E-Comm Must Revamp the Customer Rating System : Daily Current Affairs

Date: 26/08/2022

Relevance: GS-2: Effects of liberalization on the economy, changes in industrial policy, and their effects on industrial growth.

Key Phrases: Open Network for Digital Commerce (ONDC), retail market, digital commerce, Department for Promotion of Industry and Internal Trade (DPIIT), Customer feedback, star rating, Local Circles, Buyer feedback, End-users’ feedback.

Why in News?

  • The potential size of the online retail market in India, according to media reports, was $225 billion in FY 2021-22 which is about 27 percent of the estimated size of India’s retail sector and is expected to grow at 32 percent year on year over the next few years.
  • India’s retail sector, on the other hand, is likely to grow by 10 percent.
  • With dynamic pricing, inventory management, and optimization of delivery cost as its pillars, the Open Network for Digital Commerce (ONDC) seeks to transform digital commerce and democratize the large-scale participation of businesses.
  • This can potentially increase e-commerce penetration in the country from the current levels of 8 percent to 25 percent in the next two years.

Open Network for Digital Commerce

  • It is a private non-profit Section 8 company established by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry to develop open e-commerce.
  • It was incorporated on 31 December 2021 with an initial investment from the Quality Council of India and Protean e-Gov Technologies Limited (formerly NSDL e-Governance Infrastructure Limited).
  • ONDC is not an application, an intermediary, or software, but a set of specifications designed to foster open interchange and connections between shoppers, technology platforms, and retailers.
  • The platform aims to create new opportunities, curb digital monopolies, and by supporting micro, small and medium enterprises, and small traders and help them get on online platforms.

How does the growth in online retail sales prevail over offline stores?

  • Shopping at any time of the day
  • Eliminating the need to drive to a store
  • Customer feedback for products and sellers
  • Search powered by Natural Language Processing
  • Instant contextual help through virtual assistants
  • Checking prices from multiple websites before buying

Importance of customer feedback and the rating of sellers:

  • Rating provides shoppers with a better idea of a seller’s reputation necessary for an informed purchase decision.
  • Sellers can analyse customer feedback data, supplement their product descriptions with additional information and react to customer preferences.
  • ONDC, which is a network of networks, will have a reputation ledger to record and track the reputation of sellers.

The extent to which sellers' ratings are objective:

  • Stars ranging from one to five are often used as symbols for rating products, sellers, movies, rides, hotels, and restaurants.
  • No break-up of the components constituting the overall rating is provided in B2B and B2C e-commerce.
  • A survey by Local Circles has pointed out that almost 65 percent find product ratings to be positively biased, likely indicating that sellers may be influencing opinion for their products.
  • The same survey also points out that 58 percent of consumers said e-commerce websites don’t publish their negative ratings and reviews.
  • Since reviews are typically a significant factor in search rank algorithms and thus have a big impact on product visibility and sales, these systems often also create powerful incentives for sellers to manipulate their products’ rankings through fake reviews.

More data-driven and more objective rating system:

  • One possible approach is to identify the components of rating which are data-driven and therefore objective.
  • Metrics for the following three components can be obtained directly from the transaction-level data on the platform:
    • Timely delivery: Actual time of delivery vis-a-vis the scheduled or “promised” time of delivery;
    • Reliability: Orders accepted by a seller as a ratio of total orders placed on the same seller;
    • Quality of order fulfilment: Quantity accepted by buyers on delivery as a ratio of the total quantity delivered by that seller.
  • The other two components of rating, namely,
    • Buyer’s feedback and
    • End-users’ feedback is a subjective assessment.
  • End-users’ feedback will be relevant in cases where end-users are distinct from buyers.
  • Buyer’s feedback and end-user’s feedback can capture the holistic experience with other non-quantifiable components such as packaging, return/replacement policies, product description, and support provided by the seller during pre and post-purchase orders in addition to the quantifiable parameters.
  • It turns out that by deploying advanced statistical techniques and ML algorithms, the weights of all the above components constituting a rating can be learned objectively from data thus obviating the normally prevalent tendency of assigning weights to components subjectively.
  • It also turns out that all these five parameters are necessary to adequately describe a seller’s reputation.
  • The breakup of each rating component along with the overall rating can be provided, unlike popular e-commerce sites where only the overall rating is provided.

Aiding MSMEs:

  • This will enable a seller to focus on each component of the rating to improve and catch up with the competition.
  • The number of transactions and the cumulative value of transactions to date can be displayed along with the number of ratings and customer reviews.
  • All these make the rating system more data-driven, transparent, and objective as three out of five components are obtained directly from transaction-level data on the portal.

How can the system of rating be improved further?

  • Routine, standardized products of day-to-day use such as pencils may be associated with a weighting scheme different from customized high-value items such as laptops.
  • The system of ratings must factor in both the value and frequency of transactions as a seller might ensure high quality/delivery/reliability in low-value products associated with a high frequency of transactions while, at the same time, getting away with poor performance in a few high-value transactions.
  • The rating system must provide a level playing field by being size agnostic so that sellers with smaller balance sheets and lower turnover have an equal opportunity to grow alongside the larger ones.
  • Making recent transactions the basis for deriving weights will provide a more informative picture of the latest trends in a seller’s rating.

Advantages:

  • A fair, transparent, and robust rating system has several advantages:
    • It enables the e-commerce platform to grow while protecting the interests of buyers;
    • It allows the rating of a seller to be used as a filter to select a smaller set of sellers fairly and impartially;
    • It incentivizes sellers to continuously improve their operations;
    • It provides equal opportunities for MSMEs to grow alongside the larger sellers.

Source: The Hindu BL

Mains Question:

Q. There is a need to revamp the e-commerce customer rating system by breaking it up into quantitative and qualitative criteria for stakeholders to benefit from transparency and reliable data. Discuss.