Behind the Scenes: How Flipkart, Snapdeal, Amazon or Myntra offer 70%+ discounts

How can India’s loss-making e-commerce companies offer outrageous discounts every other month?

First it was Flipkart with its Big Billion Day sale. While the company grossed a cool $100 million profit in a few hours, it resulted in a Government probe about how such sales work. That didn’t deter other e-tail giants. The long chain of online sales ever since is living proof.

It is important to note that most recent sales were centered on online exclusive or old models. Looks like the good old days of hefty online discounts on popular merchandise are extinct. But what could be the dynamics behind such whacking discounts?

“There just can’t be margin to offer more than 60% off on all products. Every company takes a calculated risk here. If 10% merchandise is discounted at 80%, the rest is discounted less; the weighted average may still be 20-25%”, explains Arvind Singhal, Chairman at Management Consulting firm Technopak.

Basically, what a company loses with one, it gains with something else.

However, a risk is a risk. The average person’s idea of a successful business is that it should be focused to minimize risks.

The answer lies in the fact that e-commerce giants are currently expanding their user bases. The buzz around the jumbo discounts serves as an expensive but effective marketing strategy. Moreover, traffic moves away quickly in e-commerce. It takes time and knowledge to travel from one physical store to another. Here it’s a matter of a few clicks. Hence, most e-commerce players always have to go all in with their resources. Some are resorting to App only offers to draw customers to the mobile app platform that is stickier and can help build a better brand experience. Online sellers are also not losing out as they offer their goods at discounted prices.

"Most sellers are being reimbursed or funded by the website for the discounted prices they offer. It's a buyer's market ultimately", Sandeep Ladda, Partner and National Leader of Technology Sector practice, PwC India says.

Are websites doing this without a reason? Of course not. The total amount of business all e-commerce companies put together is not more than $10 billion. The future need may not be in billions, but the market opportunity in India is in hundreds of billions. It’s an expensive gamble no doubt, but like they say, you must spend money to make money.

(Picture credit: Indiatimes)