Online consumption still to take off in India, say BCG and Google

05 March 2018 6 min. read

Despite the rapid growth of digital access, and the ascension to one of the largest digital markets in the world, India remains behind the other major economies when it comes to permeation of the online sphere in day-to-day activities. A new report from The Boston Consulting Group (BCG) and Google reveals that only 20% of internet-users in India engage in online retail and e-commerce.

Reports over the last year have suggested that India is on the rise economically. A large and increasingly digitally active population is expected to drive the country’s economy to becoming a regional hub, and a global economic power over the next few decades. Central to this scenario, however, is the correlation between digital connectivity and increased economic activity.

In essence, the distinction must be made between digital access and digital literacy. As a result of the growth of the online market, predictions have emerged in droves about growth in the media and entertainment consumption of the country, the digital advertising arena, and other digitally-dependent sectors.

However, a recent report from RedSeer Consulting found that, of approximately 500 million internet users in India, 50% had never used social media platforms such as Facebook and WhatsApp, whereas an even larger number (300 million) had never used Google, Wikipedia, or e-mail.

Internet users in India

To some extent, this can be attributed to a sudden dip in the price of internet access, brought about by the introduction of the Reliance Jio network, which drove up the number of internet users while levels of education and economic prosperity have remained the same.

Such is the conclusion drawn by a recent report titled ‘Digital Consumer Spending in India: A $100 Billion Opportunity,’ compiled as a collaborative effort between BCG and Google. As per the report, the number of online users in India has doubled in the last 4 years alone, driven by low-cost availability.

International comparisons

The online market is the second largest in the world, and comparable to major economies. Where India differs from other major economies, and significantly so, is in the nature of internet usage. When conducting a small international comparison, the report divides internet utilities into 4 categories, namely e-commerce, travel & hotel, financial services and digital media.

Online consumption compared to China and USA

As per the report, 20% of India’s internet users engage in e-commerce, compared to 63% in China and 79% in the US. In the ‘travel & hotel’ category, the percentage of active Indian internet users was 15%, compared to 55% in China and 40% in the US. In light of increased innovation in the Fintech space, most Indian internet users (21%) engage financial services online, compared to 50% in China and 68% in the US.

The least number of Internet users, according to the report, enlist video on demand and other subscription/transaction digital media services, at 0.7%. This number is relatively low in China as well, at 6%, and in the USA, at 39%.

Consumer categories

Perhaps the most direct indicator of the relationship between increased internet access and overall economic growth is the percentage of income that an online consumer spends on internet transactions. In order to segregate different levels of online consumption, the report divides online consumers into low transactors, medium transactors and high transactors.

consumer categories

Low transactors make up around 50% of online consumers in India, spending around 5-10% of their total expenditure online, making use of only 2 to 3 services such as movie or travel bookings. Medium transactors comprise over 30% of India’s online consumers, with online transactions constituting 30-35% of their total expenditure, in a slightly broader range of categories such as purchasing budget-fashion accessories or mobile phones.

Only around 20% of Indian online consumers come under the high transactors category. Online purchases make up 60-65% of this group’s total expenses, stretching across 7 or 8 categories including groceries and home-décor products.

Interesting trends can be observed in the report’s predictions for future consumption based on age and gender. The ratio of online consumption between men and women, currently at 63% to 37% respectively, is expected to nearly level out by 2020, at 55% to 45%. In terms of age, online transactions are predicted to increase for all consumers above the age of 25, whereas there will be a dip in the number of online consumers between the ages of 18 and 24.

Future consumption by gender and age

Commenting on the findings, Partner and Director at BCG India Nimisha Jain said, “There is a clear evolution as consumers move from awareness of online platforms to their first purchase and further down to become more frequent buyers - triggers and barriers to online purchase evolve with each stage. Very different actions are needed to unlock growth and move consumers from one stage to the next.”

Industry Director for Google India, Nitin Bawankule added, “Digital spending in India are at a cusp of significant wave of change, while we have seen enthusiastic response to adopting newer forms of digital payments in the last few years, the base is still relatively small. The ecosystem needs to focus on creating a very targeted value proposition for different segment of users and across different categories to drive larger adoption. For example, in Food & Grocery category, convenience becomes a key trigger for frequent shoppers while discounts are important for occasional shoppers and quality is a key barrier among offline shoppers.”