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.

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.