Deep Discounting Dilemma

The study highlights the revolution and evaluation of the Indian retail industry. However, when the world has been transformed into a global village, the retail sector has witnessed a major reform that has lead to the emergence of several disruptive strategies by business houses. Of all the disruptions in the Indian retail sector, the study outlines the notion of dilemma in a deep discounting strategy that has been adopted in and is driven almost in every sector of the economy. The study will provide an articulate understanding of the idea in line with the conceptual analysis, tracing its history and real-life applicability.

Introduction

To begin with discount, it is a deduction from the usual cost of something, one of the primary reasons for retailers to offers discounts is to attain sales, having sales means having more people who are likely to come and spend money at the store. In order to get a better understanding some basic purpose of discount should be highlighted:

  1. Attract Cus: Discounts are very attractive to customers which will not only lead to customer retention rather it also increases the customer base. This is one of the effective tools of marketing that has reformed the idea of these strategies. Moreover, in this era of social media, word of mouth traffic can increase results on promotion exponentially quick.
  2. Increase Sales: It has been on the run that generally he discounted items and services are generally the ones that will garner the greatest sales, the increased traffic will eventually means that the other products and services also enter cus awareness and potential purchase, the increased traffic on one product will lead to the purchase of the other one too,
  3. Improves Image: The image of a brand is its goodwill, there are plenty of instances where the marketer could offer several discounts in order to improve, as it has been rightly stated that business is a subset of the society and in order to sustain the business in the society the marketer must satisfy with all the needs and wants of the cus.

Types of Discount

To get a complete list of the study it becomes crucially important to know the different types of discounts that are being offered by the business entities. To be specific there are generally 6 types of discounts that are offered subjected to different criteria:

  1. Quantity Discount: Quantity is closely associated with economies of scale which is defined as a proportionate saving in costs gained by higher production levels, thus reducing distribution and transportation expenses. The discount subjects upon the fact of voluminous purchase.
  2. Trade Discount: Such discounts are usually provided to middlemen for the function in which they are ascertained to perform in the distribution of commodities. Such discounts are also called functional discounts.  Indian booksellers get discounts from the publisher s at the rate of say 20%, 30%,40% on bulk purchase of 10-50,50-100,100-150. The lacunae lie between such a discount is that the distributors perform different functions with the distribution channel and thus they should be compensated accordingly.
  3. Promotional Discounts: Such discounts are an allowance for the distributor’s efforts to promote the manufacturer’s product through special displays. Social media is one of the popular platforms for paid promotional discounts. Social media influencers having a large fan following are closely associated with such activities.
  4. Seasonal Discounts:  As we all know that business is a dynamic process and businessmen have to synchronize with external factors with the internal fluctuations in business dynamics. However there are business houses that actually couldn’t comply with the same, thus in order to cover their material cost and to reach the equilibrium, they offer regular discounts to the customers who purchase the goods at non-peaky hours.
  5. Cash Discounts: It is termed as a reward for the payment of an invoice or account with a specified period of time. One such discount that is being in the picture is .the Calcutta electric supply corporation provides a discount to all the customers who pay their bills at a stipulated time period.
  6. Geographical Discount: Under this category, the discount structure is been dominated by buyers geographical location. Such discounts are higher when the business involves higher transportation costs with respect to the selling cost, as the manufacturers can dig profit with the difference in transportation cost.

Instrumental Purview

The history of deep dis could be traced back to the times of late 2009 by the dominos. The chain charged about $9 for a medium two-topping pizza, but to boost the sales it began offering recession-weary consumers two if its two-toppings for $5.99 each. Two weeks down the line pizza hut offered three toppings for just $10 which was at least a third less than the usual price, constructively they improved the deal which allowed the customers to buy a large pizza with unlimited toppings for just $10. Tracing down the simplest adaptive- pricing method is called versioning which is defined as offering good, better, and best varieties of the same product, however, its substitute could act an attractive version offering poorer quality, smaller quantity and fewer features which could be a powerful magnet for price-sensitive customers. The substitute worked as an effective instrument in the tines of the recession.

The advent of a discounting dilemma is transforming the Indian retail industry and has undergone a submissive transformation over the years which is not just significant in the metro cities rather its sheer emergence can be seen in tier-2 and tier-3 regions. As the national thrives towards development there is a significant rise in the disposable income of the consumers and thereby leading to increased consumer expenditure as now they are value-conscious and are aware of the market place. Such consumers want quality with reduced purchase expenditure and to achieve this combination it has lead to the emergence of a disruptive trend called value retailing.

As value retailing is dominating the Indian retail market it is observed that giving an additional discount will prove detrimental for the brand in the long run. Moreover, it has been observed that discounts at already minimal-priced merchandise would harm the company in the long run. As the company needs to defend its margins for operating the ability to offer that value and quality to the customer which will itself decline, threatening the very existence of the business entity.  Furthermore, in order to combat the said cause, the government chalked out an e-commerce policy that ensures to knell for deep discounts, the draft states that:

  • The clause defines the maximum duration of differential pricing strategies that are implemented by e-commerce platforms to attract consumers. Thus restricting the companies to offer deep discounts
  • Another clause tends to restrict the practice of e-commerce companies to restrict the ability of companies to influence the prices of goods.

The restriction imposed by the draft is tamed at curbing the practice of foreign-funded companies bypassing laws to use foreign money to offer huge discounts, as discounts help e-commerce companies to gain loyal consumers. The domestic retailers have raised the issue of foreign money funding discounts which makes it difficult for the local competitors to be compliant with. Form 1920’s to 2020’s the concept of discounting has undergone a dominant change as it was observed that a group representing the retailers brick and mortar which includes the Future group and Reliance Retail alleged that e-commerce companies were violating India’s foreign investment regulations by influencing prices on their platforms and illegally funding abnormal discounts. The retailers association stated that Amazon, Flipkart, and Snapdeal operated models under which 100% foreign investment was allowed only to provide platforms to other retailers and businesses to conduct business.

Taking all the above variables into place it was stated that there as a level-playing field imbalance because of improper discounting strategies. It was stated that if a particular channel is misusing its money power to discount the product at a faster rate and the other channel is unable to match the price it would eventually shrink the economy.

One of the foodservice agency zomato is also under the constant deliberation of the idea pertaining to deep discounting strategy. Zomato was co-founded by  Deepinder  Goyal and Pankaj Chaddah in 2008, as a restaurant search and discovery service, but later extended to include table reservations, online ordering, point of sale (POS) systems and cashless payments. In March 2018, Zomato became a ‘unicorn’ with a valuation of $1.3 billion. By August 2019, Zomato was one of the largest FSAs in the world, with a presence in 24 countries and more than 10,000 cities. It operated in over 200 cities in India, up from 15 cities in 2018, and served more than 70 million users monthly. For FY2019, Zomato’s revenues increased to $206 million.

The foodservice sector in India was valued at around ₹4,238 billion as of March 2019, according to a report by   NRAI. Much of the growth was attributed to the rise of FSAs. According to a consulting firm register, the number of orders placed on such ordering apps increased from around 1.7 million a day in 2018 to about 2.2 million in 2019. Major FSAs offered deep discounts to attract customers and increase orders placed on their platforms.

With such major reforms and the emergence of deep dis stra the food serving agencies are undergoing a major reform which has eventually transformed the marketing trends. In August 2019, Zomato announced that ZG, which was earlier only for dine-in, would also be offered to ZG members for online food delivery. The new service was named Zomato Gold O2 (Online Ordering). Under the O2 scheme, the restaurant would have to offer a free item of customers’ choice when they paid for a higher-priced item; as well as pay 18-25 percent commission on the net order value. And the result of this was that the partner restaurant realizes only 35%commison, zomato didn’t bear any part of it, thus it was not well resonated by the partner restaurants as there was no incentive left in order to cover their fixed cost involved in food processing. In order to blend with the changing norms certain modification was made:

  • limiting Gold usage to one restaurant per day
  • restricting Gold unlocks to a maximum of two per table,
  • introducing a single device logins,
  • issuing hassle-free pro-rata refunds to unsatisfied customers,
  • setting up a minimum Gold membership fee at ₹1,800
  • discontinuing trial periods for Gold
  • strengthening its two-way feedback system, providing advertisement credits worth ₹25,000, shooting free promotional videos
  • Personalizing push notifications for non-peak days.

Conclusion

 With respect to data that has been analyzed, it has been concluded that deep dis is definitely is a bad investment. As companies need to focus more on understanding their target audience to attract the consumers who are more likely to pay for the bills, rather than price-sensitive customers with little or no brand loyalty who are only streamlined towards price-sensitive deals thus by shifting focus to different alternatives to the dis.

cycle, the retailers are most likely to improve the demand for customer retention and cus engagement. In order to break the cycle of deep discounting the retailers need to imbibe the usage of AI-based marketing semantics in order to facilitate the discounting norms and combat unethical marketing practices. The competition commission of India took several steps in order to protect domestic retailers by the showdown of big business giants. Moreover, the e-draft policy stated that the need to preserve flexibility and create a level-playing field to enable the formulation and implementation of appropriate policies for boosting the digital economy and combat such practices in the long run.

Questions

Q1. When the term discount bought into the global purview?

Atlanta businessman Asa Candler had a brainstorm in 1887 when he created the first coupon to allow the sale of products is a significantly lower price leading to increased profit.

Q2. When was the practice of deep discounting was implemented first?

The history of deep discounting could be traced back to the times of late 2009 by the dominos. The chain charged about $9 for a medium two-topping pizza, but to boost the sales it began offering recession-weary consumers two if its two-toppings for $5.99 each. Two weeks down the line pizza hut offered three toppings for just $10 which was at least a third less than the usual price, constructively they improved the deal which allowed the customers to buy a large pizza with unlimited toppings for just $10.

Q3. The industry which deploys the maximum implementation of the deep discounting strategy?

The food serving Agencies( FSA,s) .Zomato, Swiggy  deploy  the maximum implementation of such marketing strategies.

Q4. Which industrial sector has witnessed rising exploitation by the implementation of such practice?

The retail sector has witnessed large scale devastation, as small retailers are at the risk of bankruptcy because of the dominance of large business houses.

Q5. Deep discounting “Boon or a Bane”?

Thus it has been stated that deep discounting is definitely is a bad investment as there is a need to preserve flexibility and create a level-playing field to enable formulation and implementation of appropriate policies for boosting the digital economy and combat such practices in the long run.

References

  1. Tanya Krishna “India’s Retail Industry” https://apparelresources.com/business-news/retail/ending-discounting-dilemma-india-looks-towards-value-retail/. (21st Novermber,2019)
  2. The economic times https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/for-restaurant-owners-deep-discounts-are-unpalatable/the-discount-mantra/slideshow/70920606.cms. (31st August,2019)
  3. S.J Guest Editorial “Discounting dilemma” https://sourcingjournal.com/topics/technology/using-data-analysis-solve-discount-conundrum-cc-61534/.
  4. Rajiv Singh “Deep discounts are not good for anybody” https://www.forbesindia.com/article/the-food-issue/deep-discounts-are-not-good-for-anybody-deepinder-goyal/54955/1. (23rd August,2019)
  5. The economic times “ Policy that could kill deep discounting” https://economictimes.indiatimes.com/news/et-explains/explained-the-policy-that-could-kill-deep-discounts-by-e-commerce-firms/articleshow/65215220.cms  (31stJuly,2019)
  6. Rafi Mohammed “Ditch Discounts” https://hbr.org/2011/01/ditch-the-discounts. (18th February 2016)
  7. Intelligence Node “ Deep discounts VS Everyday low pricing” https://www.intelligencenode.com/blog/deep-discounts-or-everyday-low-prices-which-strategy-do-consumers-prefer/
  8. Malvika Gurung “Will government stop using Zomato, Swiggy, Uber, from offering deep discounts” https://trak.in/tags/business/2019/10/24/will-govt-stop-zomato-swiggy-uber-eats-from-offering-deep-discounts-union-minister-looking-into-this-matter/ (24th October,2019)
  9. The Indian news express “ Deep discounts: Good or Bad” https://www.newindianexpress.com/opinions/editorials/2020/jan/18/deep-discounting-good-or-bad-for-the-economy-2091029.html.
  10. Aastha Singal “ Deep diminishing value” https://www.entrepreneur.com/article/339644 (18th September,2019)

Leave a Reply

Your email address will not be published. Required fields are marked *