Posted in Marketing & Strategy Articles, Total Reads: 3163
, Published on 15 May 2011
Online shopping is growing at a very rapid pace and to take it to the next level are the discount websites which are mushrooming at a fast pace in the cyberspace. These websites are creating win win situation for customers, retailers and for themselves. These discount websites enable the retail merchant to sell his goods/services, get customer a bargain and earn a sufficient fee in the process.
These websites help asset heavy businesses to achieve better inventory turnover. The dealer gets liquidate inventory immediately if the product is out of fashion and won’t sell in the future. The dealers sell these products at wafer thin margins or at cost through these discount websites and can re-invests the proceeds on newer stock. Perishable inventory is best suited to be sold on these websites. Even for the asset light service based businesses it offers tremendous opportunity to showcase their services. For example, newly opened beauty parlor can offer as much 60% discount on their hair straightening and coloring service. Even with the very small margin, the huge spurt in the customers can make up for lower margins. These businesses can leverage the website’s huge subscriber base and this significantly reduces their marketing expenses.
How well the market is poised can be estimated from the fact that overall e-commerce market in India was worth Rs 19,688 crore at the end of 2009 and expected to touch Rs 46,520 crore by the end of 2011. With emergence of smartphones, tablets and advent 3G with its greater access to the internet, it could provide huge push to these websites.
The business models are still evolving with two models clearly visible on the discounted deals in India. In the first model website assures the merchant minimum upfront payment and collects advance payment in full from customers looking for a product or service. Generally, these kinds of these deals require minimum number of customers before they go live. The number of customers is displayed on the website and if the deal is good enough the visitors themselves push the offer to their friends.
Another model is the websites charging the customer small marketing fee while actual payment is directly to merchant. For example a meal costing Rs 1000, in a restaurant can be sold for Rs 500 with customer only having to shell out Rs 50 online as website’s fee. Even the customers who have inhibitions against online payment are also comfortable paying small amount online.
But as these websites are proliferating, there are also downsides particularly to the businesses. The massive discounts offered by these websites don’t just remove the profitability from any sales made through them; they also make it more difficult to charge the full-price which was charged before. This is because the consumers who have bought from these websites are unlikely to want to pay the price of the service to the provider they bought from first, when their competitor is now offering the same service on them for a reduced price as well. Therefore these websites has the potential to devalue the services offered over a prolonged period, and lowering industry prices and margins to unsustainable levels. This has multiple effects, from driving talent from the industry, to forcing businesses to exit the market or diversify.
Another effect could be long term inflated prices. In order to derive profit from these deals, the businesses can raise their prices so that they could discount and still remain profitable. This can have negative effect on the consumers with the word ‘sale’ or ‘discount’ having no effect on them.
This industry is very nascent stage in India with around 12 websites already in the market having average visitors daily ranging from 1k to 62k. Snapdeal.com, bagittoday.com, dealsandyou.com are some of the prominent ones. How this market evolves remains to be seen? Please leave your comments on this emerging business model.
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