How discounting is impacting the e-commerce industry and its future
The festive season is here, and all the e-tailers have rolled up their sleeves to compete in the furiously growing market, intent on attracting more eyeballs and converting them into sales. Founders and investors both agree that it is no longer about GMV in the Indian e-commerce market. So that just begs the question - What is that secret ingredient to building a strong customer base? Is it a huge range of products, a dynamic UI, penetration into untapped markets, high quality service or, maybe, the (in)famous go-to strategy of the business - Discounting? The real essence of business remains the same – profitability. Whether discounting is the way to go about achieving that profitability is a question that really must be looked into.
The real challenge
There is absolutely no debate on discounting being one of the most effective tools for turning eyeballs globally. Thus, it is in no way surprising that the e-commerce industry could not exclude itself from adopting this aggressive move.
When the story started, discounts served as a way to lure customers for whom shopping online was a whole new concept. At that time, it was mostly about the “CAC- Customer acquisition cost” and “Educating the customer”; customers who were aloof from the ‘buying online’ concept or skeptical, a considerable majority of the target market, had to be given an incentive to come online.
However, as the market began to mature, the players in the space received an uncomfortable surprise – rising competition prevented them from pulling back on the discount front. The ‘point of differentiation’ became a colossal challenge for all of them.
You and I aren’t similar
It’s a truth beyond dispute that, to every customer, all e-commerce players are more or less the same, keeping aside the brand value factor and perhaps slight variations in things like delivery time. All of them sell the same thing, at prices that are fairly comparable. Each competitor in the e-commerce space is desperate to show itself as ‘distinct’ from its peers, but how? Marketing started to showcase their USPs. From service and product range to delivery promises and emotional connect, everything is being tried today.
Still, the ‘price’ factor is one of the critical factors, perhaps the critical factor, for the average Indian customer. For this individual, the decision-making process revolves around the question ‘What is the price?’ or ‘Kitne ka hai?’ The one who offers the lowest prices gets the deal. That showcases the power of discounts.
We have seen discount offers going down over the past couple of years, and companies are now forming strategic collaborations with banks and brands to reduce the burden of discounting on their pockets. There is a parallel combat happening on B2B front as well, where e-commerce players are trying to rope in retailers/suppliers onto their platforms through the offering of subsidies on their products.
Undoubtedly, the industry has grown up and is showing signs of maturity. Players have evolved to a certain extent and are strongly relying more on subscriptions/loyalty programmes to build and sustain a robust and loyal customer base. These initiatives are all up and ready to replace discounting as the prime tool to attract and engage users.
The rise the industry has seen in sales figures during the festive season from last year is not due solely to their discounts and offers. A good deal of credit goes to increasing mobile and internet penetration and adoption across the country. The growing customer base in tier 2 cities has led e-commerce players to heave a collective sigh of relief. The broadening of the customer base augurs well for the industry as a whole, and is sure to provide a degree of comfort to nervous investors.
Down the line
The road, however, isn’t going to get smoother. The brands with bigger pockets can afford playing the ‘discounting’ card, and will be forced to do so, even if it’s against their will! With sinking funds and educated customers, e-commerce players have found themselves at bay. The temperature will soar further with investors becoming more fastidious with their investments. The focus has now turned to making the venture profitable through capital optimisation and maintaining margins.
Discounting is no longer a great bait to generate more sales. While it can’t be ruled out either, it shouldn’t be used as a best bet. An ideal marketplace should be one where suppliers/retailers compete against each other to get the customer and offer discounts from their profit margin. However, suppliers have found themselves at ease in the market, using multiple platforms to sell their products.
The giants of the e-commerce world have locked horns in order to grab a bigger chunk of the pie. Going forward, the real essence of the business will be on profitability, and the influence of discounting will be tempered, it being utilised just as a promotional gimmick.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)