The e-commerce discount wars for the festive season will begin soon. Snapdeal has geared up for it with a change in logo and slogan. The change has been brought about, explains Kunal Bahl, Co-Founder and CEO, to "enable users to unlock their aspirations".
He hopes to focus on the next phase of Snapdeal's growth, as it seeks to engage with "the next 100 million online shoppers from all parts of an increasingly connected India".
Amazon vs Flipkart?
According to various industry reports, Amazon has overtaken Flipkart as the lead in the marketplace. But it all depends on which metrics - gross merchandise volume (GMV) or overall traffic or revenues - one takes up to compare the platforms, says an analyst.
This festive season, there will indeed be a discount war despite the constraints. However, Flipkart and Snapdeal already have their disadvantages which are wearing them down. Amazon India seems to be in a better position at least financially.
The recently held townhall at Flipkart showed the internal churn that is taking place at the Binny and Sachin Bansal co-founded firm. A recent report also suggested that Flipkart could be facing severe funds crunch this year due to the discount offers and acquisition of companies. A Flipkart executive had recently admitted that there is indeed pressure to cut costs.
Both Flipkart and Snapdeal are witnessing a slowdown in sales in the first two quarters of this year mainly due to a funds crunch that has forced them to cut advertising budgets and the government rules that have put in place restrictions on deep discounting by ecommerce players. Flashy ads and discount offers were the two key strategies the companies had been using to woo customers. Devoid of these, the sector is likely to see only a 20 percent increase in sales over the year-ago period, says a report in The Economic Times quoting Arvind Singhal, Chairman, Technopak Advisors.
Amazon India does not have any of these nagging issues either of a fund crunch or valuation. Founder and CEO Jeff Bezos had as recently as in June committed $3 billion for the Indian operations. This is on top of the $2 billion the company invested in the country in 2014. With so much of funds at its disposal, Amazon can focus on customer acquisition and improving service quality.
What will be interesting to watch will be the discounts offered on these platforms. “From a flat discount of x percentage that was the hallmark during the festive season last year, this year the operating word will be 'up to', says an analyst.
Usually, e-commerce platforms offer additional discounts on categories over what the brand or retailers offers. “That won’t happen this season. Things won’t be offered for almost free like last season,” he says.
Snapdeal has made it a tradition to come with a new tagline every year, according to a report in Mint. But that has not really helped it in the numbers game as that slot is fought aggressively between Flipkart and Amazon.
Snapdeal is hoping to create an excitement with its changed logo but it will work as long as there is a story woven around that change, says Harminder Sahni, Founder and Managing Editor of Wazir Advisors, a consulting firm.
E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods and services and shall maintain level playing field, says an analyst, referring to the change in FDI rules. However, that did not stop the Independence Day sales in August.
Going by GMV figures, India’s retail market is around $500 billion while the online share was at $10 billion in 2015 and is expected to be in the reach of $18-20 billion in 2016.
China had a retail market of around $650 billion in 2015 and is expected to be worth $10.3 trillion by 2018, compared with the $5 trillion in sales projected for North America, according to a PwC report. The overall market of retail in China is about $2 trillion.
Shahil Shah, Co-Founder, Rooh, an e-commerce aggregator which runs the e-commerce division of firms says that the rules of the game will change this season. He explains that except for Paytm, no ecommerce player is willing to burn cash to give discounts and attract consumers.
“Earlier, almost all ecommerce players were willing to cut their margins, but now they are willing to do it only on select categories,” says Shah. That also has a window. For instance, if a certain category is not picking up, the platform may decide to give a limited time discount offer of say an hour or two and then pull back the offer after its sales targets are met.
Shah says though festive promotions are looked forward to by customers, the latter has been spoilt by discounts being offered daily on some category online.
Will this season determine who will win the online discount war game? That is too early to say, say analysts. At best, it will re-organize the stature of the players, they say.
There is no investor money to throw around easily like last time, points out Sanchit Gogia, Chief Analyst and CEO, Greyhound Research. “Funds are drying up. This season the online marketplaces will have to earn for themselves and there is extra pressure on profitability on some of them.”
It isn’t enough to make changes but more importantly, what will count is the stickiness of the customer and the amount he/she is willing to spend on the ecommerce marketplace. That is the only metric to success.