What will Indian e-commerce companies do to win this festive season?

Quartz india
Quartz india

The stage is set and the stakes are high.

On Oct. 2 leading Indian e-commerce companies will kickstart their annual festive season sales. The three months starting October are crucial for both offline and online retailers in India as they account for some 40% of the annual consumer durables and electronics sales in the country.

Leading Indian e-commerce companies began preparations for this year’s sale months in advance.

Flipkart, India’s largest online retailer, has reportedly hired over 10,000 temporary staffers to ramp up delivery and logistics, the Press Trust of India reported. On Sept. 09, the company also announced the opening of its 18th warehouse in Lucknow, Uttar Pradesh, taking its total storage capacity to 6.2 million cubic feet.

Earlier this month, Flipkart’s rival Snapdeal undertook its biggest brand repositioning in the last six years, spending Rs200 crore.

But, analysts believe that given the ongoing funding crunch and new government regulations, online retailers will have to walk a tight rope during this year’s sales.

Here’s what to expect:

Discounting dilemma

Flush with funds back then, Indian e-commerce companies offered eye-popping discounts in 2014 and 2015. For instance, Flipkart’s first Big Billion Day (BBD) sale—the company’s flagship annual sale event—in 2014, saw many items being sold at just Re1, smartphones at up to 90% discount, laptops starting at Rs15,000, and toys, fashion items, and perfumes at around 50% off the regular price.

But things are not the same now.

A funding crunch and recent government regulations are gnawing at their finances. “E-commerce companies are having these sale events because they want to maintain the culture of annual sales. But discounts will certainly not be as steep this time as in the previous years,” Yugal Joshi, practice director at Texas-based management consulting firm Everest Group, said.

Indian e-commerce companies are not having the best of times in terms of fund-raising. Flipkart has been devalued by several investors in 2016, putting pressure on valuations of its peers. Media reports have said that several investors have refused to put money in Flipkart and Snapdeal at their desired valuations.

Also, according to a new government policy, e-commerce marketplaces are not allowed to influence the prices of goods and services they sell. This means companies like Flipkart, Snapdeal, and Amazon could have a limited control on pricing.

Lessons learnt

The 2014 and 2015 sales events saw major technical glitches such as server crashes and payment gateway failures. Stocks ran out too soon and most buyers missed out on deals. In 2014, Flipkart founders Sachin Bansal and Binny Bansal issued an apology but the problem returned in 2015.

Experts hope they are better prepared this time. “All online retailers have been working to improve their technology in preparation for the festive season. I really hope they don’t make the same mistakes this year again,” Sanchit Vir Gogia, ‎chief analyst at Delhi-based Greyhound Research, said.

This year, both Flipkart’s BBD and Snapdeal’s Unbox Diwali Sale are spread over five days between Oct. 02 and Oct. 06. This may help them manage traffic better.

Bundle up

Given the above constraints, companies may try innovative ways to woo customers. They may bundle high and low margin products together to avoid losing money on discounts.

“You may see a lot of mixing up of categories. Companies will try to bundle services with products to ensure that they make some money,” Gogia said.

Free delivery, exclusive product launches, cheaper EMIs, and better bank financing schemes will also be prevalent. Flipkart has tied up with the State Bank of India to offer additional 10% savings for the bank’s card holders, it said.

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