How online marketplaces are driving used car sales in India

The size of the used car market in India was over 4.4 million units in 2020, according to Statistical. Its size exceeded that of the country’s new car market for the period measured. The growth of the Indian used car market over the past decades could be attributed to factors such as affordability, ease of resale and a growing network of used car dealers. At the same time, online sellers like Droom have helped increase sales of these cars by making them more accessible to buyers.

The startup has managed to forge ahead by leveraging a robust managed market business model, while also proving that it is economically viable and scale independent due to the use of technology, l economy of scale, economy of scope, light of assets and network effects.

What is a managed marketplace?

A managed marketplace is an online platform that can provide a highly standardized, organized, tightly controlled and rich user experience, independent of vendors, owning essential services such as price references, vehicle inspection, history vehicles, loans, insurance, closing documents and finally -miles of road tests and delivery in the value chain. An open market does not provide such services to the last mile buyer.

The big picture

There are a lot of things that work in favor of managed online marketplaces. For example, they are technology-driven, thin-asset-driven, and a “zero-risk” business that harnesses the power of an extensive distribution network to provide customers with a wide range of choices. Here are some other advantages of such a business model:

  • Buyers always get low prices when you try to balance speed of trade and gross margins.
  • There is an economy of scope because the model does not depend on products, prices, sellers or geographies
  • Economy of scale
  • The business model is very scalable due to the use of technology
  • Entrepreneurs don’t have to maintain physical centers or spend a lot of capital

Below is the peak hour analysis at Droom using various peak statistical observations from the past 7 years. One can see the power of a managed market, which cannot be replicated by organized physical stores, even with deep pockets:

Provide an unrivaled customer experience

In order to provide auto buyers with an unparalleled customer experience in organized retail markets, traders must regulate every element of the value chain. This requires:

  • Purchase of vehicles with the help of a sourcing and merchandising team
  • Obtain ownership of vehicles before selling them
  • Take risks while maintaining inventory
  • Have a large team of blue collar workers
  • Own a warehouse or storage facility
  • Getting by with less operational leverage
  • High investments and investment in working capital

Disadvantages of an organized automotive retail model

If we compare an online market with an organized retail auto market, the first option appears to be the most viable. Here are some reasons to support the observation:

  • Between 12% and 15%, the cost of capital in India is among the highest of any country. It translates to 2% of gross merchandise value (GMV) for working capital and capital expenses for physical stores with large inventory.
  • Considering the high price of real estate in India, the cost of occupying commercial spaces and warehouses can reach 10% of the GMV
  • Unlike the United States, Western Europe and Japan, India is a low trust market
  • Lack of regulatory support and weak law enforcement pose challenges for progress

In the infographic below, it can be seen why organized automotive retailing with physical stores and its own inventory is not likely to make money regardless of any scale.

The managed market is the way to go

With a “managed market” model, Droom can not only offer benefits such as wide choice and low prices, but also provide loan and insurance coverage for automobiles, while ensuring last mile delivery. to consumers. The best part is, Droom doesn’t need to build hundreds of outlets, own inventory, incur capital expenditures, or deploy thousands of blue collar workers to generate impact.

Amazon and Flipkart have already created significant value using managed market models in India. Droom’s managed market model controls 5 of the 10 automotive value chain activities. Without buying or owning vehicles, physical centers, incurring capital expenditures, owning warehouses or hiring manual labor, Droom can still deliver an organized and controlled experience by leveraging a platform. comprehensive technology and ecosystem services.

Since its launch, Droom has sold 332,000 automobiles and 1.35 million automotive ancillary services for a value of $ 3.35 billion. Since its inception, the startup has brought together 20.5,000 car dealerships, more than 100,000 individual sellers, a presence in 1,100 cities and 14 million app downloads. He also owns India’s latest automotive enthusiasm community on Facebook, which has over 6.5 million followers. At any given time, the company has around one million listings worth $ 15 billion.

About Jonathan Bell

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