As we all know this is an era of e-commerce. Humongous efforts are made by e- retailers to lore customers online by offering them huge discounts, cashbacks, amazing offers and what not.
The thing to notice here is these discounts are not trade discounts, companies like flipkart, snapdeal, Amazon are incurring huge operating losses on these deals. In lay mans language they are paying you to buy some product from their site. These companies are in huge losses.
Flipkart Vs Amazon Vs Snapdeal - Revenues & Losses Comparison
Please note that the revenue figures above are not the price of products sold, their revenues come from commissions they get from sellers or listing fees that they charge to list the products on their site.
As we all know they are not in business of charity and no business can run on losses for long time. So what's their game plan ??
Wel they plan to destroy the concept of physical markets like shopping malls, marts, retail shops wherever people go to buy stuff. By using deep pockets of their venture capitalist they shower money so that people develop habit of buying stuff only from online websites.
What are the negative effects of this? Firstly small retailers & marts who don't have deep pockets will vanish due to losses. Secondly heavy discounts and offers will not allow new startups to enter the industry. Thirdly and most importantly these sites might not be charging you for buy/sale transaction through their sites right now but they will in future.
Let me throw some light on their bisinrss strategy. Its a brilliant idea no doubt, its the same idea which Mark Zuckerberg used for Facebook; focusing majorly on increasing customer base in starting years by offering free services and satisfying customers need to the fullest. But there are also businesses which used same idea and were burned to the ground eg: spicejet. This idea is heavily dependent upon masses, however people have a tendency of going for the better choice, that means whoever gives a better deal he will have the customer. Now in tryimg to lore more and more customers to their sites E-commerce giants are badly trapped in their own game as no one (Flipkart or Amazon or Snapdeal) even after incurring so much losses can stop providing these discounts, if they do then competitors take their customers. The ultimate losers are venture capitalists who are bleeding cash. According to me there is only one way out for the venture capitalists, a mutual agreement between companies. If not, then the ultimate questions is
How long can they sustain like this ?
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