January 31, 2023

Government disallows deep discounting by aggregators
The government has cracked down on deep-discounting by etailers. Hence, all the biggies in the business are tweaking their frontend model. Ways are being devised to offer merchandize to the customer at the same deeply discounted rates by dressing it up to look like something else.

Discounts to be borne by sellers
The government had prescribed that etailers could not offer upfront discounts to buyers. If they wished to offer merchandize at discounted rates, the mark down had to be borne by the manufacturer or the seller on the marketplace.

Commission cannot be used to offer discounts
This went against the normal ecommerce practice of aggregators offering special discounts (over and above the price set by the seller) during promotions to lure customers and widen their customer base. This discount was offered from the commissions they received from the sellers.

Aggregators tweaking strategy
To circumvent this government fiat, the ecommerce aggregators are thinking of adopting several methods. In the first method, they are asking the seller to reduce their commission by up to 50% and mark down his pricing by that amount to pass the benefit directly to the customer. Then, they are providing credit to the seller equivalent to the discount offered to customer.

Innovative value addition needed
Apart from this, other value addition elements like product exchange, no-cost EMI and easy, hassle-free return policy are being put in place to make the shopping experience unique in order to retain the customer base. Customers will be angry at vanishing discounts and marketplaces will need to minimize this dissatisfaction level with innovative offerings.

Every marketplace sells the same products
Ecommerce marketplaces have established their bona fides regarding product quality, price, delivery and returns. Hence, many shoppers have made them their first choice buying platform. But it is often seen that the discount offered is the main attraction for these buyers. With very little to separate the marketplaces in terms of product offerings, it is the discount which clinches the deal. Hence, customer retention is solely based on the amount of discount being offered.

Upcoming festival season to be a stern test
Hence, the government restriction on deep-discounting by aggregators will work as a blessing in disguise for these marketplaces. Deep discounting business model was faulty. Most of them were bleeding and survival was at stake. Some had closed down while others had been acquired by the biggies. The upcoming festival season will be a stern test for these marketplaces. With new strategies in place, the coming few months will define the route ecommerce will take in India hereafter.