” What People Want “, from their Work/Career: “Motivation” | by: Susan M. Heathfield | Human Resources

Every person has different motivations for working. The reasons for working are as individual as the person. But, we all work because we obtain something that we need from work. The something we obtain from work impacts our morale and motivation and the quality of our lives. Here is the most recent thinking about motivation, what people want from work.

” Some people work for love; others work for personal fulfillment. Others like to accomplish goals and feel as if they are contributing to something larger than themselves, something important. Some people have personal missions they accomplish through meaningful work. Others truly love what they do or the clients they serve. Some like the camaraderie and interaction with customers and coworkers. Other people like to fill their time with activity. Some workers like change, challenge, and diverse problems to solve”. 

” Motivation is individual and diverse !!!! ” 

Each Employee Has a Different Motivation

Whatever your personal reasons for working, the bottom line, however, is that almost everyone works for money. Whatever you call it: compensation, salary, bonuses, benefits or remuneration, money pays the bills. Money provides housing, gives children clothing and food, sends teens to college, and allows leisure activities, and eventually, retirement. To underplay the importance of money and benefits as motivation for people who work is a mistake.

Fair benefits and pay are the cornerstone of a successful company that recruits and retains committed workers. If you provide a living wage for your employees, you can then work on additional motivation issues. Without the fair, living wage, however, you risk losing your best people to a better-paying employer.

In fact, recent research from Watson Wyatt Worldwide in The Human Capital Edge recommends, that ” to attract the best employees, you need to pay more than your average-paying counterparts in the marketplace “….“Money provides basic motivation” !!! 

Ok. Got Money ? What’s Next for Motivation ? : 

I’ve read the surveys and studies dating back to the early 1980s that demonstrate people want more from work than money. An early study of thousands of workers and managers by the American Psychological Association clearly demonstrated this. While managers predicted the most important motivational aspect of work for people would be money, personal time and attention from the supervisor was cited by workers as most rewarding and motivational for them at work.

In a recent Workforce article, “The Ten Ironies of Motivation,” reward and recognition guru, Bob Nelson, says, “More than anything else, employees want to be valued for a job well done by those they hold in high esteem.” He adds that people want to be treated as if they are adult human beings.

While what people want from work is situational, depending on the person, his needs and the rewards that are meaningful to him, giving people what they want from work is really quite straight forward.

People want the following : 

  1. Control of their work inspires motivation: including such components as the ability to impact decisions; setting clear and measurable goals; clear responsibility for a complete, or at least defined, task; job enrichment; tasks performed in the work itself; and recognition for achievement. 
  2. To belong to the in-crowd creates motivation: including items such as receiving timely information and communication; understanding management’s formulas for decision making; team and meeting participation opportunities; and visual documentation and posting of work progress and accomplishments. 
  3. The opportunity for growth and development is motivational: and includes education and training; career paths; team participation; succession planning; cross-training; and field trips to successful workplaces. 
  4. Leadership is key in motivation. People want clear expectations that provide a picture of the outcomes desired with goal setting and feedback and an appropriate structure or framework. 

Recognition for Performance Creates Motivation : 

In The Human Capital Edge, authors Bruce Pfau and Ira Kay say that people want recognition for their individual performance with pay tied to their performance. Employees want people who don’t perform fired; in fact, failure to discipline and fire non-performers is one of the most demotivating actions an organization can take – or fail to take. It ranks on the top of the list next to paying poor performers the same wage as non-performers in deflating motivation.

Additionally, the authors found that a disconnect continues to exist between what employers think people want at work and what people say they want for motivation. “Employers far underrate the importance to employees of such things as flexible work schedules or opportunities for advancement in their decision to join or leave a company.

” That means that many companies are working very hard (and using scarce resources) on the wrong tools,” say Pfau and Kay. People want employers to pay them above market rates. They seek flexible work schedules. They want stock options, a chance to learn, and the increased sharing of rationale behind management decisions and direction.

What You Can Do for Motivation and Positive Morale ? : 

You have much information about what people want from work….

Key to creating a work environment that fosters motivation are the wants and needs of the individual. I recommend that you ask your employees what they want from work and whether they are getting it. With this information in hand, I predict you’ll be surprised at how many simple and inexpensive opportunities you have to create a motivational, desirable work environment.

Pay attention to what is important to the people you employ for high motivation and positive morale. You’ll achieve awesome business success.

“Great Employees” are “Not Replaceable” | by: Amy Rees Anderson | Forbes

 

One of the most important lessons I learned during my years as a CEO was that great employees are not replaceable. It isn’t the technology or the product that make a company great, it’s the people.

And companies who see their good employees as “replaceable” are wrong. Good employees are NOT replaceable. Let me clarify what I mean by “replaceable.”

Can a company hire someone to fill a position to replace someone else ? Of course they can. In today’s market, the world is ripe with candidates who are eager and willing to take the job. But putting a behind in a seat doesn’t replace a great employee. It simply puts a new behind in a seat.

Business leaders who adopt the attitude that anyone is replaceable, thinking they can simply hire someone with a greater skill-set or someone with a more prestigious pedigree, are fooling themselves. When a company has a truly great employee, that employee carries value that simply cannot be replaced.

They carry deep institutional knowledge of the organization. They have extensive product, systems, and process knowledge. They hold client relationships that have been built over many years. They carry tremendous experience on what has worked and what hasn’t worked for the company in the past.

And great employees have camaraderie and influence with their coworkers, which when lost, has an impact on the corporate culture.

When a company loses a great employee it causes the other employees to have reason for pause, thinking…“ Why would that person leave the organization, and why would the organization let them get away ?? Is there something wrong with this company that I should be worried about ??  Perhaps I should start looking elsewhere myself  ?? ” 

Not only will other employees question it, but clients often question it as well. When clients trust an employee and that employee leaves, the clients begin to ask themselves the very same questions that other employees have, “Is there something wrong that I am unaware of ? What would have caused that employee to leave ? Should we be out looking for a new vendor ? ” 

The ripple effect of losing a great employee is tremendous and it goes well beyond what is easily quantified..!! 

Companies need to be very thoughtful when making decisions around compensation for their employees. To deny a reasonable increase to a top performer in the organization can be a very costly mistake. To try and hire a replacement for a great employee will inevitably cost the organization significantly more money when they take into account the starting wage required in their attempt to “hire up,” not including the cost in time and money to train a replacement and get them up to full production, as well as the opportunity cost of having created a gap in the institutional knowledge of the business.

Obviously, there will be some life events that take great employees away from a company, which cannot be stopped. But when companies have the option to retain great employees, they should do everything in their power to do so. 

Companies who want to retain their top talent need to be willing to show them appreciation, compensate them well, and treat them with the respect they deserve. ” At the end of the day, it won’t be a great product or service or technology that makes a company succeed – it is great people that make a great company”….

Appreciate those men and women who dedicate their time and talents each day to make your company a success, because those are the people who cannot be replaced..!!!!

“Staffers on Retail-Floor” dash “towards the Exit” | Indian Retail | Business-Standard

Indian retailers, big and small, are facing high personnel attrition across stores. Many are seeing almost all their staff getting replaced every year.

Fast growth in organised retail and opening of new malls and stores have raised attrition levels at the shop floor to alarming levels of eight per cent a month, or 96 per cent a year, say consultants. Just three to four years earlier, attrition was only two to three per cent a month.

The Indian retail sector grew eight per cent annually between 2007 and 2011, with the organised segment growing at more than three times the pace of the un-organised one. The share of organised retail is expected to touch 14 per cent of the total by 2016, says a recent report from consultancy firm Booz & Company. A number of corporate groups — Reliance, Birlas and Bharti, for instance —have entered the sector. Existing ones such as the Future group, Spencer’s and others have expanded, opening avenues for front-end staff.

“We are seeing an attrition of 50 to 60 per cent, lower than the industry. But that is because we do not ask for a high qualification. We are okay with 10th standard pass-outs, while others ask for 12th pass-outs. Those (10th pass) people tend to stay for a longer time,” says a senior executive from the Mumbai-based D Mart chain.

” High attrition pushes up hiring costs”…………. 

Adds Suresh J, managing director, Arvind Lifestyle Brands: “When retailers open new stores, they offer Rs 500 more and get people. For many sales staff, even a Rs 500 hike is big enough to move.”

In a recent survey (done July 2012 to Janaury 2013, with 34 retailers taking part) by Tata Consultancy Services and the Retailers Association of India (RAI), a third of the respondents said they had average attrition rates of more than eight per cent in a month, translating to almost 100 per cent a year.

While department stores exhibit the lowest levels of attrition, 55 per cent of value retailers have attrition levels of over eight per cent in a month, TCS-RAI said on the findings.

” Both large and small format retailers have been impacted by this phenomenon. In smaller format stores, especially in the fashion space, a change of key employees can impact sales by 15 to 20 per cent. Hence, retailers tend to keep a hawk-eye on store attrition levels and are taking a multi-pronged approach to address it,” the survey said.

Govind Shrikhande, managing director of Shoppers Stop, says employees are leaving for a combination of reasons.

“About 25-30 per cent leave for higher education, another 30 per cent leave for higher salaries and others for various other reasons.”

Consultants say the growth in organised retail is throwing up opportunities for front-end staff. “Employees are even shifting for a small hike, as they don’t get paid huge salaries,” said Prashant Agarwal, deputy managing director of Wazir Advisors, a retail consultancy.

E. Balaji, chief executive and managing director of human resources firm Randstad India, said: “It was a similar case seven to eight years ago, when call centres came to the country. Since the retail sector is new and talent is scarce, people tend to move frequently.”

Shoppers Stop has put career progression modules within the company. Any customer associate who completes 18 months with the company becomes eligible for a ‘Baby Kangaroo’ programme, wherein he will get a mentor and additional responsibilities. Once the associate clears assessment tests, he or she can become a department manager or store manager. Those who complete 24-36 months, can also get into different career growth tracks, based on their qualifications.

Indian “Retail-Operations”, “Bench-marking & Excellence” Survey 2013 | a RAI-TCS Study

The organized retail industry in India “turns 20 this year”. While the last two decades have been about high growth and pace, it’s time to take stock of the health of the industry as a whole. To provide a snapshot of key drivers of industry growth, profitability and operational excellence, the Retailers Association of India (RAI) and Tata Consultancy Services (TCS) have commissioned the first ever – Retail Operations Bench-marking Excellence Survey (ROBES). 

The survey profiles 35 leading retail brands in the country to understand process maturity and current practices around the following : 

  • Customer Service 
  • Marketing & CRM 
  • People Management 
  • Visual Merchandising
  • Space Management
  • Inventory Management

Highlights of this first ever survey on retail operations bench-marking and excellence of Indian retailers reveal that the current sentiment among Indian retailers is to optimize their existing investment through a strong focus on operational efficiencies and process improvement, improving numbers all around. Retailers are expanding but cautiously – format expansion is fourth on their priority list for the coming year.

The new buzz phrase is about being “EBIDTA positive.” New stores are given a strict timeline to perform. And this time around, retailers are unapologetic about closing stores if found un-viable. Overall, there is a more clinical, hard-nosed approach to retail and store operations in particular. Retailers are looking closely at their own internal efficiencies and toward each other to understand what can be done better.

Key takeaways emerging from this study include the following:

  1. Overall process maturity – Still some way to go 
  2. Store profitability is paramount and patience is running thin 
  3. Customer service is the true differentiator  
  4. 88 percent retailers mystery shop at their own stores 
  5. Inventory management is a critical focus area 
  6. Shrinkage – Persistent efforts are helping keep the faith 
  7. Below the line (BTL) marketing is the way forward 
  8. Weakened store expansion and strong focus on optimization of existing investment 
  9. Employee engagement is key to sustained growth 
  10. Technology adoption is slow 
  11. Multi-channel – high interest but low on action 
  12. Customer Loyalty Program: Miles to go before we sleep 

Overall process maturity – Still some way to go: 

The overall process maturities based on fundamental, must-have processes across the following six segments reveal ample scope for improvement and sharing of best practices. People management in particular continues to be an area of intervention. In functions like space management and marketing, while retailers seem to be comfortable, they could get more out of their operations if they had the necessary tools and measurement practices like measuring promotion performance. Visual merchandising is one function that respondents seem comfortable with in terms of process maturity. However, this function is increasingly being viewed as a potential revenue driver rather than just a hygiene “store look” enabler.

Overall Process Maturity - Cross Segment

Store profitability is paramount and patience is running thin: 

Retailers are making no bones about the fact that store profitability is critical. Given the hard lessons learnt from the last economic downturn, retailers are looking at a mix of cautious expansion with a strong focus on store profitability. This has affected store location, size and assortment decisions more than ever before. Retailers are not shying away from store closures (where they are found to be unviable) and resizing exercises to make them EBIDTA positive as soon as possible. Store managers are increasingly being trained on the P&L and seen as being accountable for their store’s bottom-line.

Customer service is the true differentiator : 

The market is crowded with many similar brands. Retailers are coming around to the view that service is the true differentiator; customers will develop trust through right advice and exceptional service, which will reflect in increased loyalty.

This strategic focus on the customer has not yet translated into a full-blown operational and process focus on in-store experience metrics. For example, while value retailers state that the customer experience during billing is key; 33 percent do not measure the time taken to bill during peak hours; and 56 percent do not measure the average queue length during peak hours.

Billing Efficiency at Peak Times

88 percent Retailers Mystery Shop at their Own Stores: 

The survey shows that “mystery shopping” has emerged as an important tool for retailers to get an “outside-in” view of their stores with 88 percent respondents saying they conduct mystery shopping studies at least half-yearly. Most of those who have a program in place say that it helps them get an outsider’s perspective on their stores and ensure that store employees give their best at all times.

Frequency of Mystery Shopping Audits

Inventory Management is a critical focus area:

Processes around inventory management at the store are a key focus area for all retailers. The study indicates that inventory management as an area has become stronger. Better visibility through perpetual stock-take measures, increase in bar-code scanning of incoming and outgoing merchandise and higher control over shrinkage means that the industry has increased process maturity in this area.

There is increasing evidence of a partnership between the Operations and Finance functions – with both process and policy being attuned to inventory management. Perpetual stock takes are outsourced to specialist firms by an increasing number of retailers who seem to have reaped significant benefits from this move.

Shrinkage – Persistent efforts are helping keep the faith: 

The survey indicates that retailers who have a zero tolerance refer to shrinkage in rupee terms while others refer to it in percentage terms.

Also, smaller retailers view store staff as entrepreneurs who have to necessarily achieve zero shrinkage. No bonus is given to manage shrinkage as it is viewed as a hygiene factor. Retailers are also looking at decreasing shrinkage levels by focusing on process, policy and technology initiatives. Instant penalties for shrinkage at the store along with strict discipline in daily global counts, surprise and regular stock audits by external auditors has led to a culture of greater stock accountability.

There also seems to be a direct correlation between shrinkage levels and the retailer’s merchandise barcode scanning process maturity.

Below the line (BTL) marketing is the way forward: 

BTL is emerging as a strong focus area for retailers in the coming year. Catchment initiatives are seen as a “must do” across retail segments to arrest declining same-store footfalls. Store managers are increasingly being pushed to develop their catchments and bring in more customers.

However, efforts are still localized with only 37 percent of respondents having an integrated CRM program. Also, 70 percent of those interviewed do not use any tools to execute promotions other than spreadsheet and email.

Weakened store expansion and strong focus on optimization of existing investment: 

Market acquisition through new store launches has taken a back seat and store profitability has become the top of the mind objective for the coming year. While store managers are being trained and measured on store profitability, there is also a need to tighten up central functions. For a majority of respondents (56 percent), lease cost is more than 10 percent. However, most retailers surveyed do not see the need to use advanced space management techniques and continue to manage space allocation and efficiency using spreadsheets. Only half of those interviewed had visibility of their spaces at a department level. Not surprisingly, only 19 percent of respondents scored above par on overall process maturity in space management.

Space Management - Overall Process Maturity

Employee engagement is key to sustained growth:

Employee training has assumed importance given high attrition levels and ever-increasing customer expectations, especially as people management is the weakest among the surveyed respondents. There is a growing realization that happier employees create a better store atmosphere resulting in far more effective customer interaction and sales.

For example, some areas for improvement include the following – 

  • About 33 percent of the respondents had attrition rates of more than 8 percent per month – which means that they replaced their entire staff every year.
  • 22 percent of respondents do not provide insurance or medical benefits.
  • Only 26 percent of respondents make employee training a part of the store manager’s Key Result Area (KRA).
  • 27 percent of respondents do not have well-defined, documented career plans for their store employees.

Engaging with a younger, ever evolving and far more technology-savvy and informed set of customers has necessitated a constant upgrade of the store staff capabilities. Is there a clear people management strategy in place to cater to the changing shopping behavior of the savvy digital shopper ?

Technology adoption is slow: 

There is an overall laggard in terms of technology adoption (compared to banking, travel and hospitality). This is found to be so in areas like task management and scheduling, mobility, space management and in-store customer experience management.

Multi-channel – high interest but low on action: 

The advent of digital shopping is a significant change agent. And it is challenging the conventional ways of managing the stores on almost all the parameters :

  • Format definition / roll out plan / operating models in the light of multi-channel customers
  • Role of sales people
  • Store processes

There is high interest in E-commerce but low commitment and action; a “wait and watch” game is being played out. In our view, there is an opportunity to redefine the business model through digital channels.

Customer Loyalty Program: Miles to go before we sleep: 

The survey indicates that this is an area of evolution for department stores and fashion retailers. Retailers do not see this as a top priority and tellingly use the two phrases– “loyalty” and “rewards” – interchangeably not recognizing that they are a part of a continuum.

Those retailers who have invested in loyalty programs are starting to see the results. For fashion and departmental stores, 25 percent of the store sales accrue from “loyal” customers. At the same time, 44 percent of retailers in this category do not measure data around customer loyalty.

Not many have a rich customer database or leverage it to reach out to their individual customers. Only 40 percent of the respondents had an integrated loyalty program. This is another area that retailers have on their radar for the coming year.

” The Indian customer is younger, increasingly more tech-savvy, willing to experiment, demanding and short on patience. On the other hand, he/she willing to spend and frequent stores if treated well and given a good deal…..

Store operations in general have evolved significantly in the last five years – in terms of internal processes, systems and some technology usage. However, there is yet a long way to go in terms of managing customer experiences, streamlining internal processes and adopting technology”…..

Nielsen unviels “Consumer Rankings” across “Lifestyle-Categories” | Indian Retailer

Mobile messenger ‘WhatsApp’ emerges as the most engaging mobile app; while the site ‘ Flipkart ’ is the top e-tailing website for urban Indian consumers.

In the telecom sector, Nokia is the preferred brand of mobile handsets, while Vodafone ranks as the top mobile operator. These are the findings of the first round of Consumer Rankings for India launched earlier today, by Nielsen, a global provider of information and insights into what consumers watch and buy.

Nielsen India Consumer Rankings : 

Rankings are based on popularity and consumer experience for 6 Lifestyle-Categories including ” Smartphone Apps, E-Tailing sites, Mobile Handsets, Mobile Operators, Books and International Travel”….. preferences of urban Indian consumers.

These findings will be released at an All India level for all 6 categories and select city rankings will be released for 4 categories (E-tailing, International Travel, Mobile Handsets and Mobile Operators) across Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad andPune. The rankings are arrived at using Nielsen proprietary tools, current panels, and in-depth surveys and studies where relevant across the country and are unique to each category.

“While we have always provided uncommon consumer insights for our clients, with this initiative we are taking insights from cities across the country, and giving  back to consumers” said Piyush Mathur, President , Nielsen India Region. “These rankings reflect the pulse of urban Indian consumers, and will provide a different lens to view the lifestyle choices that urban consumers are making every day. In sync with our view on innovation and complementing todays on-the-go lifestyle, the App created for these rankings is the right accompaniment  to the information on the website and allows access to consumers literally at the touch of a screen ”, he added.

“Nielsen has always been the curator of the consumer voice and these consumer rankings are a reflection of collective consumer intelligence, at the national level and for our top cities. These will enable the Indian consumer to validate choices and make empowered lifestyle decisions” said Ranjeet Laungani, Vice President , Nielsen India. “Nielsen consumer rankings acknowledge that the Indian consumers not only want to be heard but also be better informed. These rankings will provide the average urban Indian with a neutral, fact-based consumer view on everyday categories that are relevant to them” he added.

How to use “Customer-Data” to plan “Retail-Store layouts” | by: Graeme McVie | RetailCustomerExperience

 

You’ve already invested in customer data collection, data management and formulating insights. Now it’s time to start exploring the myriad ways to apply that valuable data to boost the bottom line. Tweaking store layout is one way to help earn maximum return on your investment.

Historically, retailers have relied on a variety of methods, including customer surveys, Geo-demographic information, sales dollars and sales velocity when it comes to determining the most efficient store layout. But those methods often fall short of their full potential.

By augmenting those traditional approaches with customer-specific basket data, retailers can get a deeper look at the behavior of priority customers, and adapt store layout accordingly.

How to use customer data to plan store layouts

Customer information helps provide a better understanding of the lifestyles and life stages of a particular store’s shoppers. It can be used to identify affinities between items or any types of patterns. Data can then be applied to a number of both promotional and physical re-merchandising scenarios that target a company’s best customers.

Adjusting shelf layout : 

An East Coast grocer noticed that sales of adult cereal were lower in some stores than others. When they looked at their pricing, promotion, assortment and planogram (visual product-placement planning) decisions, they couldn’t spot any clear pattern. However, when they analyzed customer data, they found an explanation — they were under-penetrated with their senior customer segment, but only in certain stores.

Organization of the cereal aisle with kids’ cereal on the bottom shelves, family cereal in the middle and adult cereal on top, created the greatest under-penetration. But when the aisles were organized into eight-foot sections, one each for kids, family and adult cereal, the sales were corrected. Making it easy for the senior customer segment to reach the adult cereal was a key driver to penetration.

The grocer reset the shelves, but only in stores with a high number of shoppers in the senior customer segment, thereby minimizing disruption and cost associated with the reset. As a result, for the senior customer segment, cereal penetration increased, basket sizes increased, sales increased and profits increased.

Cross-merchandising : 

An auto parts chain discovered two interesting insights when analyzing customer data: First, in certain stores, sales of motor oil were lower among commercial customers than among consumers. But replacement-part sales were in tune with expectations for both groups.

Further analysis on oil sales revealed that the retailer had a discount price plan for commercial customers that applied to parts but not to oil — even though more than half of motor oil sales were generated by commercial customers.

The second discovery was that in stores with more tenured sales associates, sales related to oil transactions were higher. Further study revealed that in these stores with tenured associates, salespeople would up-sell customers by suggesting that they purchase oil pans, rags and filters along with motor oil.

The retailer implemented a two-part initiative that resulted in increased sales and revenues. First, it sent commercial customers direct-mail offers for oil discounts. Second, it conducted up-sell training for less-tenured associates. Additionally, it approached store layout by establishing a special oil-change section that cross-merchandised oil, filters, pans and rags, and shoppers received a $5 discount if they purchased all four items. Signage that suggested cross-purchases was also employed. Every month, the section was updated to feature a different oil, filter, pan or rag supplier, creating partnership opportunities for the retailer.

Changing physical layout : 

A grocery retailer identified some smaller sales that were occurring mid-week in late afternoon and early evening. It determined that these shopping trips were being made by two-income families with young children.These families wanted to prepare convenient, healthy meals during the week. The retailer subsequently altered the layout of certain suburban stores to create a convenient, one-stop shopping area at the front of the store for these high-value customers.

The new store sections included rotisserie chicken, fresh-prepared cut produce, bread, salad, a beverage cooler and a dessert section.The retailer installed these sections in store locations that over-indexed in the young-family customer segment.

In addition to physical store changes, the grocery increased staff and self-checkout counters during the important weeknight hours of 4:00 to 7:00 p.m. Then, a targeted direct-mail campaign was sent to the customer segment. It explained the change and offered a $5 off coupon for the next transaction conducted during this special three-hour period, if the customer purchased at least three items from the new section. Signage was also hung at the store entrance to draw shopper attention.

Today, retailers that have applied customer analytics to new areas are seeing tangible results in the form of higher transactions, bigger margins and larger orders in re-merchandised areas of select stores. By using customer data for more than staging targeted promotions, these retailers are reaping a true return on an investment that ultimately affects their bottom line.

India’s E-Commerce ‘Gold Rush’ Fraught With Risks | By: Rajeshni Naidu | CNBC

India was home to the fastest growing online market among the BRIC (Brazil, Russia, India and China) nations last year, growth that is fueling a booming e-commerce market.

The number of unique online visitors in India grew 50 percent in the 12 months to November 2012, according to internet analytics firm comScore, outpacing the likes of China and Brazil, which grew just 2 to 3 percent each.

And with an estimated three out of five Indians online visiting retail websites during that period, analysts say India is well on its way to becoming one of the world’s biggest online retail markets.

But there are also some major challenges ahead. Low internet penetration, the lack of profitability among online retailers, means it could be up to another five years before online retail truly takes off and commands a larger slice of the country’s $450 billion retail market, experts say.

” 110 million people who have access to the internet of any sort, and not all of them are keen on participating in e-commerce – so the space that you’re playing in is still very, very small,” said Dheeraj Sinha, author of the book “Consumer India: Inside the Indian Mind and Wallet.” “The population that you have online has built up over a period of five years.”

According to Mumbai-based Sinha, the “big jump” among India’s billion-plus consumers, from surfing the internet to becoming keen online shoppers, will take time, and retailers considering entering the online market should have at least a five-year horizon in mind.

Right now, online retail makes up less than 1 percent of India’s retail market, according to Euromonitor, but it is expected to reach up to 8 percent by 2020.

Some of the big players in India’s online retail market include the U.S’s Amazon.com, which also runs Indian website Junglee.com, book-seller Flipkart.com, online marketplace Snapdeal.com and apparel retailer Jabong.com.

“The number of (online) transactions have increased, the number of people who are more comfortable shopping online has increased, but in terms of the businesses which are in e-commerce – there has been a slowdown overall from earlier growth”.

Biggest Challenge: Profitability –

The cost of attracting consumers to shop online in India has come at a very high price for online retailers, according to Nangia, who says developing the country’s e-commerce ecosystem is impacting their bottom line.

“E-commerce companies have spent a lot of money, so they have ended up with a very high activation cost and the cost of acquisition at times is much higher than the average purchase or business that is generated from that customer,” Nangia said. “The first few years have been good to develop the base for the industry, but it’s increasingly becoming important that companies look at the profitability of the business as well.”

Manu Jain, co-founder of Jabong.com, a leading Indian online apparel retailer that entered the market just over a year ago says that while he expects year-on-year growth for his business to be on track with industry estimates of a 300-350 percent rise in revenue, the company is not making profits yet.

“I think we’re moving in the right direction towards the path to profitability and we hope that we should be able to achieve it faster than anybody else in India. We still require investor money, but we hope to become profitable soon,” Jain said.

Snapdeal.com, India’s leading business-to-consumer or B2C website, which has over 20 million registered users is also yet to make a profit despite seeing the cost of purchases more than triple over the past year.

“Our cost base is very, very low given that we don’t hold any inventory, we don’t have any warehouses, we don’t own delivery vans and all those things,” Kunal Bahl, co-founder and CEO of Snapdeal.com said, when asked about profitability. “We’re still in the early days, investments have to be made in driving consumers and brands to digital commerce.”

Unique Shoppers – 

To attract consumers to online shopping, retailers have used tactics such as payment by cash or credit card on delivery and no-questions-asked return policies.

Technopak’s Nangia expects retailers to increasingly pull back on these offers as they try to rationalize costs in 2013. “We should see much emphasis on profitability-per-shipment than we have seen till now,” she said.

Shabori Das, research analyst at Euromonitor in Bangalore, however, says that if online retailers take back offers like cash on delivery (COD), they’ll lose out on big segment of the Indian consumer base: those who do not have bank accounts or debit and credit cards.

“India is an extremely price-sensitive market and if someone is taking back the offer and the other one is still offering, it’s bound to happen that the one who’s offering COD will get more sales,” Das said.

Bahl of Snapdeal.com said he has no plans to change options like COD, because India is an 85 percent cash economy and people will not make a “significant behavioral change overnight.”

“While cash on delivery may create 3 percent more returns, I see it as a small price given the market expansion that it facilitates,” he said. Mumbai resident Surova Kar opts more for COD than paying directly online when she’s not sure of the fit of items like shoes or clothing or even the reputation of the retailer.

“It feels like the product comes faster for cash of delivery – delivery is very fast, within 24 hours sometimes,” Kar, 34, said. The stay-at-home mom says she orders everything from diapers to clothing up to twice a month for her 15-month old baby online and is now very comfortable with the retailer she uses.

“Since I use this one website, they are extremely good, and now I can order completely blindly with them – that’s the level of trust I have got now,” Kar said. And ” Building-Trust” is a big part of how India’s online retailers plan to keep their businesses growing.

“The overall acceptability and willingness to buy online has increased tremendously and we see a huge amount of orders coming from not only bigger metros, but also from smaller cities,” said Jabong.com’s Jain. Consumers are buying more now, because there’s more trust in the system, Bahl of Snapdeal.com added.

“We’re making sure he’s [the customer’s] giving you a dollar very quickly then coming back again and again to give you more dollars,” Bahl said.