Will Meesho’s Strategy Surpass Amazon and Flipkart? | In-Depth Business Case Study

Hi everyone, Meesho is one of the most revolutionary startups in India. They have redefined the e-commerce playbook in India, enabling millions of small sellers, who never imagined selling online, to ship products across the country. Today, a craftsman from Rajasthan can ship his products to the neighborhoods of Kashmir, and a clothing retailer from Maharashtra can send her t-shirts all the way to Kanyakumari. Surprisingly, while e-commerce giants like Amazon and Flipkart have been burning cash in the Indian market, Meesho has already achieved profitability by empowering the smallest sellers in India. By democratizing internet commerce for everyone in India, Meesho has become a billion-dollar company.

Introduction to Meesho

Meesho is one of the most revolutionary startups in India, redefining the e-commerce playbook and enabling millions of small sellers to ship products across the country. By democratizing internet commerce, Meesho empowers local artisans and retailers to reach customers nationwide, achieving profitability where giants like Amazon and Flipkart have struggled. With a focus on affordability and accessibility, Meesho has rapidly grown into a billion-dollar company, boasting impressive user growth and customer retention rates.

How Meesho Achieved Profitability and Outpaced Amazon and Flipkart in India

You know why this is even more surprising? The average order value (AOV) for Meesho is just 360 to 370 rupees, while for Amazon and Flipkart, it’s close to 1,000 rupees. On top of that, 65% of the products sold on Meesho are 20 to 30% cheaper compared to their competition. Yet, somehow, Meesho has emerged as a profitable e-commerce unicorn in India in less than 10 years. Meesho is growing so fast that while Amazon and Flipkart’s active users grew by 13% and 21%, Meesho’s active users as of December 2023 grew by 32% year on year. You would be shocked to know that the customer retention rate for Meesho is as high as 80%.

So, the burning question is:

1. How on earth did Meesho manage to grow their business and achieve profitability despite the presence of Amazon and Flipkart?
2. What is their business strategy to achieve profitability in a hyper-competitive market like e-commerce?
3. What are the business lessons we need to learn from the profitable rise of Meesho?

E-commerce Market Size

The Indian e-commerce market today stands at $12.93 billion and is expected to grow to $299 billion in the next five years, a staggering jump of 164%. Despite this rapid growth, e-commerce has only begun to tap into the conventional retail market in India. As of 2022, e-commerce has reached just 8% of the total retail market, leaving 92% still unpenetrated. This indicates immense potential for further expansion and growth in the Indian e-commerce sector.

Market Gap

When Flipkart and Amazon were riding the internet wave in India, they primarily focused on tier-one cities. This strategy made sense as tier-one consumers have higher disposable incomes, easily adopt new technology, and have well-developed logistics infrastructure, increasing the probability of success. However, most people forget that India is home to 60 million small and medium businesses, contributing to 85% of the overall retail market. Despite this, a significant portion of people in tier-two and tier-three cities had never used e-commerce, and even today, many still haven’t. This was because they felt e-commerce was too costly and complex.

As a result, a large segment of buyers and sellers were unknowingly excluded from the e-commerce revolution in India. This is where the founders of Meesho, Sanjeev Barnwal, and Vidit Aatrey, identified a gap in the market. They realized that while everyone was focusing on tier-one cities, the tier-two and tier-three cities of India were not being properly addressed by the e-commerce revolution.

Identified Pain Points in the Existing E-commerce Industry

The founders of Meesho, Sanjeev Barnwal and Vidit Aatrey, identified three major pain points in the existing e-commerce industry:

1. High Selling Costs: The cost of doing business on major e-commerce platforms was prohibitively high for small and medium-sized enterprises (SMEs). Sellers on Flipkart retained only 60% of their selling price, and on Amazon, they retained 70%. This means that 30-40% of their selling price was consumed by commissions, fees, and GST. Such high percentages discouraged many small sellers from participating in online retail, focusing instead on offline retail.
2. Low E-commerce Penetration in Tier 2 and Tier 3 Cities: The e-commerce market had low penetration in tier-two and tier-three cities due to a lack of awareness and trust among small sellers. These regions remained largely untapped, despite their significant potential.
3. Long Payment Cycles: Sellers faced lengthy payment cycles, with funds being released only after 14 days plus an additional 5 days for clearance. This 19-day wait for payment significantly impacted small business operations. For instance, a seller investing 4 lakhs in raw materials and generating 5 lakhs in revenue had to either halt production or find additional working capital to continue operations. This situation often led to the need for bank loans, which further eroded profitability due to interest payments.

In summary, the key gaps in the market were high commissions, low penetration due to a lack of awareness and trust, and very long payment cycles.

The Birth and Evolution of Meesho

In 2015, Sanjeev Barnwal and Vidit Aatrey decided to start a company with the vision to democratize internet commerce for everyone by empowering small sellers in India. They aimed to provide these sellers with the convenience and power of the e-commerce supply chain while also offering buyers affordable prices, an easy interface, a vast catalog, and fast delivery.

Fast forward to today, nine years later, Meesho boasts over 1.8 million sellers offering more than 120 million products. Products on Meesho are typically 20-30% cheaper than on other e-commerce platforms. Given that Amazon and Flipkart had the first-mover advantage, how did Meesho manage to crack the e-commerce industry in India and become profitable?

This success story begins in 2015 when Vidit and Sanjeev noticed a shopkeeper at a garment store in Koramangala selling products via a WhatsApp group, with 40% of his sales coming from it. This inspired them to empower retail shopkeepers to sell more through WhatsApp groups, leading to the creation of a company called Fashnear. However, they soon encountered two significant challenges: managing inventory and handling cash on delivery.

The shopkeepers often faced out-of-stock issues, leading to customer dissatisfaction, and cash on delivery was cumbersome and costly due to the lack of widespread digital payment methods at the time.

In 2016, they revamped their model and launched Meesho 1.0, transitioning from WhatsApp groups to an app. Initially, it operated on a B2B2C model, where garment resellers would order products from suppliers via Meesho and then sell them to their customers offline. This model worked well, but as e-commerce adoption surged post-COVID, customers began buying directly from sellers on Meesho.

This shift transformed Meesho into a B2C platform, where customers directly purchased from the sellers, mirroring the models of Flipkart and Amazon. However, despite this similarity, Meesho carved out its unique space in the market.

What Set Meesho Apart?

1. Focus on Tier 2 and Tier 3 Cities: Unlike Flipkart and Amazon, which primarily focused on tier-one cities, Meesho tapped into the vast, underserved markets of tier-two and tier-three cities.
2. Low Selling Costs: Meesho’s platform offered lower commissions and fees compared to other e-commerce giants, making it more attractive to small and medium-sized sellers.
3. Empowerment of Small Sellers: By catering to the needs and pain points of small sellers, Meesho built strong relationships and trust within this community.
4. Simplified Payment Processes: Meesho streamlined the payment process to address the lengthy payment cycles that burdened small business owners on other platforms.
5. Affordable Pricing for Customers: The focus on lower costs allowed Meesho to offer products at more competitive prices, appealing to a broader customer base.

By addressing these specific pain points and focusing on underserved markets, Meesho successfully differentiated itself from larger e-commerce platforms and achieved significant growth and profitability in a highly competitive market.

Meesho’s Unique Business Model and Differentiators

Meesho has successfully established itself in the competitive e-commerce landscape through a distinct and strategic business model. Here’s a comprehensive look at how Meesho differentiates itself:

1. Zero Commission for Sellers: Meesho charges no commission on sales, only a small fulfillment fee based on seller location. This contrasts with platforms like Flipkart and Amazon, where sellers receive only a portion of their selling price due to high commissions. This model allows sellers to retain most of their earnings, making Meesho an attractive choice.
2. Revenue from Performance Advertising: Meesho’s revenue comes from performance-based advertising rather than commissions. Sellers can advertise their products using various models:

• CPV (Cost Per View): Charged for each view of the ad.
• CPC (Cost Per Click): Charged for each click on the ad, focusing on conversions.
• CPA (Cost Per Action): Charged only when a specific action (sale, download, signup) occurs.
• CPM (Cost Per Mille): Charged for every thousand impressions, used for brand awareness. Meesho primarily uses the CPC model, enabling sellers to promote their products effectively and affordably.

1. Fair Treatment of Non-Adversising Sellers: Meesho ensures a balance between paid and organic listings. The platform maintains a healthy percentage of organic visibility, so sellers who do not pay for advertising are not disadvantaged. This approach helps maintain fairness and visibility for all sellers.
2. Supplier Panel Support: Meesho provides tools and recommendations through its supplier panel, including:

• Price Recommendation Tool: Helps set competitive prices.
• Seasonal Product Insights: Advises on which products perform well during specific seasons. These tools empower sellers to optimize their inventory and pricing strategies effectively.

1. Reduced Payment Cycle: Meesho has cut the payment cycle for sellers from 19 days to just 7 days. This improvement in cash flow helps sellers avoid the need for additional working capital or loans, enhancing their financial stability.
2. No Private Labels: Unlike Amazon and Flipkart, which have private labels (e.g., Amazon Basics, Flipkart Smart Buy) that compete with their sellers, Meesho does not have private labels. This avoids conflicts of interest and aligns with Meesho’s vision of supporting small and medium-sized businesses.
3. Asset-Light Model: Meesho operates with an asset-light model, focusing on listing and shipping products without holding significant inventory. This contrasts with the inventory model used by some competitors, where the platform buys and stores products. The advantages of the asset-light model include:

• Reduced Investment: No need for large investments in inventory.
• Lower Operational Hassle: No need to manage and optimize inventory.
• Reduced Waste: Less risk of dead or unsold inventory.

1. No Seller Tiering: Meesho does not prioritize sellers based on performance tiers (e.g., gold, silver, bronze). This approach ensures that all sellers are treated equally, avoiding the disparity seen on platforms like Flipkart and Amazon, where top-performing sellers receive better terms and benefits.
2. Efficient Logistics: Meesho has significantly reduced logistics costs. By outsourcing logistics to third-party partners and leveraging its large shipment volume, Meesho negotiates better rates and maintains efficiency. The cost of shipping has been reduced from 30% of the average order value to around 15-20%, with plans to lower it further to 8-10%. This efficiency is partly due to:

• Scale: Handling 3 to 3.5 million shipments daily.
• Outsourced Logistics: Utilizing third-party logistics providers.
• Market Share: Holding 40-45% of the outsourced e-commerce logistics market. Meesho’s customers prioritize value over convenience, allowing the platform to manage shipping efficiently without the need for expedited delivery options.

Competitive Response

In response to Meesho’s success, competitors like Flipkart have launched Flipkart Shopsy, and Amazon has introduced Amazon Bazar, attempting to replicate Meesho’s innovative approach.

Addressing Concerns of Unfair Treatment

One important question that arises is whether non-advertising sellers are treated unfairly. While advertising does provide an advantage in terms of visibility, Meesho maintains a balanced approach by ensuring that organic listings are still prominently featured. This means that while sellers who invest in advertising may see increased visibility and sales, those who do not advertise still have a fair chance to reach customers through organic search results and recommendations.

In summary, Meesho’s approach of zero commission, revenue generation through performance advertising, and fair treatment of all sellers sets it apart from other e-commerce giants. This unique model has enabled Meesho to empower small sellers and achieve significant growth and profitability in a competitive market.

Business Lessons from Meesho’s Rise

1. Find and Exploit Blue Ocean Opportunities:

• Lesson: In highly competitive markets, discovering and focusing on less contested segments can provide a significant competitive advantage. Meesho identified tier 2 and tier 3 cities in India as a blue ocean, which was underserved and ripe for growth.
• Application: Look for market segments or regions that are neglected by major players. Tailor your strategies to meet the unique needs of these areas to gain a foothold and build a strong customer base.

1. Leverage Untapped Potential:

• Lesson: Tier 2 and tier 3 cities often have substantial market potential that many overlook. Meesho capitalized on this by catering to smaller sellers and manufacturers in these regions.
• Application: Explore emerging or underserved markets that might have been neglected by larger competitors. These areas can offer significant growth opportunities and less competition.

1. Build Trust Through Technology and Efficiency:

• Lesson: Meesho addressed common e-commerce issues like product quality, returns, and refunds through technological innovations such as barcoded packaging and scan-and-pack programs. This focus on efficiency and trust-building led to a high return success rate and quick refund processing.
• Application: Implement technology-driven solutions to streamline operations and improve customer trust. Efficient processes and transparency can enhance customer satisfaction and loyalty.

1. Differentiate by Avoiding Common Pitfalls:

• Lesson: Meesho avoided practices like seller tiering and competing with its own sellers, which can create barriers for smaller players. Instead, they focused on treating all sellers equally and maintaining a low-commission model.
• Application: Develop business models that avoid common pitfalls such as prioritizing certain sellers over others or competing directly with your own partners. This can create a more inclusive environment and foster long-term partnerships.

1. Optimize Logistics to Reduce Costs:

• Lesson: By outsourcing logistics and negotiating better rates due to scale, Meesho reduced shipping costs significantly. This allowed them to maintain a low average order value while managing logistics expenses efficiently.
• Application: Explore ways to optimize logistics and reduce costs through strategic partnerships, outsourcing, and economies of scale. Efficient logistics can improve profitability and competitiveness.

1. Adapt to Market Demands and Preferences:

• Lesson: Meesho’s focus on value rather than convenience aligned with the needs of its customer base, who preferred lower prices over faster delivery. This understanding of customer preferences helped them build a successful business model.
• Application: Continuously assess and adapt to your target market’s preferences and needs. Tailor your business strategies to align with what your customers value most.

By applying these lessons, businesses can better navigate competitive landscapes, address common industry challenges, and build successful, sustainable models.

Marketing Campaigns of Meesho

Sure! Here’s a detailed look at Meesho’s marketing campaigns and strategies:

1. Influencer Collaborations

Meesho leverages the influence of social media personalities to reach a larger audience. They collaborate with influencers who have a significant following on platforms like Instagram, YouTube, and Facebook. These influencers promote Meesho’s products by showcasing them in their content, reviewing them, or even creating unboxing videos. This approach helps Meesho tap into the influencer’s audience and gain credibility through trusted voices.

2. Social Media Marketing

Meesho has a strong presence on major social media platforms such as Facebook, Instagram, and Twitter. They use these platforms for:

• Advertising: Running targeted ads to reach specific demographics based on interests, behavior, and location.
• Engagement: Posting engaging content that resonates with their audience, including product highlights, user stories, and interactive content.
• Promotions: Announcing sales, discounts, and special offers to keep their audience informed and drive traffic to their platform.

3. Referral Programs

Meesho incentivizes its users to refer friends and family to join the platform. The referral program typically offers rewards such as discounts, cashbacks, or shopping credits for both the referrer and the new user. This not only helps in user acquisition but also builds a community of engaged users who actively promote the platform.

4. Festive Sales and Discounts

During major Indian festivals and holidays, Meesho organizes special sales events. These sales are often accompanied by significant discounts, deals, and exclusive offers on a wide range of products. The festive campaigns are designed to attract shoppers looking for deals during these high-spending periods and boost sales.

5. Celebrity Endorsements

Meesho has featured celebrities in its advertising campaigns to enhance brand visibility and appeal. By associating with well-known personalities, Meesho aims to create a strong brand image and connect with a broader audience. Celebrities help in creating buzz around the brand and attract attention from their fan base.

6. User-Generated Content

Encouraging users to create and share content related to their Meesho shopping experiences is a key part of their strategy. This can include:

• Reviews and Testimonials: Users sharing their feedback and experiences with Meesho’s products.
• Social Media Posts: Users posting photos and videos of their purchases on social media, often tagged with Meesho.
• Hashtag Campaigns: Creating branded hashtags for users to share their experiences and participate in community-driven content creation.

7. Targeted Ads

Meesho employs data-driven marketing to create targeted advertisements. By analyzing user behavior, preferences, and purchase history, they can deliver personalized ads that are more relevant to individual users. This approach increases the likelihood of engagement and conversion by presenting users with products they are more likely to be interested in.

8. Brand Campaigns

Meesho runs thematic brand campaigns to highlight its core values and unique selling propositions. For instance:

• Empowering Women Entrepreneurs: Campaigns that focus on how Meesho supports women by providing a platform for them to start and grow their businesses.
  
• Affordability and Variety: Emphasizing the range of affordable products available on the platform and the ease of shopping.

Empowering Women Enterpreneurs

#SahiSahiLagayaHai

These comprehensive marketing strategies help Meesho maintain a strong presence in the competitive social commerce market, attract and retain users, and drive sales growth.

Summary of Meesho’s Case Study

Business Model Overview:
Meesho has established itself as a leading e-commerce platform in India by adopting a unique business model that sets it apart from competitors like Amazon and Flipkart. Here’s a breakdown of how Meesho operates and what makes it different:

1. Zero Commission Model:

• Sellers’ Earnings: Unlike other platforms that charge commissions (60-70% of the sale), Meesho charges no commission and only a small fulfillment fee based on the seller’s location. This means sellers receive the full sale amount minus the minimal fee.
• Revenue Generation: Meesho generates revenue through performance-based advertising. Sellers can pay to promote their products, using models such as Cost Per Click (CPC), Cost Per View (CPV), Cost Per Action (CPA), and Cost Per Mille (CPM).

1. Performance Marketing:

• Advertising: Sellers can choose to advertise their products to boost visibility and sales. The CPC model is prevalent, where sellers are charged based on clicks rather than impressions, focusing on conversions rather than brand awareness.

1. Marketplace Model:

• Asset-Light Approach: Meesho operates primarily as a marketplace rather than holding inventory. This model reduces investment in inventory and storage and avoids issues like waste and price fluctuations associated with holding stock.

1. Equal Treatment of Sellers:

• No Seller Tiering: Meesho does not prioritize or offer better benefits to top-performing sellers. This avoids creating a gap between large and small sellers, fostering a fair environment for all.

1. Efficient Logistics:

• Cost Management: By outsourcing logistics and leveraging its large shipment volume, Meesho reduces shipping costs from 30% to around 15-20% of the average order value, with plans to decrease it further. This is made possible by scale and negotiation with third-party logistics partners.

1. Fast Refunds:

• Return and Refund Process: Meesho has a high return success rate of 96% and processes most refunds within 5-25 minutes using advanced technology and efficient handling practices.

Lessons Learned:

1. Explore Blue Ocean Opportunities: Meesho’s success highlights the value of targeting less saturated markets, such as tier 2 and tier 3 cities in India.
2. Leverage Technology for Efficiency: Implementing technological solutions can solve common industry problems, such as product quality and returns, and build customer trust.
3. Fairness and Equal Opportunity: Avoiding seller tiering ensures that all sellers have an equal opportunity to succeed and prevents market domination by a few large players.
4. Cost Efficiency in Logistics: Efficient logistics and strategic partnerships can significantly reduce costs and improve profitability.

Impact and Success:
Meesho’s innovative approach has allowed it to become the fastest-growing e-commerce platform in India, with 120 million average monthly active users and a significant market presence. The company’s focus on empowering small and medium sellers, combined with its asset-light model and efficient logistics, has made it a major player in the Indian e-commerce space.