The online customer is capricious and has a phenomenal sense of entitlement in venture-funded madness. Or is this what the future holds?
Eight years is a very long time in the life of a consumer. Consider this:
26 January 2006: A media blitzkrieg had charged up all of India to wear the national colours, not for a flag-hoisting ceremony but to embark on a shopping frenzy with the entire family in tow. As queues snaked outside Big Bazaar malls, the doors had to be shut and the police called in. But Kishore Biyani’s Future Group not only rode the blip of negative publicity, but his slogan of ‘Sabse Sasta Din’ (cheapest day in the year) became the theme for all retailers in the brick-and-mortar format.
6 October 2014: Flipkart, riding high on its billion dollar fund-raising success, recreated the frenzy—but in cyberspace—that was probably a 100 times bigger. It was billed the ‘Big Billion Day’. Although Flipkart didn’t have to call in the police to manage crowds, it struggled with server downtime, pricing glitches, cancelled orders and furious customers! Although the founders had to apologise to customers, they laughed their way to the bank with $100 million in sales in one day. In fact, rivals Snapdeal and Amazon also cashed-in on the Flipkart blitzkrieg by offering deals and notching up record sales.
Ironically, Kishore Biyani, whose sasta di
n hit small retailers hard, by leveraging his purchasing muscle, has been among the first to complain about Flipkart. The Confederation of All India Traders lodged a formal protest with Nirmala Sitharaman, minister of state for corporate affairs, about predatory pricing which is against fair competition. She has immediately launched an investigation and it could become a serious issue, if proved, that several products were sold below cost. The investigation and its outcome will decide whether 6 October 2014 goes down in history as the day that changed how Indians shop, forever.
Did Flipkart offer many products at a loss? Most probably. The packaging and delivery cost of a Chetan Bhagat paperback is likely to be higher than its cover price. There were loud complaints from Sony and LG for cheapening their brand image. Such low-price deals were possible because of lavish private equity money to fund the losses and hammer the brand through advertising in legacy medium—leading newspapers.
From an academic point of view, Abhijit Gosavi of Missouri University (US) says, “One of the players in the game is developing an innovative pricing strategy, and the other players are seeing reduced profit margins. Game theory and tons of empirical evidence suggest that competition forces all players to revisit their business models, becoming more efficient in the process (the equilibrium reached may not be perfect but is far superior to that produced by government regulations). In the long run, this only helps the consumer and the economy at large.”
This is admittedly true in every area where online companies broke new ground and drastically cut intermediation costs, to the delight of net-savvy consumers. From airline tickets to jobs, bus bookings, fleet cabs, restaurant menus, clothes, furniture, used cars, property, electricians, plumbers—the list is endless and the consumer experience largely delightful. The many that failed to work and vanished, or merged, are quickly forgotten. But let us be clear that there was never a profit for a long time.
This time, Flipkart, Amazon, Snapdeal, Pepperfry and dozens of others are challenging the basis of selling consumer durables. The allegation is that they sold products at a loss (which is unfair competition) in order to grab and switch the consumer. This threatens to wipe out not only all the tiny retailers of mobile phones and small gadgets and gizmos but also high-cost, high-end retailers like Big Bazaar, Croma and others.
The irony is that many of the battle-ready buyers, who crashed Flipkart’s big sale in the first two hours, had probably spent a week browsing and checking products at the mall. It is exactly what has been happening to music and books for years now—you browse in air-conditioned comfort, have a coffee, meet friends and then buy online.
Manufacturers know this; so, many have threatened not to extend product warranties to online purchases. But this too is a restrictive practice and a solution may have to be hammered out through government intervention.
Let’s look at the fleet cab model, which I am personally delighted about, because it has introduced segmented public transport without government interference. In crowed metros, it has ended the nightmare of depending on drivers and worrying about parking if you use Uber or Olacabs. You even pay the same as a regular black-and-yellow cab or less.
But here is an insight into the other side of the business, from a loquacious Olacab driver last week. I asked how Ola can afford to come 30 minutes ahead of booking time. He said, that is the model. They also wait for an hour after the booking time when capricious passengers fail to turn up.
He told us how he had five separate bookings in one day but none of the rides materialised. One lady simply didn’t bother to come down after directing him to her apartment building; 40 minutes later, she breezed out in another fleet-cab. A second lady said someone offered her a lift so she vanished. Ditto for a guy who said he had hailed a black-and-yellow, without saying why. A fourth switched off his phone for 30 minutes at the pick-up time. All this apparently happens regularly.
How can the driver afford it? Ola provides a guaranteed minimum of Rs2,000 a day to the driver. So he doesn’t mind waiting around in air-conditioned comfort if passengers don’t turn up or give him the slip. Ola can afford it, since it has $65-million in funding. But can this work as a business model?
The Indian attitude to fleet-cabs seems destined to fail when the VC money dries up, unless they find a way to debit customer accounts, like Uber does. Uber too is growing rapidly with a hugely discounted pricing model that is lower than regular black-and-yellow cabs. But, at least, it does not allow pre-booking.
Then there is Quickr, another boon for consumers while it flies high on VC money. I know someone who realised at least 50% more on a used car than the price that was offered by well-known used-car dealers. But guess what; Quickr helped fix the price, but the actual sale was to a friend. Quickr offers a great free-listing platform, after which it is hard work for the buyer and seller to inspect the goods and strike a deal. A doctor who lost the bid for the car was furious about the time spent in checking it out, forgetting that this is how the model works. How long will it last when there is no more funding for slick advertisements promising magic solutions? Quickr is riding on $80 million raised through VCs.
What happens when the music stops? VC funds are all chasing one or two big ideas that will work. The rest, they shrug, will be bought out or fold up. But what happens if they destroy existing sales models on whose shoulders they are riding, but do not evolve into a superior alternative for products that need a touch-and-feel option?
Nobody knows; and raising questions today is seen as being anti-consumer, a Luddite, or technology-challenged. But wasn’t the dotcom bubble built on similar hype? Isn’t the world still recovering from a global financial crisis caused by smart-talking traders selling toxic derivatives and loony financial products that seemed to lower costs and spread the risks?
Meanwhile, we are creating monster consumers with such a huge sense of entitlement that they expect impossible prices and extraordinary standards even from the neighbourhood grocer, who is offering you 24x7 home-delivery for trivial purchases while fighting for survival.
An open letter posted on a website by one Jitesh Janardha typifies the new attitude: “Customers are the king here and you are just the severs,” he says. This frightening sense of entitlement extends even to the free help that people receive from NGOs; and that does worry us.
(Sucheta Dalal is the managing editor of
Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at [email protected]