Opinion: Are discounts killing e-commerce?

Pooja Sriram | Sep 11, 2020

Gone are the days when we used to wait for a sale during New Year or the ‘End of Season’. Today, we just log on to a website and expect to see a big banner saying 50% off all round the year! What more, we shop for everything online- from expensive jewellery to groceries and veggies mostly because we believe we will just get a better deal! In a recent survey conducted by Lab42, 7 out of 10 respondents said they shop online for better promotions while 2 out of 3  respondents said they shop online because it is cheaper.

Source: Lab 42

The online customer is adorning a new avatar. It is the era of ‘Right Here Right Now’. It is the era of ‘If it’s cheaper; its mine’. No doubt, customers have an eye for quality, but the Price-conscious Indian mindset (it’s no longer only Indian) is here to stay.

The customer is always the King, but the Online customer has become an Emperor overnight! E-commerce sites are obeying to their whims and fancies when it comes to choice, quality, quantity, pricing, packaging, trials, delivery, exchanges and whatnot. In the rat race to be the best in Customer Satisfaction and deliver utmost Customer Delight, are these businesses ruining their own and their sellers’ economic landscape? Do they have a say at all?

So, the road to E-commerce success is discounting pricing strategies; but that doesn’t mean businesses and brands let the consumers eat away their pie too, does it? Every E-commerce business owner must figure out how to tread the thin line that provides value to the customer without letting it eat into his/her margins. It may seem impossible, but there is always a workaround.

Companies need to first determine their positioning in the market. What they want to be known as to their stakeholders reflects in all their strategies including pricing. Do they want to be known for the lowest price seller? Do they want to be known as the greatest value provider? What will they do when competitors use the same positioning? Answering this will give companies a strong foothold on their pricing strategies.

Its good to learn from the masters in the game. Looking at Flipkart, it is interesting to know that their strategy is based mainly on its Operating Margins, essentially determining what the company needs to earn to sustain business and turn a profit. Their main cost centers are the Supply Chain (Procurement & Shipping) and Manpower & time spent on each order. By optimizing these processes the company tries to save itself from bleeding because of the heavy discounts and sales offered on the site.

The Discount Game continues with stride but even the VC/seed investors agree that strategy of giving huge discounts while earning paper-thin margins is spoiling the e-commerce game in India. Sumant Kasliwal, founder and CEO of 20dresses.com, says this in an interview with Business Standard: “Regular deep discount is a near-fatal self-inflicted wound that e-commerce firms have inflicted upon themselves. Companies that used discount as a strategy to scale up now find themselves riding a tiger from which they cannot dismount.” Companies must find innovative methods to ensure they sustain and its not only their customers who are having a good time. Discounts can be used as Social Network magnets, for attracting first time buyers, to make bulk sales with Group Discounts, and to retain customer loyalty with Loyalty Discounts and the like. It is important that companies use pricing as an intelligent tool, and do not arbitrarily discount everything just to increase sales.

Quoting, Mahesh Murthy, founding partner of Seedfund  who has a similar  perspective: “Most firms, from the biggest to the smallest, seem to have no differentiator other than discounts and discounts cannot be a long-term strategy. The challenge is to find a reason why the consumer will buy from you at a non-discounted price, one that allows you, the merchant, to make a living. Very few e-commerce firms have figured this out. So far, e-commerce discounts have been funded by VCs. But those VCs are no longer happy to subsidise consumers. With no alternative strategy, or funding, we will see more extinctions”

The current consequences are already hurting those businesses, as well where discounting is not core to the business model, because the customers have got used to discounts and investors are questioning the viability of the industry model. So here is a word of caution to all aspiring businesses in the ecommerce world. While there is an industry issue that needs resolving; stop spoiling your very own ecosystem under the shield of ‘The Discount Soldier’!

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Pooja Sriram

Pooja Sriram

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