Online shopping discounts: Govt move to bring transparency is a long shot


December 28, 2018

As the noose around online discounts is expected to be tightened with the upcoming draft e-commerce policy, the days might be numbered for both e-commerce companies acquiring customers via deep discounts and customers used to affordable buying.

Written By Sandeep Soni

किसी प्रोडक्ट विशेष को केवल व केवल अपने प्लेटफॉर्म से बिक्री का अनुबंध करने से भी रोक (Representational Image)

As the noose around online discounts is expected to be tightened with the upcoming draft e-commerce policy, the days might be numbered for both e-commerce companies acquiring customers via deep discounts and customers used to affordable buying.

Commerce and Industry Minister Suresh Prabhu last week said that the new draft policy would focus on transparency in online pricing and discounts. The government had also pointed out in earlier draft e-commerce policy that any group company of an online retailer or marketplace ‘may’ not be allowed to directly or indirectly influence the price or sale of products and services on its platform. While this suggests the eventual end of controversial e-commerce discounts but would the government be able to pull it off?

Killing Discounts?

“It is impossible to kill discounts though it will certainly have a dampening effect on their size,” said Devangshu Dutta, CEO, Third Eyesight – a retail consulting firm. A common percentage cut on discounts across products cannot be levied since it is tough to monitor which products are getting deeply discounted and which are not and also for how long.

“How will you decide on which product, let’s say, a 10% discount is normal but 20% is more or 5% is too less and 15% is too much. Monitoring that for millions of products listed online is quite impossible,” said Harminder Sahni, founder and MD at consulting firm Wazir Advisors.

The only way you can control discounts, according to Sahni, is to get a minimum retail price for every product so that online retailers cannot sell below that price after discounts. “Otherwise I don’t see any way of controlling discounts because eventually it is their money and they are spending and no one can stop them.”

Source: financialexpress

Back-door discounting

Domestic retailers and trader bodies have long levelled charges of ‘predatory pricing’ of goods sold online by e-commerce companies such as Amazon and Flipkart “as it is damaging the trade fabric of the country,” PTI last week quoted CAIT Secretary General Praveen Khandelwal.

If not a minimum retail price and if at all the discounts are to be monitored then the government would have to think through how it would do that. “It will become somebody’s job to monitor which products are getting heavily discounted and violating whatever discount threshold there may be and bring to the government’s notice,” said Dutta. He added that whether the government does that job or only act upon a complaint will be seen ahead but the regulation in itself cannot be implemented in a blanket form.

Large e-retailers like Flipkart have re-asserted their previous stance of having no role in influencing the pricing and discounts of products listed by their sellers. “As per the government marketplace guidelines, sellers engage and transact with customers directly,” said Rajneesh Kumar, chief corporate affairs officer, Flipkart Group, adding that individual sellers/suppliers may decide to offer discounts to consumers or run other marketing promotions while the marketplace is not involved with these decisions.

However, online retailers have allegedly been indirectly funding discounts by paying sellers the amount of discounts borne by them or reducing their commission or listing fee.

“These companies reduce the commission they take from sellers in case of discount sales. That’s how they play a role in pricing. The platforms also ask sellers to offer discounts and compel them later to undertake marketing expenses, delivery charges,” Forrester Research’s senior forecast analyst Satish Meena told The Indian Express earlier. However, in the new draft e-commerce policy, this indirect influence of price might also get checked.

Emails sent to Amazon and Paytm Mall didn’t elicit responses.

Deeper Scrutiny

Credit rating agency ICRA has called for greater regulatory supervision to the existing restrictions to assuage concerns of offline retailers. For instance, apart from the FDI norms for the marketplace model prohibiting discounting, the amount of goods purchased from online retailer’s group companies is presently capped at 25% of the sales value in a financial year.

“Despite this, the disparity in pricing in the online and offline retail modes exists,” said Kinjal Shah, Vice President, Corporate Sector Ratings, ICRA, adding that, “Indirect shareholding in vendors/suppliers by e-commerce companies also cannot be ruled out. Unless such support is restricted, a pure play level playing field between online and offline retail would not be attainable.”

The government, however, in the latest FDI guidelines has barred e-commerce companies from selling products of companies that are related to them along with a limit on goods to be sold by a single vendor. The new rules, effective from February 1, 2019, is also against any preferential treatment given by e-commerce companies to any particular seller or brand.

Eventually, if the government successfully executes phasing out of heavy discounts, would e-commerce companies lose their customers to offline retailers? “Customers who have become accustomed to online experience not because of discounts but because of factors like convenience will not shift offline,” said Dutta. Greater choice of goods and convenient return/exchange policy also works in favour of the online channel.

Source: financialexpress