A few brick and mortar retailers in Bangalore have written to the Competition Commission of India, alleging that e-commerce companies are engaging in predatory pricing in India, according to a report in Economic Times.
Hari Rastogi, who started the campaign told FirstPost that he is not against e-commerce, but against the pricing policies of a few big online retailers that are selling at a loss to capture the market. Rastogi’s own website, Laptopwale, is currently selling laptops at a higher price than listed on Flipkart or Snapdeal. However, it’s worth noting that most of them are not in stock in either of those marketplaces. Those that are still available are being sold by several retailers through these marketplaces. For example, Laptopwale is selling a variant of Lenovo 510 for Rs 63,684, while four retailers are selling the same device via Flipkart at much lower rates. In such a case, who is to blame? The seller or the marketplace? Flipkart the marketplace is not responsible for pricing in this case, except that it can get special deals from sellers, or offer a marketing discount.
It hasn’t been smooth sailing for e-commerce players in India, with several companies in the field shutting shop or merging to cut down on losses (here’s a complete list).
Some points to note on the claims
It needs to be pointed out that India only has a Maximum Retail Price in place to avoid exploitation of consumers by ensuring that retailers won’t hike the prices just because there is a demand for it. Customers are free to negotiate on this MRP to lower the price and similarly retailers are free to offer discounts on products. Online retailers are only increasing the competition and allowing consumers to choose from the various price points. There is no concept of minimum retail price as of now.
Is the pricing predatory?
Rastogi’s claims of predatory pricing will have to establish that e-commerce companies are pricing their products below cost. For example, a US court dismissed allegations (pdf) of predatory pricing by Amazon on the pricing of ebooks on this basis.
Second, the Complaint asserts that Amazon’s e-books business was “consistently profitable.” Moreover, to hold a competitor liable for predatory pricing under the Sherman Act, one must prove more than simply pricing “below an appropriate measure of . . . costs.” There must also be a “dangerous probability” that the alleged predator will “recoup its investment in below-cost prices” in the future. None of the comments demonstrate that either condition for predatory pricing by Amazon existed or will likely exist. Indeed, while the comments complain that Amazon’s $9.99 price for newly-released and bestselling e-books was “predatory,” none of them attempts to show that Amazon’s e-book prices as a whole were below its marginal costs.
Predatory pricing claims make sense if one e-commerce company had a monopoly. However, in this case they are fighting against a new business model and not against one company. It also needs to be noted that online retailers generally mark the discounts given out as marketing expense. If that is predatory pricing then what about deal and coupon sites?
– Competiton, not cartelization: Predatory pricing has traditionally been associated with the field of anti-trust which cannot be applicable here as of now, since the accusations are against multiple e-commerce vendors, who are competing with each other.
– Lower real estate cost & economies of scale: As of now, these retailers have an option to change the business model from brick and mortar to a fully online one. By reducing overhead expenses like real estate and by concentrating on dealing in bulk, they might be able to increase the margin on their goods despite charging lower rates. Once economies of scale kick in they will be able to match some of the deals offered by these sites.
Due to the restrictions placed on FDI in e-commerce in India, most of these websites have shifted to a marketplace model which would suit these retailers who have long relationship with suppliers.
– Marketing budgets: Online retailers often include discounts (and coupons) as a part of their marketing budgets. Sales and lower prices often lead to higher purchases, and the cost of marketing by lowering price is looked at in terms of long-term value for the customer.
– Reliability of online pricing: We’ve noticed that while websites claim that goods are being discounted, it often isn’t the case. Consumers are smarter than that, and compare prices across retailers. Discounts often aren’t real.
Pot calling the kettle black
There is some irony here: retailers, such as those in SP Road (Bangalore) are known to charge a higher fee for a product which is in demand and also give deep discounts to regular customers. The only difference between their operations and that of an e-commerce company is transparency.
Apart from this, a lot of retailers also box a consumer into buying a product if they don’t have the specific model a consumer is looking for. This is specifically the case with laptops and motherboards, since a retailer can stock only so many of a unit in a shop. e-commerce gives consumers greater choice.
WeWillAct’s Strange Appeal To Physical Retailers
Some of the statements made on the WeWillAct website border on slander and appear to be an appeal to nefarious activity:
“Some online retailers in India are like BIGDE BETE of their BIG PAPA of USA. They are getting so much money for doing so much of experiment in India and kind of playing GAMBLING. Every six months they are changing their business models, spending heavily on advertisements, selling everything to everyone at much below their cost prices, running business in huge operating losses and that is adversely affecting the traditional physical retailers. There can be possibility if some enemies of our country or terror outfits giving funding to these MONKEYS to do so much drama and make lakhs of retailers loose their piece of mind and livelihood.”
Let’s take some small steps
We will not purchase or supply anything to these unethical online retailers. ( XKart, Ydeal, KBong..)
Lets boycott them.
Let’s now punish them:
1- Let’s place Cash on delivery orders for Rs.40000.00 rupees items every alternate day and cancel when delivery boy comes to delivery. This will make them to lose their fat by Rs.1000.00 at least.
2- Whenever you are free call to their customer care and waste their time. This will increase their customer care expenses.
While boycotting them is okay, placing huge orders and cancelling them will only punish customers in that area. Flipkart had stopped delivering products that were priced more than Rs 10,000 as Cash on Delivery in Uttar Pradesh because of fake orders earlier this year.
The biggest losers in this decision was the consumer and the same will be the case if retailers decide to follow the advice listed by WeWillAct.
What about brands?
Traditionally it is the brand that sets a minimum price for a product to ensure parity among everyone trying to sell a product. In the past Nikon had dropped Flipkart and Snapdeal from their list of authorised dealers for under pricing their products. If any other company has a similar issue they can similarly pull up any of these companies for the practice. Since that is an option, it is strange that CCI has been approached with a complaint.
Rastogi has voiced his disagreement with the way the bigger players in the market operate in the past too, but to accuse them of predatory pricing might not be fair. In categories where these companies lower prices below cost, the onus should be on the distributor or the brand to get them to stop the practice.
E-Commerce companies respond
Flipkart Co-founder and CEO Sachin Bansal said that small retailers are constantly in touch with them since it’s a marketplace. “We connect thousands of sellers across India to millions of buyers – helping them scale their business at a fraction of the traditional selling cost. We even provide them support in terms of a more well-known brand name, technology, logistics and customer support. Additionally, the prices of products being sold on our marketplace are decided not by us, but our sellers. In a lot of cases, these small retailers have seen a month on month growth of 40% in their business after listing on our marketplace – a relatively simple business model,” Bansal said.
Snapdeal.com co-founder and CEO Kunal Bahl said that Snapdeal carries no inventory and that retailers and manufacturers list and sell their products directly to consumers via the platform. “Snapdeal also provides analytical reports to the retailers/sellers on their sales performance and suggestions on how they could increase the sales . Retailers could use this information to determine the optimal price at which they would like to sell their products,” Bahl said.