Deep Discounts: Diminishing Product Value or a Wise Way to Scale? CCI calls deep discounting 'unviable' in the long run as it erodes value of products and services

Ahead of the festive season sale as announced by e-commerce giants – Amazon & Flipkart - from September 29, the debate around deep discounting has started catching the wind back. Days after the traders' body, Confederation of All Traders (CAIT) demanded ban festive sales, the Competition Commission of India (CCI) has got involved.

Following slow sales in the first two quarters, e-commerce platforms are pinning hopes on the festive season which account for 60 per cent of sales for the online marketplaces. Flipkart and Amazon plan to offer attractive discounts to ramp up sales. CAIT had earlier pointed out that these discounts create an uneven playing field by influencing market prices.

Value vs Scale

CCI, India's competition watchdog, will be watching the issue closely to deal with the possible anti-competitive behavior. Ashok Kumar Gupta, chairperson, CCI told The Economic Times, "Deep discounts could make some businesses unviable as it erodes the value of products and services in the mind of the consumer if done for extended periods."

Contrary to Gupta's concerns, Amazon India's vice-president - seller services, Gopal Pillai, on Monday told BIZ Experiences India these festive season sales provide an opportunity for small sellers to scale to reach out to more customers. CCI has assured to look into the practices of the sector through an unbiased lens before passing judgment.

CAIT on Tuesday complained that e-commerce companies are violating existing FDI norms in the garb of festive sales. "Holding such sales and offering deep discounts are clear violation of Press Note No. 2 of FDI policy 2018," according to Praveen Khandelwal, national secretary general, CAIT. He has also written a letter to commerce and industry minister Piyush Goyal iterating the same.

Who Controls the Price?

CAIT has argued ecommerce websites are deeply engaged in B2C business, whereas the FDI rules allow such businesses to only take up a role of a B2B mediator with registered sellers on the marketplace. Khandelwal also contended since e-commerce platforms control inventory, it allows them to give discounts as only inventory owners can control pricing.

"Sellers set the prices independently. We don't get involved at all," Pillai has countered. He stated that e-commerce allows sellers to satisfy the needs of hundreds of people from the same garage leading to an economy of scale giving better leverage to cost of capital investment. That reduces the overall cost of operation due to which the savings can be passed onto customers through discounts.

In order to provide a level playing field to all vendors--either operating through brick-and-mortar stores or online marketplaces--the Indian government implemented a new policy on February 1, 2019 prohibiting e-commerce marketplaces from signing exclusivity contracts with vendors or different agreements with vendors in the same circumstances.