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Price Wars in Indian E-Tailing: Delightful Discounts and Dissonant Suppliers

CASE STUDY, MARKETING MANAGEMENT
ET Cases,

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Price Wars in Indian e-tailing: Delightful Discounts and Dissonant Suppliers

 

Mr. Sudanshu, Project Manager in a Bangalore-based IT Solutions company was planning to replace his old mobile phone. His friends strongly recommended Samsung’s latest offering, Galaxy S5. However, before he bought it off the shelf, he wanted to cross-check the prices on the web and the price differences observed after an extensive research (Exhibit I) baffled him. However, his friends insisted that he should check some more e-tailers where he can get the product at rock bottom price! Sudhanshu wondered why is there a huge price difference for the same product on different e-commerce portals and online marketplaces. Perplexed he got in touch with a friend of his who worked with a consulting company who in turn took him through the e-commerce canvas in India...............

Pricing and Pricing Power

With price being the most potent weapon in their arsenal, online marketplaces in the country like – Amazon.in, e-Bay, Flipkart and e-commerce players like – Jabong, Myntra and Indiatimes Shopping as well as market makers like Cashkaro and Snapdeal are adopting several models to ensure that merchants on their portal offer steep discounts.1 Flush with investor money, large supply chain and logistics network (sans middlemen in most cases), online shopping sites have been enticing consumers with aggressive discounts, placing market share ahead of profitability. With number of e-commerce players (big, medium & large) increasing over the last few years, especially after Amazon India threw its hat into Indian e-commerce the market dynamics have changed forever...................




  • 1 Radhika P. Nair and Aditi Shrivastava, “Amazon, Flipkart & Snapdeal adopting models to ensure discounted prices”, http://articles.economictimes.indiatimes.com/2014-05-20/news/49974402_1_snapdeal-largest-online-marketplaces-discounts, May 20th 2014

Teaching Note Preview

Price Wars in Indian e-tailing: Delightful Discounts and Dissonant Suppliers

 

Synopsis

The importance of pricing in deciding the fortunes of any company need hardly be emphasized. When that pricing power is exercised by the business enablers (wholesalers, retailers, marketplaces, market makers, etc.) rather than manufacturers/producers, it becomes even more challenging. This case study highlights how market place companies (Amazon, e-Bay, Flipkart, Jabong, Myntra, etc.) and Market Makers (Cash Karo, Coupondunia) hold the key to companies (Manufacturers/Producers) profitability.

In the month of April 2014, Samsung Galaxy S5 was in the market at an introductory price of 51,500, within 2 months the price was skimmed to 41,500. By the end of June 2014, the model was available at different price points ranging between 41, 500 and 35,649 on various e-commerce websites like Amazon, Flipkart, Snapdeal, Cash Karo, etc. However, analysts opine that, its price will reach rock bottom in near future. Offering huge discounts, e-tailers are confronting resistance from all stakeholders of conventional retail like distributors, consumer goods makers, offline retailers, etc., – as they try and grab a larger share of the consumer’s wallet by dangling jaw-dropping discounts. Worst hit by the online sales boom, wholesalers and brick-and-mortar retailers are putting pressure on CCI and other trade regulatory bodies to help them compete more effectively with e-commerce websites. What makes these e-tailers tweak their price modules? At what level of the e-commerce value chain, the prices are being dropped down? Strategized as marketing ploys to drive online traffic, how long would these companies sustain with price skimming business models?

Prerequisite Conceptual Understanding/Before the Classroom Discussion

This case study presupposes a conceptual understanding of the following concepts which would enable an effective discussion leading to more practical solutions than a mere intellectual exercise. The participants were asked to read the given concepts from:

  • • Philip Kotler, et al., “ Chapter 5: Analysing Consumer Markets”, Marketing Management: A South Asian Perspective, 14th Edition, Pearson Publications, 2013 – To understand consumer’s online shopping behavior and the influential factors affecting the same
  • • Philip Kotler, et al., “ Chapter 6: Analysing Business Markets”, Marketing Management: A South Asian Perspective, 14th Edition, Pearson Publications, 2013 – To understand Marketplace models
  • • Philip Kotler, et al., “ Chapter 8: Competitive Dynamics”, Marketing Management: A South Asian Perspective, 14th Edition, Pearson Publications, 2013 – For an understanding on competitive dynamics of various e-tailers to acquire the customer
  • • Philip Kotler, et al., “ Chapter 13: Developing Pricing Strategies and Programs”, Marketing Management: A South Asian Perspective, 14th Edition, Pearson Publications, 2013 – To understand Discount strategies adopted by various e-tailers

 

In addition, the students were asked to take up a small survey on the online price variations of any one product (for instance, say Sony Xperia mobile phone) of a specific brand. This can set the background for this case study as it would have sensitized the students of the online (differential) price dynamics.

Expected Learning Outcomes

  • • How the contributing factors of e-commerce growth in India are becoming converging points to enable consumers shop online
  • • Meteoric rise of e-tailing in India, transformation of the e-tailing industry through various business model formats and factors leading to aggressive discounts and how a price disruption can dislodge the conventional players in offline retail
  • • Devised as marketing strategies how long would the e-commerce companies sustain with these low price business models

 

Assignment Questions

  • I. What are the factors which are enabling the development of e-commerce in India? In your opinion how far these enablers play a key role in influencing the consumer buying habits to shop online?
  • II. Can you analyse the factors contributing to the transformation of e-tailing industry in India? What is your analysis regarding low pricing modules with respect to various facts presented in the case study under the title ‘Pricing Pressures’?
  • III. ..................

 

Suggested Orchestration

Case Analysis

The classroom discussion and analysis for this case study could be summarized through the Board Plan [Exhibit (TN)-I]. However, the classroom discussion was facilitated under three broad sections as explained..................


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Abstract


This case study can be used to understand the pricing dynamics (and controversies) of e-commerce/market place businesses in India. While P&G offers 13% margin on a pack of Pampers diapers, Amazon offering the same at 28% discount (of the listed price/MRP). Most of the Indian online retailers offer huge discounts in their efforts to build the necessary scale and traction for their respective site. But who would pay for the subsidized price? Amazon, while offers huge discounts to the end customers/buyers, reimburses the merchants for the price differences (between the discounted price and the listed price). Many Indian online retailers offer steep discounts, seemingly disturbing the apple cart. What would these steep price discounts mean for the Indian online retailers, the merchants/participating companies and the consumers? What accounts for substantial price differentials for a product - offline and online? Would the price discounts tantamount to predatory prices and therefore come under the regulatory radar?



Pedagogical Objectives

  • To understand the nature of marketplace businesses in India and analyze the business dynamics of Indian e-tailers
  • To analyze the pricing dynamics/pricing pressures of Indian e-tailers and analyze the suppliers'/manufacturers' challenges
  • To discuss and debate on whether price discount strategies adopted by some of the Indian e-tailers can tantamount to predatory pricing approaches and understand the competitive implications of each predatory pricing approaches
  • To examine the trigger points for price wars in Indian e-tailing and discuss on the possible options for countering the price-wars



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