India’s leading e-commerce companies have abandoned the one metric they had held dear since inception.
Gross merchandise value—GMV or the total value of goods sold through a marketplace—has so far been the most widely used metric for gauging the size and success of e-commerce businesses in India. Both Flipkart and Snapdeal have in the past flaunted their GMVs and shared ambitious GMV targets.
But now Flipkart has decided to stop obsessing about the metric and instead focus on “net promoter score” (NPS), which is used to gauge customer loyalty, The Economic Times newspaper reported on May 24. “We have stopped giving the (GMV) range,” Flipkart co-founder and CEO Binny Bansal said. “So the focus is now on input targets about the number of customers, customer experience, NPS.”
This comes just a month after Snapdeal distanced itself from GMV targets. In April, Snapdeal co-founder and CEO Kunal Bahl had said that his company aims to add and retain high-paying users.
“It’s (GMV) an outcome metric. It’s not what you chase as a company,” Bahl said. “GMV by itself is not necessarily a good metric that demonstrates anything else outside the value of goods transacted.”
Snapdeal is now focusing on shoppers who make big-ticket purchases and the company plans on growing the number of daily users by 20 times in five years from one million last month.
Even though experts have contested the merits of over-reliance on GMV in the past, this sudden shift has caught their attention.
“GMV was never the right metric in the first place, but this sudden change of mind for Flipkart and Snapdeal is probably because investors are no longer buying the inflated figures that were going around,” said Arvind Singhal, chairman and managing director of consulting firm Technopak. “This sudden shift in focus seems to be a face-saver by the two companies.”
The GMV debate
Privately-held e-commerce companies—Flipkart and Snapdeal—share very few business metrics, of which GMV has been the most talked about as many consider it a proxy for revenue, but it is far from that.
If an online marketplace sells a mobile phone for Rs15,000, that selling price is the GMV. However, the revenue for a marketplace is the commission it makes on the transaction, which could be as low as 3-5%, around Rs450-750 in this case.
So why were Flipkart and Snapdeal talking about GMV so far?
“It is natural for any company to choose the most convenient or rosy metric and share that with the media for PR purposes. But I’m sure that the company looks at a menu of metrics internally rather than any single one,” said Kartik Hosanagar, professor of technology and digital business at University of Pennsylvania’s Wharton School. “GMV is a perfectly fine metric. That said, it’s never a good idea to rely on any one metric as a golden metric. To gauge the health of a company, one needs to slice and dice the data in multiple ways to get a complete picture.”
The new metrics
Flipkart and Snapdeal have now chosen customer-related indicators as their focus: NPS for Flipkart and daily users for Snapdeal.
While it is a good strategy to retain and grow consumer base, Singhal of Technopak believes that these metrics hardly say anything about their business.
“Are they saying that they were not focusing on customers so far?” he said. “It’s true that you won’t get business if you are not focused on customers, but giving importance to your customers alone won’t help either.”