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Ecommerce Portals Devise Unique Strategies To Bypass FDI Regulations on Discounts – Ads With Disclaimers, Altered Commission Structure

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Online Shopping ECOmmerce  growth 2020

The nascent ecommerce industry in India is now experimenting with various strategies for surviving in this brutal competition, and strict regulation pertaining to FDI. Discounts, which have always been one of the pillars of sales and marketing efforts is now being disguised so that law enforcement agencies don’t take action against them for violating laws of the land.

And it’s working fine for time being.

As per an analysis done by TOI, it was revealed that instead of directly announcing heavy discounts on various products, the top three ecommerce portals namely Amazon, Flipkart and Snapdeal are now resorting to indirect discount model which is well within the law.

This strategy became necessary after Govt stopped FDI based online marketplaces to offer deep discounts to their consumers. And recently, offline trade body CAIT had even complained to the Govt. regarding full page advertisements by ecommerce portals during Independence Day sales as they violated FDI laws.

But it seems that ecommerce firms are well within their limits, and have played the game well. Independence Day festive season was just the start, as end-users can witness more such concealed and indirect discounts during the Dussera-Diwali-New Year period, which is regarded as the biggest shopping season in India.

New Strategies For Offering Discounts

To start with, Amazon has massively reduced the commission it charges from sellers for using its marketplace; and in turn, they are asking the sellers to pass on the savings to the end-user.

This way, no FDI rules are being broken regarding discounts, as the discounts are now being offered by the sellers and the end-user is receiving the usual low rates, which will keep them hooked to Amazon.

As per reports, and feedback from the top sellers, Amazon has reduced its commission by 30-35%, across various categories.

No one is losing here, besides Amazon, which can afford to absorb the loss.

Disclaimers Make Discounts Harmless

To be extra safe, ecommerce portals have also started showing disclaimers on their full page newspaper ads, regarding the discounts.

For instance, in the recently concluded Independence Day Sales, Amazon’s disclaimer in fine print said, “The deals/discounts are offered by the participating sellers.”

Whereas Snapdeal mentioned: “The actual quantity and pricing of the products are decided by the sellers, who are selling their products on Snapdeal.”

These disclaimers can be the answer to CAIT and other offline trade bodies which had complained to Govt against ecommerce portals for violating FDI Laws.

In the upcoming festive season, we can witness more such disclaimers from leading ecommerce portals, thereby informing the Govt. that they are well within their rights.

Portals Altering Ecommerce Business Models?

One another interesting observation regarding the newly disguised discount mechanism is the altered business models of ecommerce portals.

In order to cut the price, they are preferring specialized online sellers who deal directly with the brand; thereby removing unnecessary middlemen from the distribution chain.

Portals like Flipkart is offering special ‘sellers credit’ for the same, which indirectly translates to more discounts for the end-user. In those niches, which have really thin margins like electronics and gadgets, ecommerce players are offering cashbacks to sellers, whereas for other categories which hefty margins such as clothes, handicrafts, furniture etc, the sellers have been empowered to offer discounts on the transaction level, thereby removing the burden of discount from the online marketplace (as per Govt.’s expectations)

Thus, we are now witnessing a new transformation of the business model, which is further reduces the gap between the brand and the end-user.

This whole observation can be an interesting case study for management graduates, as to how technology and Internet can transform any niche, introduce a whole new paradigm of innovation and systems, and alter the way of doing business forever.

If you are a seller at any online marketplace, then do share your experience of offering discounts, and the way ecommerce is changing in India.

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