart’s valuation soared to $15 billion from $2.5-3 billion in early 2014, while Snapdeal’s surged to $5 billion from less than $1 billion in the same time.

In February 2014, Flipkart became the first Internet firm in India to generate monthly annualized sales of over $1 billion. Flipkart reached the top of the e-commerce market by relentlessly pleasing customers with an unrivalled product range, deep discounts and fast product delivery. Its co-founders Sachin Bansal and Binny Bansal were known to be obsessed with ensuring customer satisfaction. Metrics such as GMV were secondary to NPS and other customer satisfaction indicators.

But things changed in 2015.

As Flipkart’s valuation jumped, the pressure increased to show a certain level of sales growth and move toward profitability.

Flipkart, to justify its valuation, shifted its focus to boosting the GMV through higher-priced products. (The GMV was the preferred metric of investors and entrepreneurs in determining valuations last year.)

Flipkart no longer cared only about wooing customers and retaining them. In the process, the company ended up losing a key category, such as books, which it had pioneered and built its brand on, to arch rival Amazon India. Flipkart’s product assortment and delivery times also suffered in the messy process of moving to a Alibaba-inspired marketplace model while its failed app-only push delivered desktop customers straight to Amazon’s doorstep.

As Flipkart misstepped, Amazon, desperate to win in India after losing in China to Alibaba Group Holdings Ltd, spent thousands of crores of rupees on increasing its product selection and expanding its logistics network.

Flipkart’s focus on boosting GMV didn’t work .

Now, the company is trying to get back to basics and focusing on customer service, which had delivered sales growth in the first place.

As far as Snapdeal is concerned, the company was always likely to suffer against rivals that had far superior logistics networks and better technology.

Snapdeal didn’t come close to its goal of overtaking Flipkart by March.

After missing its goal by a mile and with new funds difficult to come by, Snapdeal has little choice but to set new goals that are measurable over a long period of time