The stiff competition in the ecommerce landscape has driven the key players to try out every trick in their hats to ensure that they stay relevant. As the festive season sales have begun on a grand scale on the ecommerce platforms, deep discounts offered by online platforms have become a staple during this period, often driving a surge in consumer demand.
The discounts offered by the top players in the segment go as high as 80 per cent. While these heavy discounts have propelled the giants in the ecommerce industry on a growth trajectory, the discounting policies have been criticised by the trade bodies which have labelled them as a deliberate strategy to drive small retailers out of business.
It has become crucial to understand the whole debate around discounts and delve deeper into the different factors and viewpoints in this regard.
Criticism Over Heavy Discounts
The discounts have been under criticism from the traders' bodies ever since they were unveiled by the ecommerce platforms for this festive season. The Confederation of All India Traders (Cait) has strongly criticised ecommerce companies for offering excessive discounts, accusing them of undermining the retail trade ecosystem in the country.
Cait National President B.C. Bhartia and Secretary General Emeritus Praveen Khandelwal also called out several banks for offering exclusive discounts and cashback deals on purchases made through these ecommerce platforms. The trade leaders labelled this as a deliberate strategy to drive small retailers out of business.
The Math Of Discounts
The ecommerce platforms aim to drive their sales, especially during the ongoing festive season by offering discounts and deals which make consumers wonder how these platforms manage to roll out such eye-catching discounts.
“Ecommerce platforms use consumer behaviour data to offer personalised deals, targeting the right audience at the right time, thereby ensuring higher conversion rates. Their ability to predict demand trends and manage inventory efficiently also allows them to offer large-scale discounts without compromising profitability,” stated Puneet Kumar Kanojia, Director, BollyBites VadaPav.
Another important aspect that needs mentioning is that these ecommerce platforms leverage plenty of tools and techniques to make sure they do not suffer in terms of profitability while providing discounts. Cost-effective marketing and logistics optimisation are some of the areas which they focus on.
“They invest in technology to reduce costs and improve efficiency. For instance, automated systems in warehouses help them store and ship products faster, reducing operational expenses. Platforms also focus on cost-effective digital marketing, which is up to 60 per cent cheaper than traditional methods, according to a 2023 report,” stated Rakhi Sharma, Vice President of Marketing and Ecommerce for Jovees Herbal
Impact On Small Businesses
As these big players in the ecommerce ecosystem strive to capture a significant portion of the market share and the heavy discounts play a key role in that journey, there is always a concern regarding the impact on small businesses. As small businesses more often rely on the offline modes of business to generate revenue, they face tough competition from these online giants. The experts have diverse opinions regarding this aspect.
“Small businesses benefit from the platform’s wide reach and promotional support, allowing them to reach new markets. While discounts may reduce profit margins temporarily, they help in building brand visibility. For instance, offering a limited-time discount on products can introduce our range to a broader audience,” added Sharma.
On the other hand, Ravi Kabra, Co-founder of Skippi stated that these discounts can be challenging for small businesses. He said, “The discount wars can pose challenges for small businesses, which often struggle to compete with the substantial discounts provided by ecommerce giants. However, small businesses like Skippi are less impacted because of their unique status as a premium natural product. Nonetheless, the ongoing expectation for discounts can squeeze profit margins, particularly for those heavily dependent on online platforms.”
A Cap On Discounts?
As discounts are beneficial from the perspective of consumers, they also support a brand to stay relevant and stay ahead in the competition. The heavy discounting policies on ecommerce platforms have surely impacted the businesses that rely on offline channels for their sales. This has given heat to a debate about whether there should be a framework which puts a cap or maximum limit on the discounts that can be offered. The experts have opposed the idea of a clear-cut cap and have called for a more effective solution instead.
“Imposing a limit on discounts could help avoid unsustainable price reductions, but it might also hinder competition and diminish benefits for consumers. A more effective solution would be to establish a framework that ensures discounts are fair and transparent,” added Kabra.
In addition to having a framework in this regard, industry experts have vouched for a collaborative model which provides a platform for the involved parties to work together.
“A more balanced approach would be to encourage transparency in discounting practices and ensure that all players, whether online or offline, adhere to fair competition standards,” remarked Kanojia.
Should the Government Intervene?
As the trade bodies and retail associations have urged the Centre to step in and bring out regulations regarding the discounts being offered by the online platforms, it is important to understand the extent to which the government can and should intervene.
“Government intervention is feasible but complicated. Potential regulations might involve overseeing pricing strategies or ensuring that ecommerce platforms do not exploit their dominant market status to undermine smaller businesses,” stated Kabra.
While the experts have called for a balanced approach in this regard, they have also pointed towards keeping the welfare of the consumers as the topmost priority as far as the regulations are concerned.
“Regulations that promote transparency and fair competition would benefit all players, including small businesses. However, it's important to maintain a balance, so consumers continue to enjoy the benefits of competitive pricing. We believe in a cooperative approach where platforms, businesses and the government work together to create a marketplace that is both fair and dynamic,” stated Sharma.
While it has become clear that these heavy discounts do play their role in driving sales during the festive season, it is also important to look at other aspects as well. For larger brands, this structure can be mutually beneficial, driving volume sales and market visibility. However, small businesses, often cannot afford to co-sponsor such large-scale discounts, leaving them at a competitive disadvantage.
