Product pricing in E Commerce and Consumer interests

The new FDI guidelines applicable to E Commerce will be coming into operation from 1st February 2019. The copy of the revisions in the FDI policy is available here.

The guidelines provide that 100%FDI through automatic route is subject to certain conditions, one of which is that a vendor in whom the market place has ownership or controlling interests shall not generate more than 25% of its sales through the market place.

If any vendor does more than 25% of its sales through a single market place, it will trigger an inventory model and the e-commerce entity will not be considered as a market place. The inventory based model of e commerce is not eligible for FDI.

The vendors like cloudtail operating on Amazon or WSRetail on Flipkart  used to offer deep discounts and quick deliveries. There was no doubt that this was hurting the offline vendors who were charging more for the same product because they had to bear higher costs of physical presence.

The offline traders are therefore happy  and this is considered an advantage in political terms to BJP.

Though there are some optimistic statements from the E Commerce giants that they will rework their contracts so that the discounts etc may continue, it looks possible that the good days of competitive pricing on e-commerce platforms for computer products, mobiles and consumer household goods are over. The “efficiencies” of e-commerce which was expected to bring benefits would reduce.

The market movement to offline vendors would re-open the use of black money for purchase of consumer goods and part of the digitization benefits would also be lost.

It is possible that non FDI dependent platforms, one of which may be the Ambanis could replace Amazons and Flipkarts and possibly continue to provide the kind of discounts that has become a norm for E Commerce sales.

Where is  Consumer Interest?

It is however necessary to flag the fact that this move to render e-commerce platforms supported by FDI stop selling at the prices which they do now will only mean that consumers will have to pay more and suffer the inefficiency of the local vendors.

It is necessary for us to realize that what is being called a “Deep Discount” by the e-commerce players is a combination of trading of the dealer discount and the savings achieved because of higher volume of sales. The greedy nature of the offline merchants is also one of the reasons why there is a huge difference between the local vendors and e-commerce vendors.

The local vendors by virtue of their physical contact could have scored over the e-commerce merchants through better consumer service, better product assurance etc. But they have so far not shown any initiatives to make consumers feel that their neighborhood sellers are better from long term relationship. The warranties and service are provided only by the manufacturers and the local vendors donot add any value of their own to the product.

From the consumer’s perspective, what matters is the price paid by him for acquiring the product and the distribution of profits between the wholesaler, retailer etc are of no concern to him. If therefore a product X is available at Rs 2000 on line and the same product is available at Rs 3000/- in the local store, there is no reason why he should not opt for the convenience of online shopping where he can compare prices, search across brands, read reviews etc., without moving out of his work place or home.

In case of small purchases, E Commerce purchases are the only option since it is unlikely that the buyer would take the time to go out to a shopping mall and buy an electronic product which costs a couple of hundred rupees or less. In fact by not moving out he would decongest the roads and save his productive time.

I recently pointed out how offline vendors are making usurious profits in a specific instance and wonder why we should not take consumer action against the company for cheating the offline consumers by over pricing the product in the offline selling point.

I have explained this in greater detail in the article “Stop this Day light robbery from Shell India Marketing“.

Essentially I have pointed out that Shell India is selling a 4 liter lubricant oil can in its authorized show rooms at Rs 4980/- as against the online price of Rs 2299/-.

I am not able to believe that this is a deep discount given by the e-commerce merchant. it is in my opinion, an exploitation by the offline merchant.

In fact, I want some consumer action group to take up this matter and demand that Shell India stops this exploitative sale in their authorized show rooms and let the online merchants do the sale.

This is just one example of a product being over priced offline. It happens in case of consumer goods like Mixers, TVs etc., where there is a heavy dealer discounts passed on by the manufacturers which the dealers keep it to themselves and not pass on to the consumers., citing the “MRP” on the product package.

The E Commerce Guidelines may therefore be good for offline merchant intermediaries but certainly is anti-consumer. If products are sold at higher prices, Government will get better tax revenue and hence there is a vested interest in the Government to allow exploitation of the consumer.

Can the Consumer interests be protected? 

It is time for the Government to find some innovative solutions to ensure that the offline merchants are able to preserve their sales at a lower marketing costs so as to be competitive with the online sellers.

One thought could be to provide the convenience of online marketing  by creating a national network of offline merchants and providing an exclusive free online platform.  This could work like a cooperative federation for which Government can pass on exclusive tax concessions.

Let the neighborhood merchant sell the products on par with the online merchants and get the benefit of lower taxes, lower inventory movement costs, shared promotional costs etc so that his profits are retained even if he sells at the dealer’s price. The scheme could run like the “Duty Drawback Scheme” for promotion of exports and can be made specific to the objectives of achieving social justice through differential rates of drawback on different products.

Will the Government give a thought to such an idea?

Naavi

Also refer

Copy of the revisions in FDI policy

Refer article in livemint.com

Refer Article in hindustantimes

Can the “e-Janata Bazaar” carve out the future of Digital India?

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