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Discounts –Is it the only driving force behind the growth of India’s E-commerce industry ?

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Atleast that’s what it looks like seeing success of portals like Fashionandyou.com, Dealsandyou.com, Yebhi.com, Snapdeal.com. Last year we saw a large number of group buying sites offering heavy discounts ranging from 40%-90% mushrooming in India and majority of them were based on group buying concept acquired from Groupon. E-commerce websites (except travel) revolves around one single concept- Discounts. Yes, Discounts.

ecommerce in India

Though, this concept has been extended to travel also by Vamoose.in but it’s a relatively new concept in the travel space as earlier group buying sites was catering to spa’s, restaurants, health, electronics, beauty etc

It’s more of the discount factor that drives in more people to opt for online affordable shopping of branded products rather than the convenience factor.

Retailers like Fashionandyou, 99labels offers product trials before you pay them and can return the product at free of cost to them.

Retailers like Letsbuy, Buytheprice, Indiaplaza, Futurebazaar offers products at a cheaper price as operational and inventory cost is much less than the offline retailers. Even though, most of the E-commerce companies are running into losses but still raising million of dollars, projecting the losses due to heavy discounts they offer as customer acquisition cost.

E-commerce industry is witnessing a growth rate of 47 % every year and projected to be valued at 47,000 Crores by the end of 2011 with 81 % comprising of travel commerce. Flipkart is first Indian internet company to be valued at 1 Billion dollar and have raised whooping 200 million dollars.

Irony is that if the branded products are sold at a higher discounts then customers have a perception that product might carry a fake label. But once a portal build it’s brand name then they can bypass this customer’s suspicion.

Brands like Fashionandyou, Economics times, Indiaplaza and sosasta (Groupon venture) do sell products that are being imported from other countries and carry third party warranty. Most of imported blackberry’s comes with 6 months third party warranty whereas original product comes with 18 months warranty and have a price tag (Rs 1500 to Rs 2500) higher than the former.

Biggies like Amazon, Futurebaazar, Homeshop18 will eat up small retailers with their tremendous buying power which helps them availing the products at a much cheaper rate than their small competitors. Latest entrant is Taggle, which pivoted from it’s original group buying concept .

Indian market is different and it might be possible that even with the entry of Amazon, Indian retailers like Flipkart, Letsbuy would still hold the top position in this space as we saw with group buying portal (Groupon acquired sosasta, but it still ranks much below snapdeal in terms of revenues, customer base etc).

Retention of customer is more important so as to have repeated sales. Portals can add value in terms of delivery time, customer service etc rather than going for the price game. India is a price sensitive market and one can have competitive advantage of the price but ultimately it’s the customer experience that matters. As Inventory is not stocked by most of the e-tailers , logistics plays a very important role.

Companies like Flipkart have already started building their own logistics back-end. Most of the retailers have opted for COD options and with social commerce taking up in India, it will be an added value to the buying experience of the customer if they could drastically reduce the delivery time.

What’s your take ? Are we prepared to buy products online at the same price as that of offline market and help in kick starting the online retail revolution in India.

  1. Ankit Gupta says

    @ Ranjith
    I have shopped on your portal. The experience was very good. I have some basic questions about e commerce
    -As inventory is virtual in e commerce, so do you have tie ups with distributors or Companies or with retailers for electronics products??

    If yes then how you are able to offer products at a cheaper price than offline retailers?

  2. Faheem Ahmed says

    Good work Dhruv! Your article is bang on. as someone in the ecom business ii can tell you that discounting is the differentiator for now..but this is troubling because these 'customer acquisition' costs cannot be justified in the long run. These costs will cause losses to the ecom because. and eventually put them out of business.

    1. Dhruv Goyal says

      @ Faheem Thanks for kind words….

    2. Faheem Ahmed says

      i realised there are lots of typos in my post. i m sure you got it ;) cheers. "These costs will cause losses to the ecom cos. and eventually put them out of the business"

    3. Dhruv Goyal says

      @ Faheem ..True.. E commerce companies can't justify customer acquisition cost in long run.. But they can def make an good exit. Coz there valuations will increase with turn overs and user base without profits playing an major role in this stratergy.

  3. Raunak Agarwal says

    Nice article and true for most online retailers. They are using various market stratergies, most effective being discounts, to cheat first time customers.
    But their is another side and you should try out flipkart.com. Its the only credible and reliable source of online purchase. They are not trying to attract customer through discount as they are not offering much. They are serious about business and provide great service, good packaging, quick and reliable delivery and good customer support. The best part is that they have their own delivery courier instead of relying on any either company for this service.
    The other example is ebay. Check out paisa pay introduced by them. It is a very viable method of buyer as well as seller protection.
    E-business is a perfect model for India given our trust in brands, need for a bargain and a unhealthy ignorance of quality.

    1. Dhruv Goyal says

      @ Raunak
      Flipkart have built their back end only in Bangalore. Flipkart do offer discounts on all the products. Besides flipkart there are others like letsbuy.com and buytheprice.com.

      Its not about cheating first time customers by giving discounts, it's about cheating them by giving lucrative discounts on the products that have been imported and carry third party warranty (generally 6 months).

      Here the basic question is as I said above "Are we prepared to buy products online(with long
      delivery period) at the same price as that of offline products just for the sake of convenience."

    2. Raunak Agarwal says

      Dhruv GoyalI think we are … if the service is like flipkart. I have been using it a long time. Here are some other reasons to buy from them:
      1. They offer cash on delivery on all products above rs100
      2. I ordered loads of books from them … the packaging is awesome …. the book was like it just came out of factory
      3. If per-ordered gears of wars 3 from them … i got in 22 Sep … the game came out internationally on 21 Sep
      4. They deliver exactly on the day mentioned in invoice for 8/10 orders

      Yes, true they have warehouse and stocks only in Bangalore but they have office branches in a number of cities. And you cannot compare them with any other website (at least right now) because no other website comes close to the quality of service offered by flipkart. The reason prefer offline over online (even at same price) is
      a. They pay cash, they get product, if the product is used or packaging and delivery unsatisfactory they can cancel
      b.in case of mobile, you can find vendors in Pune that sell them cheaper than flipkart but come with all sorts of problem. My Samsung Galaxy S developed a problem on day 1 and telephone shoppe asked me to go to Samsung service myself or wait about a month to get it fixed
      One last thing, go to mouthshut and see the reviews of flipkart and letsbuy. Letsbuy has a lot of problem. Dont have their own courier. Letsbuy has free customer line whereas flipkart doesn't (1 flaw with flipkart). Here's the best one, if you avail discount you cannot use cash on delivery …. something that makes no sense from a commercial point of view
      phew !! enough said

    3. Faheem Ahmed says

      Raunak Agarwal good info! Lets hope they stay in business considering that they are not going to be profitable for a long time ;-) having said that, they have a better chance than the others…

  4. Ashish Srivastava says

    I am not sure that discounting has any role in India. Look at the buying pattern of Indians. They are willing to spend ~ 50% of their monthly salary to get a swanky cellphone and then spend another 10% of income on communication (phone, internet etc).. roughly speaking.

    The success of Flipkart is not because of the discounting, but because of its ability to trade within the comfort zone of indian customers mind by offering cash on delivery and having its own distribution centres to prevent delivery issues.

    The driving force behind Indian ecommerce industry is not the discount, but it is the trust of doing business. Indians are chronic skeptics and you can't blame them for being like that.
    Win the trust of the customers, allow easy ecomm buying experience and then undercut the brick and mortar market by discounting… and you will see America happening one more time.

    1. Dhruv Goyal says

      Indians are crazy about mobile phones especially the worker/labor class thats why we saw birth of companies like Micromax,Lava,Wyncomm,Karbon,Olive etc.

      I can't recall a single E commerce companies which do not offer discounts. In India E COMMERCE HAS BECOME SYNONYM TO DISCOUNTS.
      If you are a E commerce company then you are expected to give discount( or sell unique product like Paintings, handcraft goods if you don't want to offer discounts ).

      Most of the products on flipkart are discounted products. COD was started by Flipkart which helped them to acquire customer (& trust) and thats why it has been valued at 1 billion dollar today.

    2. Dhruv Goyal says

      Also If you are a E comm company your operational cost is low which help you to offer discounts.

  5. ravi says

    We all love ‘Anna’! He seems to have united India and its youth. But is India really one, especially when it comes to business? This is one country where all the laws of marketing will fail, because it’s so diverse. If you have just one theory, then it will not take you anywhere. India changes every 200 km. Yes, a few basics remain the same across India, but a lot changes too.

  6. dhruv says

    Sorry for the typo error in the above comment.

  7. dhruv says

    @Ranjith
    I have been following your website since very long.
    Some points I would like to mention
    – You have clean and simple UI
    -Easy to navigate website
    -Earlier you had price slabs (i.e Price decreases as number of customer increase/Kind of social commerce concept) – This had scope tremendous scope for Innovation.

    As you said delivery of product/experience is at vendor location- I would say group buying portals don’t do due diligence before signing up with vendors. But yes that is the only way through which they can reach to masses(vendors and customers).

    E-commerce portals provides Accessibility in Tier 2 and Tier 3 cities but I don’t think most of time convenience factor comes into picture until unless product is offered at a lesser price than the markets.

    1. Ranjith Boyanapalli says

      @dhruv

      Thanks for the good words about the site. The price slab model though has excellent appeal, had a few hitched considering that we were a startup due to scale issues (speading the product range too thin, and also ensuring more orders per product for max discount for every customer). We would definitely push that model again pretty soon, once we hit good scale !

  8. dhruv says

    @Parag

    I know I think they have shut down or might be in a process of revamping their website.

  9. Parag says

    You have referred to Vamoose.in – Has Vamoose shut down ? Their website is no longer operational (vamoose.in as well as vamoosevacations.com). I had booked a vacation with them in August, and I had a great experience with the booking as well as the actual stay-so I was trying to look up more vacations there and saw the website no longer exists?

  10. Ranjith Boyanapalli says

    Hi Dhruv,

    Nice article. For the deal sites, the core value proposition by itself is the discount/deal, and hence though innovation will be done in personalization and localization of the offers, customers would move to the site which offers greater discounts. Also, the delivery of the product /experience is at the vendor location.

    In comparison, for a vertical ecommerce player like us, our value prop cannot be deals alone (though it could be a customer acquisition strategy). Our Value prop would be of Accessibility (novel products, tier2/3), convenience (since quite a few products are moving into the “low involvement” category of a customer), and of course value pricing on a large range of products.

    We for one are definitely investing in creating a better online and offline experience and creating differentiators that go beyond price (logistics being a major one as your rightly said).

    (I represent buytheprice.com)

  11. Dhruv says

    @Zyril

    Well am not blaming anyone. It’s just a scenario of E commerce which I have shared. I think E commerce in India is more about discounts,deals etc rather than customer satisfaction and service.

  12. Mango Devgad Alphonso says

    That's not the real reason. The problem with most folks in this space is that they are mostly me-too, which is why you carry the perception you article has. One did it, earned good, so all jumped into it. Check out http://www.devgadmango.com. It's the first e-commerce initiative by farmers to take the real Alphonso mango directly to customers. The initiative became a success not on discounts, but on the promise of a great product, authenticity and great customer service. Once these me-too folks understand this and that they need to innovate, you will not have the question you have!

    1. Dhruv Goyal says

      Agree with you. It's a me too space, like it happened with group buying portal. But still the consumers in India are comfortable buying online if the product is available at a discounted price. I think 80 percent of consumers falls under this category.

    2. Mango Devgad Alphonso says

      Dhruv Goyal Yes, but the problem is also with the customer mentality. They may not buy a Rs 80 product at face value, but will but the same products sold at Rs 100 face value with 20% discount!

    3. Dhruv Goyal says

      Devgad Alphonso True. All the discounts are calculated on MRP. But the products are never sold at MRP(When Nokia launched E-7 they sold phones at a price lesser than the MRP). So when you calculate the discount percentage it comes out to a huge figure. What you are saying is only possible in Non branded products like black Cherry/fake iPhone etc. Naaptol is a great example of this model. They keep the MRP of fake black berry to Rs 15000 and give 80-90 % discounts. But the actual value of fake phone is 10%-15% of the MRP.

  13. Malick Md says

    I agree with the title.
    Personally, I have done three purchases in the recent past with ebay, all the three using a Rs.2000/- discount coupon sent by ebay.
    Keeping that aside, most of the online purchases we are making are impulse purchase of what we want rather than what we need for essential survival. So they need 1. personal motivation 2. outside motivation.
    This has been proven scientifically with a lot of research. Recently I read a book called Change Anything in which these scientific experiments have been explained in detail.
    As online purchase is in the nascent stages in India, discounts will help induce the buyer to go for it and experience the thrill. Definitely COD- Cash on Delivery – is a good add on option which Flipkart seems to be practicing well.
    So, my take is that discounts and making the product price slightly lesser than in a posh retail store is a way forward for online retail to pick-up faster in India.
    Malick Md PMP.

    1. Arun Prabhudesai says

      Malcik… I second that thought…

    2. Dhruv Goyal says

      Yes..We are moving more towards Aspirational needs rather than the actual needs of the product. Discounts offered, make those Aspirational products affordable:-)

    3. Chandra Shekar says

      impulsive buyers either on online or even reputed leading dailies offering whopping up to 1000% discount, black berries or andriod mobiles costing 19,999/- now offered at 4999/- can anybosy believe this, people geat carried away, on my study i have found out only 2 or 3 persons approach consumer forums when they beocme defunct, the seller without attending the proceedings in the courrt directly return the money to the complainant. since the people approaching consumer forums are few, they make whopping profit woth chinese makes. beware!

    4. Chandra Shekar says

      it is unfortunate reputed leading english dailies are part of these rackets! let them practice what they preach

    5. Dhruv Goyal says

      Chandra Shekar Companies like Naaptol sell Black Cherry,iPhone fakes.

      Even in HT you ll find them selling Blackberry phones but they all imported products and carry 6 months third party warranty. Some don't have camera ,some have Verizon,T-Mobile printed on them.
      Even companies like Indiaplaza sell these kind of products but they mention that the product carry 6 month warranty but if you want to buy a product with 18 months warranty you have to pay some more money.

      But Fashionandyou.com,homeshop18.com don't mention anything they just say it carries 6 months warranty.
      Home shop 18 were selling iPad 2 in India before it's launch at almost 30-40 % higher(But iPad's carries international warranty)

      Letsbuy,buytheprice,flipkart don't sell these kind of imported products I guess.

  14. Zyril | Custom Posters says

    Well, you can’t blame people if they want to maximize the value of their money. And besides, most of the money we pay for products and services that we buy in any market goes to the name or the brand of that product and not on its worth as a whole.

  15. Dhruv Goyal says

    Would love to hear the other side of the story.

  16. Gaurav Agarwal says

    The title of the article weights heavily on one side of story.

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