Fitness wearables provider GOQii has taken online marketplace Flipkart to court over deep discounting, and received a stay order, preventing Flipkart from, in the interim, allowing the sale of products. This case is significant because of multiple issues: firstly, it comes in the backdrop of India defining its ecommerce policy, where it sought to regulate marketplaces more deeply, and allow trademark owners the ability to monitor the sale of their products, and even prevent sale, on marketplaces. Secondly, the fact that Flipkart, as alleged in the case, has control over third party seller pricing, which GOQii has said it can demonstrate via emails and WhatsApp messages exchanged, can impact Flipkart’s situation as a marketplace with no control over inventory and pricing, and be an indication of violation of India’s FDI policy.

MediaNama spoke with Vishal Gondal, founder of GOQii, on why the company has an issue with deep discounts, and how they impact GOQii’s business:

MediaNama: Conventional logic would suggest that as a manufacturer, when you produce a product, and you get paid by distributors or retailers, who then sell it to customers, you don’t lose any money when it comes to discounting. So why are you worried about deep discounting? How does it impact your business?

Vishal Gondal: Perception of a consumer is derived by what they perceive the product price is, and what they’ve paid for it. For example, if you’re looking at a GOQii Vital, you’ll largely find it available at Rs 1999-2100 Rupees, and it’s not just the hardware. We have [access to] the doctor and a coach. That is the typical price point when the consumer buys it from any channel, and if it’s Rs 100-200 here and there, the consumer is not really worried about it. If there’s a big billion day sale, and we drop the price from Rs 1499 to Rs 1299, consumers get that too, because it’s a normal discount and the entire store is on discount, and not just my product. What happens with sudden discounting is that my product which is at Rs 1999 is being sold at Rs 999, it creates a problem with existing customers who got it at Rs 1999, who wonder if they got cheated, and secondly the people who look at Rs 999 wonder about how this product can be genuine. It’s like when you see a cheaper iPhone you wonder if it is chori ka maal (stolen goods) or nakli (fake), when it’s too good to be true. It creates a negative consumer perception.

In our case there is an additional complication, because we have a lot of strategic partners and enterprises that work with us: companies are buying it for their employees, in quantities of 20,000-30,000 units. Insurance companies buy from us in huge quantities. There we give them bulk pricing, and they tend to look at pricing on Amazon and Flipkart, and take that as the base price, and look at discounting from there, in bulk.

“The minute a price touches a crazy Rs 999 number, two things happen: one is that the entities who had placed orders started canceling it, saying that now you give it to me at that price, less 10% discount. The second thing is that [businesses] started thinking that there is something hanky-panky going on between the procurement team and the people trying to sell, because if this product is available for Rs 999, then [they think] “why are we paying so much more for it“? It creates a problem with enterprise orders.”

Finally, distributors working with us, who take the stock to sell, have had problems because people are saying that with these online prices, how can I buy it from you? Basically it disrupts the entire marketplace and distribution model for me. Because we have a multi-channel platform, and also from a price-perception perspective, if how the consumer perceives the product changes, it creates a big negative for us and the brand.

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[Editor’s note: since this interview last Friday, Gondal has tweeted photos of fake products being received during the deep discount sale, and the company is offering free replacements to customers. Other customers have said they received products with packaging damaged and the product seal broken.

In a message, Gondal told MediaNama that

“We have lost lakhs of units in orders and now with stuff like this, damage to the brand is unimaginable” ]

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MediaNama: Who pays for the discounts when they are there? Have you ever paid for the discounts?

Vishal Gondal: In certain cases, like Prime Day or big billion day sale, that time we contribute marketing dollars, and fund it partly or fully. That is only on certain days, and we give proper approval to do this. What was happening currently was that this was being done independently by the marketplace.

MediaNama: Even today, you have no control over the price that a retailer might be putting on a product. There are stock clearance sales even. In that case, why this cant be treated as similar, where the end-retailer controls the price?

Vishal Gondal: Stock clearance happens in a window [limited time], or at a factory outlet. It is always a controlled environment, even for retail.

MediaNama: Do you have control over the pricing in retail? Do you want control over the pricing of your product everywhere?

Vishal Gondal: I don’t want control over pricing of my product everywhere. I just want to make sure they are not eroding the value. If you’re going to buy a Luis Vuitton bag for Rs 5 lakhs and start selling it for Rs 50,000, and even if you sell only 10 pieces, but you’ve eroded the value of the brand, because the consumer will say “arre, yeh paanch lakh ka nahi hain, yeh pachaas hazaar ka mil raha hain online. Tum kya bakwaas kar rahe ho?” [“This isn’t worth Rs 5 lakhs, it’s worth Rs 50,000. You’re bullshitting me.”] That kind of price difference. The point is not about just discount, it’s about a crazy discount which a normal retailer will not do. That’s the other point.

If you’re a regular business person and a real marketplace, you will operate in the principle that, at maximum, I’ll sell it at my cost. What is your incentive to sell it at 80% discount, is what I don’t understand. If you’re a marketplace and I am a reseller, which sane reseller will do this, you tell me?

MediaNama: The draft ecommerce policy wants to ensure that trademark owners get information, once they register on a platform, for every listing and every price point. Do you want this?

Vishal Gondal: It’s absolutely important. In my category, I’m a health product, so it’s even more complicated. There’s a heart rate monitor, blood pressure… I just want to make sure that whoever is selling it is a genuine guy who knows all these things. Because these marketplaces are allowing anybody and everybody to do it, it’s a little bit like what happened on music on YouTube, where anybody was uploading any video.

MediaNama: And now they have Content ID which allows labels to take down infringing content, or monetize it…

Vishal Gondal: Exactly. The concept is similar, especially when these are brands who have dealers and distributors. I have authorised partners. If I have… I don’t even know who Retailnet and Tech-connect are. Somebody has given it to somebody has given it to somebody. That somebody is selling it online at some ridiculous price, where the description of the product is wrong, the photographs may be wrong. They have written that it has 20 degrees of accuracy, where it might have accuracy of 2 degrees. There are so many things: wrong description, wrong photographs.

MediaNama: Have you considered exclusive arrangements or branding stores with these platforms?

Vishal Gondal: We have branded stores on both Amazon and Flipkart.

MediaNama: These products are being sold outside of your branded stores… so, who controls these resellers?

Vishal Gondal: Our agreement is with only one entity, which is Flipkart India Pvt Ltd.

MediaNama: What is an ideal outcome from you from here on?

Vishal Gondal: For now at least the products are down. I think the ideal outcome is that let them not put it back. We are trying to ascertain the total losses incurred. We will see what we can do about that. Very frankly, what was in my mind right now was to get this stopped at least, so that it doesn’t further erode my business.

With dealers and distributors, products have been returned, material has been sent, purchase orders have been canceled. Active negotiations have been stopped. Because it was long-term: normally people would think that it’s a short sale, and people think that ek din ke liye hain [it’s for one day] and it’s a temporary thing, and will end. This kind of pricing went on for almost 18 days. Every day you’re seeing this price. That’s a huge problem.