India's e-commerce platforms like Flipkart, Snapdeal see zero profit mainly due to the massive discounts offered; need to go back to basic to see sustainable growth: Gartner

Just when we were thinking that India’s e-commerce platforms are on a roll after the extremely successful festive ‘Diwali’ sales, Gartner says that none of the digital commerce companies in India are profitable. And the reason is mainly the massive discounts offered by the platforms. Gartner says that these companies typically earn between 5-15 percent commissions of product sales, but the massive discounts on top of the investment in order to expand to more geographies saw those companies losing money and how this can be a serious problem when the capital market tightens up.

“The problem is being neglected when there is plenty of funding, and companies can live off sufficient capital. Once the market tightens, it is a survival game that only those that watch the bottom line and cash flows will win in the end”, said Mr. Alvarez, managing vice president at Gartner “There is a need to go back to the basics, that is, to operate on a sustainable growth model. Of which, customer experience and data-driven incentives are two fundamental factors.”

The only way for these e-commerce platforms to see sustainable growth is to go low on the discounts and go back to the basics. Customer care and data driven incentives are the two factors that these companies need to ace in order to start making profit. According to Gartner, Customer Experience is the most important differentiator of a digital commerce service as price becomes transparent across sites. Discounts will only retain customers as long as the promotion lasts, while good customer experience will make people come back and purchase more even when there is no promotion. Customer experience goes beyond a frictionless shopping experience on the website or in the mobile app, and includes delivery, custom service, returns, retail discovery, customer ratings and reviews.

And secondly the e-commerce companies need to look at data-driven incentives as promotions and discounts are still important techniques to drive sales. Businesses should personalize incentives based on shoppers’ profiles and purchasing propensity, and only give out the amount that is enough to trigger a purchase but not too much to lose money.

But digital commerce is still at a nascent stage in India and promotions and discounts seem like the only way to entice the value conscious customers. Even with heavy traffic during the promotions overall sales of all these e-commerce sites in India have remained flat. And one of the main reasons for stalled sales, according to Gartner, is the massive and continues discounts that the online marketplaces provide.

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