Saturday, 24 October 2015

Why Do Online Retailers Offer Heavy Discounts?

It’s really surprising isn’t it? Giving 70%+ discounts which we’ve not heard of in the past that too for branded products. What’s the real mystery behind it?
Worldwide investors are pouring in billions of dollars into companies such as AmazonFlipkartSnapdealPaytm etc. Hence what these companies do is that they subsidize the items sold in their website by absorbing the discounts they offer. In this way seller will not get affected at all as he’s getting entire cost plus profit mark-up money. And the customers would be benefited due to cheaper available of goods from these E-tailers
Now one may ask.. Why these firms are indulging in loss making activity and despite making loses, why these investors are pouring billions of dollars into such businesses? 
The Answer would be hope of getting profit in future. Hope of consolidating the invested businesses in a very good position and be a leader in the market. What may be such compelling reasons for being so optimistic? I’ll elaborate one by one below: 
Low Cost:
Basically compared to brick and mortar stores, having an online store is cheaper due to integration and streamlining business processes such as  supply chain management, billing, shipping, procurement etc. In this way the firm need not stock up the products in bulk quantities and adopts the Just In Time (JIT) method of management. For any businesses, this will translate into huge profit margins.
Having an online store means the business just went global! The boundaries or borders have shrunken and the entire globe is available for the firm to cater to. On the other hand, in case of retail format, the firm has to open shops wherever it wants to operate putting it in greater risk and financial constraints.  The firm can’t open stores throughout the country just like that.
Potential buyers can be anyone from any part of the country or world. If the firm operates in retail format, then it has to wait for the customers to come to their premises and purchase from them. Hence the entire stocks has to get depleted before ordering for new one. Sometime it’ll take very long time or goods won’t be sold at all!!! 
Ultimately it’s a loss for the seller. He’ll be at a disadvantageous position of not being able to bring in new stock or latest products on time for new season particularly for fashion industry and the business will never grow!!

Hence the best bet would be to capture worldwide market and sell at a lesser margin in bulk quantities so that profit margins are not affected..
Blue Ocean Strategy
For starters, it means uncontested market space with huge profit potential. It similar to ocean where it provides enormous opportunities where firms have no idea how to do and what strategy is best. All they know is unlimited potential for growth and earnings.
One may argue that here are lots of e-commerce sites mushrooming. But one must know that no company has found ways to capture global market and leverage it to the fullest. For everyone who enters, opportunities are there. Continuous innovation and disruption is happening and this online commerce is still in it’s nascent stage. 
24/7 Business
The ordinary brick and mortar stores have time limit and are not doing their business in efficient and effective way. As the market in now global, sales can happen at anytime at any location in the world. Hence it provides the firm with unparalleled superior advantage.
By armed with resources and internet, to handle customer requests and provide information round the clock, businesses can provide support efficiently and effectively thus resulting in increased customer satisfaction.
Now Comes Major Reason: Inducing Online Shopping Addiction
How to tap the enormous potential this field holds? By making the consumers aware of their website, how good, easy, reliable, cost-effective and safe it is for the consumers to shop. Then providing various options compared to brick and mortar stores. 
Their target is millennials who are the ones who spend most of the time in the internet and are addicted to it. They’re trying to give a taste of E-shopping such as offering latest style dresses from around the world at discounted prices.
Consciously and subconsciously they’re trying to get the consumers to get used to e-shopping experience and are trying to create a positive attitude towards it. There’s something called knowledge or cognitive function in consumer attitude which is the “know how”.
They’re trying to fulfill the cognitive need of the consumers by using various inbound tactics and providing all the information they need so that ultimately they’ll come to those who did it. Why they’re coming to them? Because the customers consider them genuine and authentic.
Then by prompt delivery, good packaging, customer support, returns etc., the firm can develop a very good positive attitude towards them and this would result in attaining competitive advantage. By constantly giving heavy discounts, they can get all these and more things done. As the market grows, brand image gets positioned well, tapping and increasing the market segment, they’ll slowly reduce all big discounts and offers.
If they make or train you to be lazy, you’ll become lazy, won’t spend time going for shopping. Whatever you want will be available online. On the other hand, the offline format requires you to travel in heavy traffic, go to one shop after another until the one you like will be available, etc.

So to avoid all this you’ll start shopping online. That’s why to give you taste, get market share etc. It may not be profitable at the moment, but it’s really a great investment with future in mind. When the offline channels die out and with continuous investment through funding, the best will sustain and the rest will perish. Later it will become survival of the fittest.
For this reason the investors are pumping in billions of dollars. 
Hope I have explained well and this helps everyone to understand about the strategy behind heavy discounts.
Future Strategy?
Slowly the E-commerce biggies will stop offering huge discounts because they can’t continue to burn their pockets. People have aleady started getting addicted to online shopping and the sales won’t be affected by the curbing of discounts as the number of vendors and product categories has risen as more Indians take to online shopping. They will look to earn margins and start going towards profitable journey.

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