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Discounts in the e-commerce industry may be on its last legs, as the latest guidelines of the government prohibit predatory pricing on these platforms. With deep discounting being the cornerstone of festive sales for e-commerce firms, the new diktat from the Centre has forced all major marketplaces to go into a huddle. None of the leading firms have come out with a statement discussing the implications yet.
“E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field,” the press note from the ministry of commerce had stated on Tuesday.
This, in essence, would mean e-commerce players like Amazon, Flipkart and Snapdeal, which always resorted to deep discounting to acquire customers, will no longer be able to do so; even if they do, it will be limited.
Harish H V, partner, Grant Thornton, told FE, “The days of deep discounts is more or less over, as it is tough to sustain such a business model.” He felt that when these e-commerce players were smaller in size, the losses suffered due to deep discounts were manageable, but not anymore as the scale has grown much bigger.
E-commerce players like Flipkart, Amazon and Snapdeal are generally measured through the yardstick of gross merchandise value (GMV), which is the total sales on these platforms and that runs into billion of dollars. Flipkart has a GMV of over $4 billion while it is more than $2 billion each for Amazon and Snapdeal.
It was also a regular feature for these companies to come out with mega sales during important holidays like the Great Indian Sale of Amazon or Big Shopping Day sale of Flipkart. Amarjeet Singh, partner – tax, KPMG India, said, “Customer acquisition through deep discounts will become a difficult proposition now and they will probably have little leverage in terms of giving commission of buybacks.”
The discounting war among the e-commerce players has also led to the piling up of losses with no sight of profitability. The combined losses of the three major e-commerce companies – Amazon India, Flipkart and Snapdeal — totalled close to R7,000 crore for FY15.
This could also mean a change in strategy among the e-commerce players, especially in customer acquisition. Singh said companies may shift from deep discount pricing to a very differentiated strategy of getting and retaining the customer. This would essentially mean that there is a significant improvement in customer service, which would increase their stickiness with the e-commerce players.
At the same time, new guidelines have also brought in clarity for the sector, with 100% FDI now being allowed.
Discounts in the e-commerce industry may be on its last legs, as the latest guidelines of the government prohibit predatory pricing on these platforms.
The discounting war among the e-commerce players has also led to the piling up of losses with no sight of profitability.
This could also mean a change in strategy among the e-commerce players, especially in customer acquisition.
This article was published in the Financial Express, to read please click here.