Consumer Issues
The Pampered E-Com Consumer

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 din 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. 
 

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COMMENTS

mukesh dangat

2 years ago

How many lalas give us cash memo for our purchases without insisting it?
Doesn't it aid to black money in economy? Now a days I see more fast food centres than kirana shops. so tastes are changing and we have to accept this. In stock letters we suggest pharma companies and in magzine we are suggested to keep medicines away from Dr. Hegde. It is a true irony.

TIHARwale

2 years ago

Irrespective where you purchase for any defects under guarantee the product need to be taken to company show room only.Retailers as a tribe don't touch any item if the manufacturer is not ready to give 3 months credit and 25% markup.If Amazon, Walmart, Costco are able to sell at lower price it is because of their lower overheads. The global retailers open outside city limits where property prices are reasonable, where as our retailers fleece and their mindset still remains like Lala Kanhiyalal who is ready to exploit the poor and vulnerable as portrayed in Roti Kapda aur Makaan. Does your neighbourhood lala ever display a price list. I am a regular in Auchaan who deliver good to home and prices are transparent.

If Flipkart is selling products below purchase price it is only Flipcarts investors should worry.Why should brick and mortar retailers cry hoarse. . Govt should be concerned only if tax collected is remitted to treasury. Don't Railways and Air India over charge by selling TATKAL tickets. Govt encourages cheats like King Fischer who collects service tax from passengers but doesnot remit with arrears over Rs 100 crores

TIHARwale

2 years ago

Irrespective where you purchase for any defects under guarantee the product need to be taken to company show room only.Retailers as a tribe don't touch any item if the manufacturer is not ready to give 3 months credit and 25% markup.If Amazon, Walmart, Costco are able to sell at lower price it is because of their lower overheads. The global retailers open outside city limits where property prices are reasonable, where as our retailers fleece and their mindset still remains like Lala Kanhiyalal who is ready to exploit the poor and vulnerable as portrayed in Roti Kapda aur Makaan. Does your neighbourhood lala ever display a price list. I am a regular in Auchaan who deliver good to home and prices are transparent.

If Flipkart is selling products below purchase price it is only Flipcarts investors should worry.Why should brick and mortar retailers cry hoarse. . Govt should be concerned only if tax collected is remitted to treasury. Don't Railways and Air India over charge by selling TATKAL tickets. Govt encourages cheats like King Fischer who collects service tax from passengers but doesnot remit with arrears over Rs 100 crores

Veeresh Malik

2 years ago

A friend in the corporate large retail sector told me after reading this article about the better online retailers being ahead of the brick-and-mortar large retailer because of -

# close to nil pilferage by employees/delivery process.
# close to nil default on credit/payments by customers
# close to nil embezzlement of funds between cash register and bank.
# close to nil issues in stock reconciliations.

That, according to him, along with the transactional costs of dealing with so many front-end staff, was the main benefit that the better online retailers saw.

MOHAN SIROYA

2 years ago

I am completely bold by Sucheta Dalal's last line of this well analyzed article. "This frightening sense of entitlement extends even to the free help that people receive from NGOs; and that does worry us.". Exactly ,the point was I was hesitating to say openly she had the courage to come out in Black and White. Thanks Sucheta .
My NGO "Consumer Complaints Cell" gets an average 10 phone calls in a day. Sometimes even at odd times .We give the required advice Gratis.The consumer says "Thanks " and that finishes the matter. The consumer never returns back to us to give any feedback. Why? Because why they should? Afterall ,the advice was free service ,they feel they are entitled to it .No grouse on our part as we get a sense of de'ja vu that we are able to serve someone. That is the spirit that works and keeps us motivated. I remember, at least a dozen irate consumers did become my face book/Email friends.
That apart, let me share a line of sunshine with the "Flipkart flop". As pointed by Sucheta, in the process not only Flipkart but Amazon , Snap Deal and Ebay also made money .But equally then customers who purchased online were satisfied with the fairness of goods purchased . There was one big lesson for all ONLINE Sellers. "If you want to survive, do not cheat or under cut the confidence of the customers, have a transparent and clear deal. I hope the online sellers who had dubious record in the past because there was no such fierce competition for them will adopt the consumer friendly attitude now. I do not want to name such notorious online sellers. There were plenty but of late, many have either closed the shop or the customers have ditched them for ever. Perhaps this was a blessing in disguise in liberalization bringing even foreign players into play to reform the Desi online manipulators . Where are the indiatimes.com , naaptol.com ;indiatoday .com( bagit today)etc etc.or others of their ilk?

Rajan RG

2 years ago

I understand that selling in loss is unfair practice. But we don't know how many products has been sold in loss until the online retailer share the details. But one thing you have to remember, the products which is sold in the showrooms are higher of minimum of 40% to 200% from the cost price. Why should a consumer help the middle man to grow?

How can a small business man can have a showroom in a luxurious mall? There was a fear for small business long time back when the malls started growing. Now the same mall owners are giving complaint to Union minister when they grounded so many small vendors a decade ago.

This is the change, we have to accept the change and move forward as long as fair practice is followed. But what I don't like is to create another monopoly. The worrying trend is that that few products are launched only on one online retailer. This is what government should intervene and not to support the middle man.

REPLY

Sanju Koli

In Reply to Rajan RG 2 years ago

I totally agree with Rajan, Big malls has crushed small retailer.. and now those small retailer are selling stuff on snapdeal.com and thru other sites.
I am not sure if flipkart has the similar model. like snap deal or not. but I support snapdeal business model.

R RAGHUNATHAN

2 years ago

I think the Government should keep off this and may the strongest person irrespective of the color of money win.

The retailers were making obnoxious profits and it is time they paid for them.

Eventually may the consumer finally win !!!



Veeresh Malik

2 years ago

Good analysis, thanks, but here's another point of view - an acquaintance who operates one of the best located and busiest filling stations in Delhi, makes more money literally for free from -

# retail shelf space in the 24x7 shop within the premises

# selling data on high-spend customers who come to the location

and

# promo soft launches for a variety of products including giving them free to customers.

The core business, be it online retail or cab technology providors, becomes the magnet. In the app based cab model, for example, the app collects huge amounts of data and resources from your device - available to the highest bidder too.

The other big ticket issue with online sales is the rampant movement of fake, used and rebuilt products. THAT is a huge worry.

V Raghunathan

2 years ago

Very valid concern and properly highlighted. What could be the solution?

Consumer Issues: Jet Airways Told To Pay Offloaded Passenger

Maharashtra State Consumer Disputes Redressal Commission (MSCDRC) ordered Jet Airways to refund the ticket price to a Mumbai passenger it had offloaded from an Ahmedabad-bound flight and also pay Rs30,000 in compensation and litigation costs within one month.

 

Shirish Shah, the passenger, had boarded the flight on 1 December 2011 with a boarding pass and had occupied an allocated seat as a bona fide passenger, but was humiliated before other passengers and crew members.

 

In April 2012, Shah, a senior citizen, approached the MSCDRC and sought compensation alleging that he was humiliated by the airline. The airline maintained that the complainant was provided with a standby boarding pass and he could not be accommodated on the flight as no seat was available. The airline further contended that the complainant was offered a seat on the next flight, but he declined it. It also contended that the complainant’s claim for compensation be rejected, as he had already accepted compensation of Rs2,000.

 

MSCDRC, however, held that the airline cannot brush such serious issues aside as mistakes and shirk their responsibility towards bona fide passengers. It directed the airline to refund the ticket price—a sum of Rs3,384—to Mr Shah, along with interest at the rate of 10% per annum from November 2011, the time he booked the ticket.

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Loans: Strictures against Mahindra Finance

N ational Consumer Disputes Redressal Commission passed strictures against Mahindra Finance for using its financial muscle to delay refund to a customer, Sneha Waikul, in a car loan case.

Sneha Waikul had applied for a loan from Mahindra & Mahindra Finance Services to purchase a car. The company asked her to sign on a blank paper while applying for the loan. Later, Rs2.84 lakh was sanctioned, to be repaid in 36 equated monthly instalments of Rs10,170 each, for which post-dated cheques were obtained by the company. Ms Waikul paid 17 instalments amounting to Rs1,72,809, after which there was a default in repayment. So the company forcibly seized the car through its ‘recovery agents’, without giving a notice. Ms Waikul then contacted Mahindra Finance and was asked to clear the entire outstanding loan at one go by paying Rs2,13,798. Ms Waikul then filed a complaint before the Central Mumbai District Forum. The company contested it.

 

The Mumbai District Consumer Forum directed Mahindra Finance to refund Rs1,72,809 paid by Ms Waikul, along with 9% interest from 3 December 2009, till repayment, and awarded costs of Rs5,000. The company appealed to the Maharashtra State Commission but the appeal was dismissed.

 

Mahindra Finance then filed a revision petition before the National Consumer Disputes Redressal Commission which directed the company to first pay Rs7,000 to enable Ms Waikul to make arrangements to contest the revision. The Commission also passed strictures against Mahindra Finance for using its ‘financial muscle’ to delay the matter, and dismissed the revision with further costs of Rs25,000 payable by the company to Ms Waikul.

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