The lure of Marketplace Deals – should sellers take the bait or not?

As expected, all major ecommerce players have floated the news of their respective ‘Festive Sale’ as the biggest holiday season is fast approaching.

While customers are already preparing list of things to buy, what about sellers? Do sellers get equally excited about these marketplace deals or is it something that worries them? Should they or shouldn’t participate in such sale activities?

Let’s find out.

Alluring deals offer wonderful opportunity to sellers

The online shopping trend is on a high throughout the year more or less with the surge of m-commerce and smartphones. However, during festival season, especially during Diwali, the traffic and goods sold on online platforms is way higher than the regular days.

Below are some figures from last year’s Diwali sales, which will help you to understand the online environment during the festival season:

• 350% growth in online sales during Diwali season.

• Flipkart recorded nearly 40-times growth in sales on October 6, Big Billion Day (BBD) Sale.

• Flipkart’s single day BBD sales value was Rs 600 crore.  Its GMV (gross merchandise value) was $100 million on that day.

• On Flipkart’s BBD, surprisingly Snapdeal trended on social media and witnessed 15-times growth in traffic and achieved sales worth Rs 1 crore every minute.

• Amazon’s traffic doubled

These high sales and traffic figures of marketplace deals indicates why sellers feel compelled to participate. But at what cost?

The burden of discounts falls on whom?

The heavy discounts of approximately 30-70% offered around such events have to be absorbed by someone. In the ideal world, the burden would be shared by all parties involved, i.e. online marketplace, seller/distributor and brand owner. But we don’t live in an ideal world.

At the onset of such deals, news about etailers putting pressure on online sellers comes out. Besides being coerced to offer discount on their products, high seller margins, high returns rate, logistics & delivery failure, packing & shipping products within tight guidelines, reverse logistic & product cancellation charges adds to the mounting pressure on sellers.

Pricing Policy for Sales

The pricing policy for sales changes with marketplace to marketplace and from offer to offer.

Sanchit Goyal, a seller listed on eBay shared with IOS that the etailer generally asks sellers to submit best value deals at least possible price, which they will promote. Sellers can choose not to participate and eBay has the right to reject the submitted quote. For some offers, eBay directly gets in touch with the seller with favorable terms.

Goyal said, “1-2 times I got an email from account manager to participate in some deals. In that ebay asked to lower the price of the products by 15%. They said that customer would pay 15% less and ebay would pay the seller 14% from their side so technically it’s a discount of 1% from the seller price. I participated in that deal and it was good result. Sale increased with just 1% discount.”

Snapdeal asks sellers upfront to pay extra margins if they wish to be featured in deals according to Adil Mohammad, a seller listed on the platform. Merchants can raise their prices to create an illusion of discount but margins are hiked irrespective of anything. And if sellers don’t want to participate then?

Adil revealed, “They tell us to make our inventory zero on panel if we do not want to participate in their ‘extra’ margins schemes otherwise all our products will fall in that zone. Like they are beginning a promo banner for footwear, now they tag the entire range of products from all the sellers of footwear & charge 10% extra margin for that. If someone doesn’t want to give that, they should make their stock zero on snapdeal (getting no sales at all!).”

As for Flipkart, Adil shared, “Flipkart on the other hand is strict in prices changes. They tell us to not increase the prices of our products & give discount from the current prices only, which is very difficult. They block sellers who raise their MRP often to show big discounts.”

Amazon suggests the amount of discounts to its sellers, but doesn’t force them to accept the proposal. It is believed that the marketplace pays back sellers the discount amount in the name of ‘promotional funding’ eventually.

Argument against and for Marketplace deals

1.‘Good only for big sellers’

IOS asked an online merchant from eBay (name withheld on request) whether he has been part of such sales. He said, “No, I have not because they have too many terms and conditions and payment is too late. It is good for big sellers only. Whether item sells or not it should be in stock and usually this promotion is done to help some pet sellers of ebay so others rarely get a chance.”

Vijin Nair, Category Manager at Browntape Technologies agrees that small sellers get a raw deal. He shared with IOS,

“Our current ecommerce market is all about private labels and already established brick-and-mortar companies marking their presence in the sales and in buyers’ eyes. This has obviously made it difficult for small scale and certain upcoming brands to stand by themselves in the crowd as thin margins push them towards losses, making them lose their interest in marketplace promotions.”

2.‘Significant effect on seller’s sales’

This benefit is true and was mentioned by most of the sellers we spoke to. Goyal noticed 25% increase in sales. Nair believes, “Sales during such promotional activities jumps by 30-50X across major marketplaces. Hence the marketplaces’ stand in the industry is very valued and considered before opting in for such promotions.”

3.‘Benefit? What benefit?’

Few sellers argued that at the end of the sale season, when they sit with their accounting team, they realize that instead of making money they have lost some. Like Adil said, “There is nothing like ‘beneficial’. We sellers are helpless puppets in the hands of marketplaces. We have to cope with their ever changing, arbitrary policies & terms at all times. If we do not participate in their deals, we do not get much sale to even make a profit from sales. If we do, we get sales but most of our profit is eaten up by their extra margins.”

4.‘Discounts are hogwash as product prices are manipulated.’

While none of the marketplaces directly asks to alter product pricing, the various terms and conditions force sellers to raise the price to make space for discounts, if allowed. Online seller Adil reasoned,

“SD (Snapdeal) asks for 30% extra. For covering these extra margins, we find it impossible to sell at current normal prices due to which we increase the prices accordingly. On Flipkart promotions, we have to shell out discount from our side to pass on to the customer. So you can say that for participating in deals, we have to increase prices indirectly.”

It is things like these that gives birth to fake discount controversies and other selling malpractices.

So should sellers take the bait or not?

Marketplace deals are great and therefore not participating at all isn’t a good idea. But define clearly as a seller what you wish to gain from it, for how long, on what terms and where you will draw the line.

There’s more to online selling than participating in deals. Nair emphasizes, “With the season brewing up, retailers have multiple strategies. Instead of price slashing, one can beef up their operational activities and pay attention to that. This should be combined with sweet pricing that doesn’t affect the market price of the products.”

One such seller is handbags and accessories manufacturer, Phive Rivers that focused on improving their product offering instead of immersing themselves in deep discount deals. While speaking to IOS, MD of Phive Rivers, Mr. Mohit Gill said,

“We believe that discounting products furiously is only for volume brands at very low prices or brands that do not sell and have to get rid of old inventory. We have never discounted aggressively as we believe this would destroy the brand value going forward, and consequently the customer we attract probably agrees in buying new fashions at the price.”

Vijin Nair from Browntape added that involvement in such offers and promotions should remain an exclusive event, as the urge to buy is what makes this industry to stretch its roots into customers mind. As per him, the prime reasons to dive in online sales should be new product releases, stock liquidation and building brand presence.

Undervaluing your products consistently can be very damaging in the long run. When you compete on price with thousands of sellers, you can’t expect loyalty from customers or marketplaces as someone else can easily take your place. But when you compete on product and service quality, then discounts or no discounts, your business will grow.

As Mr. Gill correctly stated,

“The online industry has to culminate its discounting and related cash burn to show profits for its shareholders now. So the online vendor will need to adjust to this change to be able to sell products supported with better quality and brand value instead of just heavy discounts.”

Surprise your customers occasionally by offering attractive discounts, deals and offers. But focus on increasing your visibility and brand value with quality service and products and not just sales.