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Sriram Srinivasan

Buyers expect an online store to offer more discounts and freebies than an offline one. What are the e-bargains going round?

It is said that Amazon.com, the leading online bookstore, seldom quotes the lowest prices. Its success seems to flow from two things: earning the e-shopper's trust and delivering on its promises.

So, what role does discount play in online sales? The Dean of Hyderabad's ICFAI Knowledge Centre, A.V. Vedpuriswar, says, "Equating the Internet with price-based competition isn't correct," though he admits that customers are always on the lookout for value-for-money deals. Online Diwali sales this year increased to Rs 53 crore from Rs 21 crore in 2003, thanks to "increasing trust, better shopping experience and great deals," says Preeti Desai, President, Internet and Online Association.

Discounts, freebies and package deals were offered by top brands through well-known portals, again an emphasis on trust. They would have a greater role to play when the market matures, says Vedpuriswar.

India's online sales this year is estimated between Rs 175 crore and Rs 200 crore — a mere fraction of the overall market but it's growing fast.

However, the view that companies across the board can afford to sell cheaper online than offline may be flawed, especially when volumes are minuscule.

Landmark, the Chennai-based book retailer, earns 3 per cent of its revenue through online sales. The retailer pays the same processing fee irrespective of whether he is delivering one book or 500, says Landmark's Jai Subramaniam; so volumes are extremely important in this business.

There are no rental costs, but processing costs are high enough, he says. One cannot "milk a location for a number of years," like in a brick-and-mortar format, and there is need to invest substantially in a robust delivery system. Also, editorial and technology costs go up, making discounts impossible. Delivery mechanisms need much more emphasis because "we are in a quality era," he says.

Still, discounts and packaged offers find a place in Landmark's online store. So, you could buy Michael Crichton's State of Fear for Rs 203 online instead of Rs 225, or get 15 per cent off on a collection of 22 Tintin comics.

The online pricing of Arvind Brands' Arrow replicates its offline model. The company liquidates excess inventory and end-of-the-season stock through its seconds garment channel Megamarts; over the Net, it sells new collection at full price while offering discounts for the not-so-fresh stock.

Volumes are extremely thin compared to the offline format, but online sales has grown 100 per cent this year, with Arrow driving the trend. Online sales constitute only about 5 per cent, but margins are higher, says Alok Dubey, General Manager (Sales), Arvind Brands.

The online format calls for de-layering the distribution channel, say experts, but savings could depend on the product category as also the complexity of the supply chain.

Dubey says that discounts, giveaways and package deals are needed to attract shoppers, though Arvind favours the latter tactic. Of course, volumes help. Arvind is also gung-ho about the gifting segment, which it says can be tapped with discounts. It also helps if you can sell the "right products" online. For instance, a tri-pack of T-shirts at a discount may appeal to the impulse buyer more than, say, a single shirt.

Such packaged deals do not, however, work in the consumer electronics industry. Princy Bhatnagar, Head, CRM, Samsung India Electronics, says many companies offer "higher discounts on the Net" to cater to the typical online customer looking for better bargains.

But Samsung follows the "principle of pricing equality or pricing consistency," whereby it offers the market prices on the Net as well. "This is done in order to manage channel and customer satisfaction," he says. Also, the company does not offer special discounts online. "Setting up an e-store is not a business decision by Samsung." It's only an effort to "address all types of customers."

"There are certain customers who need to touch and feel the product before buying and others who believe in the Samsung brand and are more comfortable buying online. Our e-store meets the need of the latter," says Bhatnagar.

Portals like Sify evaluate the robustness of a company's product, as also its supply chain before allying with it. Many companies cannot play around with prices online, as that may conflict with their offline business. They could, instead, add on freebies. The highly competitive categories can adjust prices on a day-to-day basis and Sify, says its Head — Sales & Alliances, K. Sundararaman, recommends price ranges catering to the market appetite. The products can range from electronics to flowers.

Therein lies the Internet's value, says Vedpuriswar. "If, for example, a dotcom wants to determine the sales impact of a 3 per cent increase in price, it might test the response by quoting the higher price to every 50th visitor to the site and comparing the purchase rate." This process takes time in the physical world. "Little is known about a visitor entering a store. Sales staff have no idea what the customer has bought in the past, what combination of price and benefits would trigger a purchase."

In addition, the Internet also allows companies to identify customers who are happy to pay a premium, he says. With a good customer tracking technology, companies could charge a discount or a premium accordingly.

Recently, Sify ran an experiment called `Khul Ja Sim Sim,' under which the person logging in was offered five different products — one at a time — at prices less than Sify's normal rates.

In terms of cost, Vedpuriswar believes a cost-effective transportation system can bring about a lot of savings. "The courier services are expensive, while the ordinary post is slow. Online sale of books and CDs can take off with good logistics support." Moreover, the cost of acquiring a customer is often considerably higher in e-commerce than in the traditional retail format, he adds.

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