Business Model of Meesho

19 May 2022  Read 1621 Views

Let’s offend: This blog has reached you at the right time because markets are falling every day and reportedly will remain sideways for a while. Take a moment to accept that Meesho is all you can afford for now. Thank us later! 

 There exists an online Dmart in India. It’s none other than Meesho.

The most significant industry in India is the Retail industry. In 2021 the retail sector earned revenue close to 900 billion dollars & it is the fastest growing industry in India.

The retail industry is dominated mainly by mom & pop stores & Kirana shops. But there is now a massive shift that is taking place in consumer behaviour in this industry.

Covid-19 accelerated & forced people to buy products online as there was a lockdown & it was not safe to go outside due to the pandemic. But now it has become convenient for people to shop online due to various reasons like the variety of choices, lower price, convenience, etc.

E-Commerce is a lucrative market, but it is pretty tough to compete with giant companies like Amazon, Walmart, etc. have billions of dollars in reserves. So how did Meesho start & now it is gaining market share in the e-commerce market slowly & steadily? So today, we will understand how a startup Meesho began back in 2015 & how it is changing this industry & its business model.

But first, it’s better to understand the retail market in India so we can know what Meesho is trying to do.

Retail Industry in India

By 2024 the retail industry will be worth 1.3 trillion dollars & it contributes more than 10% of India’s total GDP. According to Invest India, an investment promotion organisation, the retail sector gives employment close to around 8% of India’s entire workforce (More than 3.5 crore people).

So there are three categories of businesses that are currently ruling this market in India:

The Kirana shops & mom & pop stores

Kirana stores are present in every corner of India & sell goods that are required daily & owned by small business owners. 

Then there exist mom & pop stores that deal in clothes, footwear, hardware, perfumes, etc. All these goods are not essential products but significant to people. By combining them, there are around 1.5 crore small businesses owned shops in India which is more than the population of Isreal.

The Modern Retail (Supermarkets)

We all know how big Walmart in the USA is as it generates revenue of more than 500 billion dollars every year. Similarly, India’s middle class is growing & will be consuming more.

In India, Dmart led by Mr. Radhakishan Damani’s Avenue supermarts & Reliance retail is led by Mukesh Ambani.

Rise of new Industry Ecommerce 😎

COVID-19 has forced every company to become a tech company - Kunal Shah.

Ecommerce is not a new thing, it got traction in India when Sachin & Binny Bansal started Flipkart back in 2007 & it grew well because they saw Indians want products on COD(Cash on Delivery)—after seeing the success story of Flipkart, Amazon world’s largest e-commerce company, entered India in 2013.

Today Indian e-commerce market in 2021 earned close to around 63 billion dollars. It will be worth around 350 billion dollars by 2030 or maybe more than that.

As for now, there is a duopoly between Amazon & Walmart-owned Flipkart. Even Reliance Jio is stepping up in this lucrative field with JioMart. Also, Tata group has come up with its new super app named “Tata Neu” by buying Bigbasket.

Now we know about the whole retail industry & e-commerce industry. So, Let’s cut to the chase and talk about how Meesho started.

How did Meesho start?

Meesho India was started in 2015 by two IIT Delhi graduates, Vidit Atrey & Sanjeev Barnwal. They both saw that we tend to naturally trust our friends or the people we know when we have to buy a product. It has happened to us too.

The Socio-commerce way:

So Vidit & Sanjeev tried to seize this opportunity & they started socio-commerce in India. The concept was simple, onboard the sellers first & then they will try to keep their prices as low as possible.

Then they will onboard resellers who can send the product details to the people in their contacts. If they want, they will place an order with the reseller & then the reseller will add their margin & the product will be shipped directly to the customer via a third-party seller registered on Meesho.

Meesho has focused on empowering women & allowing them to work from home just by sharing the details of products in the Whatsapp group or via other platforms to the people they contact.

At the end of 2021, Meesho had onboarded 90 lakh female resellers. As of now, Meesho wants to help people start their businesses with zero investment & zero inventory.

The reseller model

1) Suppose there are two friends named Virat & Rohit. Rohit wants to buy a vacuum cleaner for his car.

2) So Virat bought one car vacuum cleaner two months ago & he knows it’s a good product with some great features.

3) Suppose the product costs 800rs & now Virat has one option he can recommend this vacuum cleaner to Rohit & as Rohit knows Virat for a very long time he trusts him.

4)So Virat will place an order with the platform & will add his profit margin, let's say 200rs & then Rohit will receive the product directly.

5) Now Virat has earned some money 200rs for his promotion. A way to incentivise people who recommend other people to buy the product.

But in 2021, they decided to go direct to consumers & sell the products at the lowest prices. Now competing with big giants like Amazon & Flipkart are present in this space for years.

Revenue Model of Meesho

In 2021, Meesho earned revenue of close to around 800 crore rupees. So let us understand the business model of Meesho:

There are many ways Meesho earns money. Some of them are different from what other players are reaching to date.

Commission from sellers:

When Meesho started, they used to charge a heavy 10-20% commission from sellers & with time, as the competition increased. Hence, they decided to lower it to even 1.8% for some sellers & in the year 2022, they introduced a new policy of “Zero commission” where they wanted to democratise e-commerce in India. 

Earlier in 2022, they earned a good amount of revenue from commissions.

Rank push Advertisements:

In 2021, Amazon earned a whopping 31 billion dollars from ads alone which is even more than youtube's 28.8 billion dollars. So by seeing that there is a huge opportunity here. Meesho is focusing on this as this will be their most significant source of revenue as every seller wants their product ranking should be higher.

Logistics:

Other major e-commerce companies don’t earn from shipping, but Meesho makes a small percentage from its partner shipping company whenever a product is shipped.

Seller penalty:

As they wanted to ensure the product was dispatched in time by the sellers, Meesho India introduced a policy for seller penalty. If the product is not delivered in a given time frame, the seller will have to pay a certain percentage of the order value. With this policy, Meesho earned some revenue. Then in 2022, they discarded this policy as it wasn’t seller-friendly.

So what’s your superpower of Meesho? And how are they beating Amazon & Flipkart in India?

It’s the price as Amazon & Flipkart charge 12-35% commission from sellers. Meesho charges zero commission. So naturally, the price for the end consumers will drop by a huge percentage.

Meesho also gives a guarantee of the lowest prices but how? If a customer finds a website, which sells at a lower price than Meesho offers, it gives them some credit amount.

Conclusion

Meesho has impacted the lives of more than 20 million people in India. Also, they are adding more & more sellers & resellers in India.

They have set an ambitious target of 100 million monthly transacting users by the end of December 2022 & with this, they will become an e-commerce platform with the most prominent seller & reseller base in India.

About the Author: Harsh Hingu | 6 Post(s)

Blind follower of his curiosity and loves revolving around startups, businesses, economics, and finance.

Liked What You Just Read? Share this Post:

Finology Blog / Business / Business Model of Meesho

Wanna Share your Views on this? Comment here: