If there is one trend that can be recognized as a game changer in the recent years when it comes to online retail in India. It has been more than three years that the three giants of Indian online retail – Amazon, Flipkart and Snapdeal have been engaged in a gridlock with each other. Massive discounts and offers that these three players continue to provide, seems like a strategy to distill the competition so only the toughest survive. As a result, it has become an increasing tendency to rely on ecommerce discounts and sales. The continuous onslaught of Big Billion Days and Black Friday Sales has made sure that only the sellers who can afford to give such discounts can continue to sell. 

Flipkart’s Big Billion Day of 2015 did not turn out to be as lucrative for vendors as it was supposed to, with many sellers unable to list their products on the crucial days – something that was later blamed on a technical glitch. Incidents like these make one think whether the trend of heavy ecommerce discounts by Indian ecommerce giants is a good idea.

Firstly, it is evident that the game of discounts and predatory pricing works much like the game where – whoever blinks first, loses. This means that the company has to have a certain amount of reserves in its coffers while committing to the heavy discounts. This also means that it is not surprising for an online retail company to run at a loss. It was reported earlier in January that the combined losses of Flipkart, Amazon and Snapdeal in the Indian market in 2015 crossed Rs. 5,000 crore.

What’s so Bad about Ecommerce Discounts?

Apart from the fact that only the biggest online retail firms can afford to provide such massive discounts, and that even they are running on heavy losses, there seems to be a larger problem with predatory pricing in general and discounts in particular. If we think about it, the war of discounts is not just between the larger platforms, but between individual sellers who list their products on these platforms. For the seller, a big billion day sale means an enormous amount of preparation and grunt work, which may all go down the drain if the larger infrastructural requirements for online sales of this magnitude – server systems, handling the traffic, payment completion, etc. – are not up to the task. The larger effects of discounts like these on the offline retail market in India, is a topic which is worth another discussion in itself. The point is that this trend is plain unhealthy for the market in the long term.

Survival of the Fittest?

The question then becomes, how do these companies even survive? Foreign funding and investment are the main reasons why the big three don’t seem to run out of gas in the discount race – Flipkart and Snapdeal have both been on the receiving end of massive investments by foreign behemoths like Sequoia Capital, Tiger Global Management and Steadview Capital. Amazon India, on the other hand, is supported by its parent company. Apart from the funding, it is interesting to see the strategies that these companies apply to sustain their discount policies.

For example, Amazon deploys what it calls ‘promotional funding’ – it recommends an amount of discount to its sellers on various products. Sellers subscribe to these prices because they have to compete within themselves, and because Amazon finances the discounts. At the end of the sale period, the seller is supposed to send a note to Amazon notifying the total discount amount on the sold items, and Amazon pays the seller back by cheque.

Levelling the Playing Field

In March earlier this year, the Government came up with a few surprise updates on the regulations of the Indian ecommerce market. Firstly, it approved a 100% Foreign Direct Investment in the B2C marketplace sector, which means that companies like Alibaba and Rakuten, who have been waiting on the sidelines can finally join the fray. These new entrants may well turn out to be game changers for the online retail market, and help push it out of the discounting habit and focus more on the customer service aspect, in which there has always been a serious room for improvement. 

Secondly and more importantly, the Government also states in the new guidelines that the marketplace may not ‘directly or indirectly’ influence the price of goods and services. Seen in the context of Amazon’s ‘promotional funding’ and other tactics employed by online retail platforms, this is an important change in the market. It is interesting to note here that both Flipkart and Amazon have subsidiaries working as independent sellers that make up a lion’s share in their sales – Flipkart uses WS Retail while Amazon lists  Cloudtail – this makes both companies vulnerable to the new guideline changes, so it will be interesting to see how they react.

Cure for the Ecommerce Discounts Epidemic!/image/image.jpg_gen/derivatives/box_620_330/image.jpg

Only time will tell if factors like new entrants in the market and stricter Government guidelines towards predatory pricing will actually affect the discount epidemic, but it is the need of the hour. Online retail enterprises have to start thinking in terms of sustainability rather than competition, and it is time the big three start focusing on the customer rather than each other. This means taking concrete steps to better user experience and customer service, while taking into account the geographic and demographic nuances of the Indian market.

To know more, get in touch with Browntape. We are India’s leading ecommerce experts, and we are always happy to help!

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