The Discounted Insanity

There has been a lot of talk in the Indian media recently about the lack of profitability of major Indian e-commerce players. Many of them are also trying out different strategies to manage finances while maintaining growth. While Flipkart has been tweaking discounts and raising limits for free shipping (a move that was quickly followed by almost everyone), IndiaPlaza has excused itself out of the discount race by saying that they want to be the "only money making e-commerce company" out of the top 3-4 players and not the biggest.

However HomeShop18 seems have sensed an opportunity here and has put almost the entire books category on unprecedented discounts! I was hard pressed to find any title that has less then 29-30% discount. Most of the titles are as highly discounted as 35-40%. This includes even the titles which they might be importing from outside. In all my searching, I came across one title which was at 10%. This is insane! And if this was not enough, they have free shipping on any order value, even below Rs.100! Consider that the cost-to-company for such a transaction would be discount + CoD/gateway charges + logistics which can easily get to 45-60% of MRP. That kind of discounts (from suppliers to retailers) are only available for best selling trade books or for old inventory clearing. What this means is that HS18 makes no money on most books even at a per transaction level. This is a true loss leader strategy. It doesn't matter if they capture the 100% market share, they will never make any money. So the only hope is that this rubs off on other, more profitable, categories on the site.

Being a reader, I am scrambling to see which books I can buy under this VC/Corporate subsidy program. I am not a reliance shareholder but if they are willing to pass me some dividend in form of book subsidy, I will happily take it. (Reliance made a major investment in Network18, the parent company of HomeShop18 in Jan, 2012).

As a book publisher, I am not very happy seeing my entire category being used as a loss leader. It is only a matter of time before they turn around and demand higher discounts from their suppliers.

Will HS18 be able to capture a larger market share with this strategy ( not only in books but in other categories as well)? I can't comment on that since being so near to these companies (have friends working there or have business relationships with them), I have pretty low loyalty to anyone of them. They all seem safe enough. I do not know how does it look from the perspective of an average customer who discovers them through online search or TV ads. I hope people in charge of e-commerce companies have a better guess. :-)


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