How Online Retailers Like Flipkart and Others Offer Deeply Discounted Prices

Online retail has revolutionized the way we shop. Giants like Flipkart and Walmart in the US have managed to sell goods at very low prices, often similar to their offline counterparts. This strategy is driven by several key factors that make online shopping both convenient and cost-effective.

Cost Efficiency and Bulk Buying

One of the main reasons online retailers can offer deep discounts is through bulk buying. Similar to large offline retail stores, these online platforms buy goods in bulk from suppliers and wholesale partners, allowing them to earn higher margins. The cost of operating an online store is significantly lower compared to a traditional brick-and-mortar store, as they do not have the overheads associated with physical stores, such as rent, utilities, and in-store staff. Consequently, this cost efficiency provides a buffer that allows them to offer lower prices to consumers.

Strategic Discounts and Market Ties

Online retailers often tie up with various wholesalers and retailers to offer deep discounts. These wholesale partners usually have large inventories, which gives these online platforms a significant advantage. They can negotiate bulk purchase deals and then sell these products at lower prices, still maintaining a reasonable profit margin. A key example is the case of Flipkart, which has made strategic partnerships with brands to offer exclusive deals and discounts, leveraging its brand power and market visibility.

Lowering Prices to Gain Market Share

Another reason for the low pricing is the aggressive competition in the online retail space. New sellers and established players are constantly trying to lower prices to attract more customers and establish their brand. This pricing strategy is often employed by smaller and niche players, hoping to gain a foothold in the market and build a customer base. The willingness to absorb temporary losses for the sake of immediate visibility is particularly common in the early stages of market entry.

Case Studies and Insights

Several case studies highlight this strategy effectively:

Walmart's Bulk Purchase Strategy

Walmart, a leading offline retail giant in the US, has successfully leveraged bulk purchase strategies to offer competitive prices. The concept is similar in India, where retail giants like Reliance Retail have also implemented this strategy. The same approach has been adopted by online platforms like Flipkart, further enhancing their ability to offer deep discounts.

Flipkart's Strategic Approaches

Flipkart, for instance, takes several approaches to offer discounts. They have tied up with brands for exclusive bulk deals with heavy discounts, making use of their strong brand visibility. Additionally, distributors or retailers might offer discounts by letting go of their margins to clear out stock. In some cases, the marketplace itself absorbs the losses to promote immediate visibility and increase their customer base, driving millions of dollars in investment.

A Case in Point: Groupon's Strategy

Google's Groupon, for instance, offered onions at Rs 9 per kg when the market price was over Rs 100 per kg. This strategy helped Groupon gain significant market share and customer base, even though it meant absorbing losses temporarily.

Challenges and Future Trends

While the strategy of offering deep discounts works effectively in the short term, it comes with long-term challenges. Currently, not a single online marketplace in India, including Flipkart, is making a profit on a day-to-day basis. Establishing a significant customer base is a long-term goal for online retailers, but the entry of established players and new competitors has slowed down this process. The profitability of online retail is expected to improve in the future, especially as these platforms continue to scale and optimize their operations.

For now, consumers can enjoy the benefits of these deeply discounted prices, but it's important to stay aware of the potential long-term implications for the retail industry.