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Deep discounts can't be long-term strategy for e-tailers: PwC

Study says that with arrival of Flipkart and Amazons of the world, flat discount sales have become a norm in India

Digbijay Mishra  |  New Delhi 

E-commerce players need to come up with a long-term sustainable strategy devoid of deep discount-based price wars to retain customers in the long run, says the latest survey on retail industry by PwC India.

Online shopping, growing at a rapid pace in India, has been the headline grabber especially during heavy discount sales and blockbuster funding from domestic and international investors. In fact, in India, deep discount sales were a ritual only before the festival seasons among the traditional retailers. But with arrival of Flipkart and Amazons of the world, flat discount sales - many times at below cost price - have become a daily affair in India. The survey reveals that such high rate of discounts and ease of shopping round the clock is the major reason which is driving the consumers to buy online.

"Offering lower prices will not be viable in the long term. Despite luring customers in the initial stages, lower prices won't be able to retain customers in the long run. While discounting will continue for some more months, e tailers are thinking beyond discounts to acquire customers and build brand loyalty," the research report pointed out.

Flipkart, poster boy of Indian e-commerce, had first surprised the market with its Big Billion Day sale in October last year which promoted its rivals to come up with their versions of day long sales offering huge discounts.

Despite fundings worth billion dollars, majority of the e-commerce are bleeding on the financial front as most of the money goes into facilitating discounts as much as 70-90 per cent at times. For instance, Snapdeal which raised closed to a billion dollar last year, is still in losses. Similar is the case with Flipkart which is now valued at about $ 12 billion. The combined losses of three major market place based model e commerce company accumulate to over Rs 1,000 crore.

Further with valuations of e commerce majors' sky rocketing, there is increasing pressure from investor firms to cut down on discounts and concentrate on making profits.

The more mature firms in the business are gradually implementing this change in strategy, the report claimed

As an alternative, customer data analytics and customised consumer enhancement tools could work well towards consumers in the long run. Campaigns on social media too have a positive rub off on attracting traffic to e commerce firms' websites.

In India, online retail is less than a percent of total retail market while globally 8-10 per cent of total retail is online retail.

The online shopping euphoria has forced the traditional brick and mortar shops to take stock of situation and re-invent. Many retail associations/trade bodies have tried lobbying against the predatory pricing by online rivals but re christening of strategy seem to be need of the hour for offline retailers.

"For the physical store to maintain a competitive advantage, it will have to continue to reinvent itself in keeping with the changing times. With increased competition even in the offline space, retailers have to move beyond the "simply transacting" business model. It is imperative that they provide customers with an experience that would convince them that the new product would change their life. The trend of online retailers entering the physical space by opening offline stores only emphasizes how multisensory customer experiences contribute immensely in building lasting." the report added.

Although Big Data analytics offers many ways for the front office to customize marketing and sales, the back office of most retailers still faces a serious challenge in managing an increasingly complex supply chain. But pinpointing inventory throughout the store network, right down to the pallet, store and shelf will be harder for large retail chains. Overcoming this hurdle in the back office would actively help retain customers by driving personalised offers based on the customers' search history.

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First Published: Thu, February 12 2015. 00:46 IST