How the world’s second-largest smartphone market is buying its smartphones

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Heavy discounting and exclusive launches of smartphones have started to pay off in the Indian e-commerce sector.

Last year, one out of every three smartphones sold in India was bought on a website or a mobile app, according to a recent report by market intelligence firm Counterpoint Research. That was just 18 months after mobile brands began focusing on selling their phones via e-commerce.

E-commerce platforms Flipkart, Amazon and Snapdeal together accounted for almost 90% of the online smartphone sales volumes, Pavel Naiya, research analyst at Counterpoint Research said in the report. “Flipkart was the leader contributing to almost half of all the smartphones sold online in India in 2015 thanks to its inventory-led model. Amazon also benefitted from the inventory-led model and tripled its smartphone sales over the period of 12 months.”

Electronics are one of the largest sales categories for most Indian e-commerce players, and mobile phones account for a substantial chunk of the segment. Online retailers have been offering deep discounts and striking exclusive deals on new models by tying up with phone makers.

Online prices  for mobile phones are on average 5% lower than in brick-and-mortar stores in India, according to a 2014 survey by research firm

Some large mobile phone brands such as Motorola sold some of their hot-selling smartphone models exclusively online for a long period after launch. In April-June 2015, 22% of the total smartphones sold in India were exclusively sold through e-commerce channels. Phone makers find that online sales cost them less than distribution through offline sales channels, and e-commerce platforms have allowed new entrants into the market.

“This trend has not only allowed newer brands to offer attractive pricing but also when coupled with attractive discounts, cash backs, marketing support from e-commerce platforms has driven e-commerce channel to become one of the important channels to distribute and sell mobile phones in India,” Tarun Pathak, senior analyst at Counterpoint Research said in the report.

In October-December 2015 (Q4), India had toppled the US to become the second-largest market for smartphones, after China. Smartphone shipments to Asia’s third-largest economy grew 15% annually during Q4, taking the user base to 220 million.

But there’s plenty of room to grow. The number of people in India with smartphones is still low compared to developed economies. Only four out of 10 mobile phone users own a smartphone, according to Couterpoint Research.

Flipkart > Snapdeal + Amazon

Bengaluru-based Flipkart, the market leader in terms of overall e-commerce sales in India, accounted for almost half of all the smartphones sold through e-commerce in the country last year, according to Counterpoint Research. Snapdeal and Amazon were distant second and third, respectively.

However, this trend may change. “We believe the competition will intensify in 2016 as players such as Paytm, Shopclues and others are aggressively promoting their platforms and a greater shift towards marketplace models,” Naiya said in the report.

Discounts and deals driven Indian buyers shopping online, but e-commerce players will now need to create customer loyalty. “We believe trends such as, mobile wallets and social commerce are going to be hot this year to create stickiness among the online shoppers. Players such as Snapdeal, Paytm are well positioned against Flipkart, Amazon from this perspective as the new rule aims to redistribute power across all players,” Naiya added.