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. 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...................
E-Commerce Industry – Growth and Potential
E-commerce in India had been witnessing an upsurge over the last few years (Exhibit II). Many wonder, looking at the competitive convergence, has Indian e-commerce industry reached an inflection point? While the sector is poised to hit $32 billion (Exhibit III) in next 6 years, the next phase of growth is being battled out. The e-commerce penetration is set to see greater heights in coming years, not just because of few enablers (Exhibit IV)............
E-commerce in India: Players, Plenty – Parsimonious Profits
To tap the potential, (Exhibit III, Exhibit VIII and Exhibit IV) various e-commerce players (Exhibit XII) are flexing their muscles by executing their businesses in two formats. Most companies like Flipkart, Homeshop18 follow an inventory-led “first-party” (1P) marketplace model (Exhibit XIII) where they buy products, stock them in their warehouses manage logistics and sell to consumers............
Pricing Pressures
Indian e-commerce companies’ business pressures (as none of the Indian e-commerce companies is making any profits) have resulted in pricing pressures to boost the companies’ top line first, even at the expense of profitability. The focus is on market share driven by volumes rather than values. It has largely been the venture capital all the way that has been funding e-commerce companies in India..............
Business Challenges and Pricing Blues
If size does matter in e-commerce industry, scale matters even more. Amazon’s successful edifice has been built on this business basic. On the occasion of Amazon’s 20 successful years in global e-commerce The Economist wrote, “He saw a virtuous cycle whereby low prices pulled in customers and merchants, which boosted volumes, which led to ever low-prices a ‘fly wheel’ that would generate growth for as long as the company put the interests of the customers first.”..........
Deep Discounts and Deeply Hurt: Manufacturers vs Marketplaces
Many a brick-and-mortar retailers voicing their strong opposition came together to seek protection from ecommerce companies, which they believe are undercutting them with predatory pricing. They have written their grievance to the CCI that their online counterparts are selling goods below cost and skirting Indian laws on FDI in retail............
The Road Ahead
In February 2014, the Confederation of IT Associations, (1,200 distributor network) along with various electronic majors of the country heads conducted a meeting to tackle what they call “unethical practices by online players.” Muthiah Pillai, an offline retailer who has been selling electronic goods in Tirunelveli for the last 20 years says “Online portals have a practice of skipping local tax.........
Sudhanshu’s confusion abounds....
The exhaustive input from his friend on why the prices are different on different retail locations – offline and online, and most importantly.........
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. According to you, what are the contributing factors for the e-commerce players which empower them to be aggressive on discounts? What is your analysis regarding low pricing modules with respect to various facts presented in the case study under the title ‘Pricing Pressures’?
III. ..............
Exhibits
Exhibit I: Samsung Galaxy S5 – Price Differences – Offline and Online
Exhibit II: Growth of E-commerce in India – (in $)
Exhibit III: E-commerce Growth Phase (2014–2020)
Exhibit IV: E-commerce Enablers in India
Exhibit V: Online Purchasing – Dominant and Emerging Categories
Exhibit VI: New Consumer Segments
Exhibit VII: Age-wise Break-up – Online Shopping in India
Exhibit VIII: India’s Position in GRDI
Exhibit IX: Top E-Commerce Deals in India
Exhibit X: E-commerce Companies – Reasons for Consolidation
Exhibit XI (a): Snapshot of Investment in E-Commerce (in 2012)
Exhibit XI (b) - Snapshot of Investment in e-Commerce by Early 2014
Exhibit XII: Top Ten E-commerce Players in India
Exhibit XIII: E-Commerce Business Models
Exhibit XIV: Affiliate Programs & Commissions of Leading Indian E-Commerce Sites
Exhibit XV: Impulsive Online Shopping – Fact Sheet
Exhibit XVI: Lenovo’s Advisory Notice on its Website
