Sunday, August 5, 2012

Indian E-Commerce Space: Discounts & Drugs!

Being at the forefront of the Indian e-commerce space and working with e-commerce start-ups has given me a unique perspective. As of this month I'm not new to this industry but I'm not old to it either, which gives me a view from a halfway point. I see this space as an insider and also as an outsider.

In my short journey, I'm seeing the long term & the short term bets that companies make and how it can effect their life. For example: offering too many discounts. This may seem like a great way to increase traffic and sales, but its like cocaine. Long term use of the same will make your customers addicted and when the discounts are cut off the traffic to your website will drop as the erstwhile customers are all pouting due to the effects of detox. Before you know it the brand would have disappeared.

Take the example of Jabong.Com. When they launched they came with a bang. Screaming televisions ads (Mainly responsible for traffic), SEO and SEM. They Offered the lowest prices and great discounts. Everything on their website seemed to be on sale. Once they burnt through their investor money; the discounts decreased, the TV ads disappeared and the traffic they developed in the short term has started to fall.

Traffic Trend for Jabong.Com
From Google Trends: Jabong Traffic in the last 12 months

They came with a bang and curiosity caught the better of people, but now that the curiosity has died down the marketplace corrects itself as Jabong's traffic falls and the whole buzz related to it is digested.

On the other hand we have e-commerce companies which do not resort to such discounts. One may think that its foolish, in a market full of discounts it would be important to match the competitors in order to survive... but discounts just erode the bottom line and delay breaking even. Ultimately the companies which offer less number of discounts but better quality goods and service are the ones that will survive. Discounts will  become common place and customers would rather pay a little extra for quality thereby shifting the business from being price sensitive to quality sensitive.

Companies in the baby care & baby shopping space like and in the online grocery shopping space like are going to perform exceptionally well over time as they offer relatively less discounts but superior quality of service.

Why I say overtime is because, as with Jabong, in the initial stage the crowd will go with discounts but after a few months as people adjust to the numerous discounts and as the discounts per site lessens, the market will shift towards being quality centric.

The crazy number of discounts also distorts the market for everyone, the customers and the competitors. It lowers profit, increases expectations and delays break even points making it difficult for companies to survive.

Lets face it, discounts while attractive are more of a drug which eats up the system from within.
Go for quality and not price.

-> SJ

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