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Will Those Yummy Flipkart, Snapdeal Discounts Now Stop? 10 Point Guide

Will Those Yummy Flipkart, Snapdeal Discounts Now Stop? 10-Point Guide

By Gadgets 360 Staff | Updated: 31 March 2016 10:41 IST

India has, after years of ambiguity, formalized the rules for the multi-billion dollar ecommerce sector. The new guidelines order companies like Flipkart and Snapdeal to provide a "level playing field". Analysts say this means the famous discount model - which hugely benefits customers like you - could be reshaped. Here's your 10-point cheat-sheet to this big story:

E-commerce companies will not be allowed to "directly or indirectly influence the sale prices" of the goods sold on their websites, according to the new policy. This sounds ominous for those killer Big Billion Days Sales.
This sounds like Flipkart or Amazon would not be able to directly offer discounts on products. It also suggests no more "cashback", typically offered to you in exchange for using a particular credit or debit card, or an e-wallet like Paytm.
Currently, sites like Flipkart and Snapdeal ensure that you get a far better deal through them for a product than you do in a traditional brick-and-mortar store. To get you that discount, the e-commerce sites fund the gap themselves - this is not permitted as such, but loopholes exist.
Because there are legal restrictions that apply, e-commerce giants cannot offer the discount directly to you. Instead, the vendors on these platforms offer you a discount, and the e-commerce sites pay the difference at the end of the month as a "marketing expense" for the suppliers.
The new rules could be a nightmare for ecommerce giants like Flipkart and Snapdeal who compete for customers with cut-throat pricing, which involves mega cash burn. Visit any of the big sites, and you'll see discounts highlighted front and centre.
Traditional shop owners -a powerful and large lobby which is loyal largely to the ruling BJP - have repeatedly complained that e-stores offer products at below the listed price. They've been arguing for a clampdown on online discounts.
"Once implemented, it can put an end to the predatory pricing and provide level playing field for all. I believe it is also a blessing in disguise for online players as they will not have to burn cash now to keep acquiring customers. It will bring more sustainability to their business model," said Kishore Biyani, Group CEO, Future Group. As the head of India's largest offline retailer, Biyani is a prominent voice in this debate, though obviously, one with a strong vested interest.
100% foreign direct investment has been formally sanctioned now for marketplaces - digital platforms that connect buyers and sellers, but don't own any of the products. This is not a huge development- sites like Flipkart and Snapdeal have raised billions of dollars from foreign firms, and Amazon and eBay are already operational in India without a local partner.
Sites that own their products - the inventory based model of e-commerce - are not allowed to raise any money through FDI. This means companies like Croma, or Future Group, can't access the same kind of funding for e-commerce as marketplace based companies, such as Flipkart or Snapdeal can.
The new policy also says no e-commerce company can owe more than 25 percent of its sales to a single vendor. This is intended to ensure giants do not circumvent the marketplace model. Critics and analysts have pointed repeatedly to Flipkart's WS Retail and Amazon's Cloudtail, which both currently account for more than 25 percent of their total sales. That means marketplaces own inventory - which is not allowed.

Disclosure: Paytm's parent company One97 is an investor in Gadgets 360.

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