Report shows how Flipkart, Amazon and Snapdeal sell products at lower prices
Ever wondered how you managed to get such low discounts online that were impossible to get in physical retail stores? A report in Livemintsheds light on how Amazon, Flipkart and Snapdeal manage to sell products on low prices. Reportedly, the three e-commerce sites, due to the Indian laws in place, operate as a marketplace because direct retail is banned. Therefore, ideally they are not allowed to exercise control on the pricing as that is the job of the seller. But citing sources who have knowledge on the matter, the report states that Amazon and Snapdeal do actually have a significant say in deciding product prices as all the three sites finance part and, in some cases, the full amount of discounts offered by sellers albeit in an indirect manner.
How Amazon and Snapdeal fund discounts
The report states that Amazon funds discounts by recommending discount price to its sellers on products, but doesn’t force them to adopt these suggested prices. Sellers, however, end up keeping these suggested prices because Amazon finances the discounts.
This is how it works: at the end of a certain period, sellers send a debit note to Amazon titled “promotional funding”. This note contains the amount of discount that the seller gave on apparel, electronics, toys and other products sold on the site. Amazon then pays the seller by cheque and in some cases, also gives additional money as the seller’s margin. This debit note is over and above what Amazon collects from the customer. The debit note also includes service tax that the seller collects from Amazon on the amount of the discounts. The seller then pays the service tax to the central government. In effect, the amount of discounts are currently being treated under central service tax laws rather than state tax laws.
This is how it works: at the end of a certain period, sellers send a debit note to Amazon titled “promotional funding”. This note contains the amount of discount that the seller gave on apparel, electronics, toys and other products sold on the site. Amazon then pays the seller by cheque and in some cases, also gives additional money as the seller’s margin. This debit note is over and above what Amazon collects from the customer. The debit note also includes service tax that the seller collects from Amazon on the amount of the discounts. The seller then pays the service tax to the central government. In effect, the amount of discounts are currently being treated under central service tax laws rather than state tax laws.
Like Amazon, Snapdeal also finances part or full discounts given by most of its sellers. Snapdeal pays sellers by Real Time Gross Settlement, a form of Internet banking, or by cheque. Snapdeal refers to the discounts as “promotional expenses”.
How Flipkart funds discounts
The report states that WS Retail Services Pvt. Ltd, that is owned by Flipkart co-founders, accounts for more than 75 percent of the site’s sales. For products sold by WS Retail, Flipkart doesn’t fund discounts. However, with other sellers, Flipkart suggests prices but unlike Amazon doesn’t typically pay the amount of discounts to sellers by cheque. Instead, it forgoes commissions or listing fees that marketplaces usually charge their sellers, according to two of the six people cited above. During Flipkart’s recent Big Billion Day sale, many of the sellers apart from WS Retail were simply promised a certain amount and discounts were almost entirely funded by Flipkart. Sellers were paid through bank transfer by Flipkart, according to the people cited above.
These indirect models of funding discounts are proving to be rather cumbersome for state tax authorities. They already are struggling to understand the business models of e-commerce firms and now this adds more to their plate. Additionally, these low discounts are putting immense pressure on offline shops which are threatening to boycott certain brands completely due to these predatory pricing schemes.
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