The Discount Dilemma

At present, e-commerce companies are operating as marketplaces, which means that they act as a link between buyers and sellers and do not have the right to exercise control over the product prices or discount offered on the sites. But there have been accusations that these companies do have a say in deciding prices. A website also went ahead stating that some online retailers decide product prices on their sites as they finance part and in some cases even full amount of the discounts offered by sellers, in an indirect manner. Though there seems to be no evidence to support this view. Industry analysts are of the opinion that there is nothing illegal or unethical with the ecommerce model. If there had been any such issues it would have certainly been thrown out in the open by now. “The legal angle is perfectly alright, yet as the retail framework and supply chains are getting disrupted there is a complete disequilibrium in the market. Therefore pulls and pushes will play out,” says Ladda.

Traditional retailers, including the large branded stores as well as the small-sized traders have been seeing their footfalls going down by huge numbers. Subsequently, these players are raising their voice against their online competitors. “Offline retailers are taken by surprise. This Diwali, stores dealing in consumer durables and some other product lines complained that they lost around 40% of sales volume,” says Deendayalu. Many are putting pressure on the brands insisting them to stop supplying their products online. Brands are also willing to take a stance as their existing distribution channel is getting hit. Something that they can’t allow as a major part of the business still happens offline. Some electronic brands like Lenovo and HP have come out with declarations stating that online portals like Flipkart and Snapdeal are not their authorized sellers and customers need to check for warranties while purchasing online.

At the same time, offline retailers are also coming up with their own defence mechanisms. “Many retailers are trying to play in the e-commerce space and are coming out with their own websites. Some might also tie up with e-tail players for a ‘store-in-store’ concept,” says Ladda. As customers get used to around the year sales, malls and retail stores will have to tighten their belts and come up with more attractive offers irrespective of seasons. Deendayalu believes that the emergence of e-commerce companies has been a big wake up call for the offline players. “Traditional retail needs to buck up its performance. The prices offered to different customers are at times different. A lot of improvement is needed in terms of the quality of service.” The whole shopping experience has to change a lot and to attract and retain today’s tech-savvy customers, offline players will have to think of innovative offers and ways to make the shopping experience enjoyable.

E-commerce has a different model that allows companies to save on overhead costs. Hence they are often able to sell on factory price. Offline players have to factor intermediary costs and profit margin within the MRP. So they can only cut down prices to a certain extent. Some retailers also argue that the e-tailers need to be brought under the VAT net, as currently they do not pay VAT on sales claiming that they are only shipping goods from source to the end user.

As product prices keep varying offline and online, there will be imbalance. Industry experts believe that predatory pricing is not an acceptable norm in the market place and will create problems. At the same time, it is yet to be clearly established whether e-commerce pricing can be categorized under predatory pricing or not.

As the fight for market share gets over, and some of the players get eliminated, pricing strategies will change in the long run. E-commerce players will also eventually look at making profits. As of now, the industry will have to adapt to the new market reality. For brands, the best way forward is to adopt omni-channel retailing to offer a uniform experience on all channels. Varied pricing across different channels can hurt the brand image. Companies should look at arrangements where both offline and online retailers are in a win-win situation and a healthy balance is maintained.

In the whole retail battle, customers would stand to gain, but only if they are careful. Ultimately it is a matter of choice. The choices will differ from product to product and consumer to consumer. Quality of products, after sales services, warranty are different aspects that need to be looked at depending on the products purchased. In the current discount driven market, customers will often be lured into impulsive purchases based solely on ‘prices’. But that is not all that matters. The war will go on for some time. You have to find your way through.

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