Online discounting and brand equity

Everybody loves a discount. Be it festive discounts or clearance sales, all of us, at one time or the other have deferred our purchase simply to avail a discount on our favourite brand. From queuing up before the discount store at the crack of dawn to fighting our way in and literally pushing and shoving to get to that coveted piece being sold at half price, we have done it all. Only now, we have one more channel to satiate the seasoned shopper in us – the Internet. And without the need to get physical as well!

According to a Cll Report on The Indian Retail Medley, the Indian eCommerce Industry has grown rapidly in the last 5 years and is expected to grow to over USD 60 Billion by 2017, making India the fastest growing eCommerce market in the APAC region. While Online Travel dominates the ecommerce industry with -70% market share, e-tailing has the second largest share of -20%. The categories driving e-tailing are Mobile, Tablets and Accessories at 32%; Fashion, Footwear and Accessories at 31% followed by Electronics, cameras, appliances and Computers at 17%. However, in terms of volume sales, e-tailing still accounts for only 0.9% of total retail sales.

Needless to say, e-tailers are leaving no stone unturned to lure customers – the most popular method being discount sales. While offline store discounts follow a predictable pattern of festive offers and year-end sales, the increasing penetration of e-commerce has seen a new dynamic emerge.

Today, discounting has become almost a daily phenomenon online. Not a day passes without market aggregators like Snapdeal, Flipkart or Amazon announcing special offers across a range of products. Discounts have also peaked to unprecedented levels, touching as much as 85% – unheard of in brick-and-mortar retailing!


The reasons for such frequent and deep discounting are not hard to find. For one, e-commerce companies are out to enlarge their customer base exponentially in as short a time period as possible.This is important, since they want to increase the valuation of their own companies, thereby attracting more funding from investors, PE firms and so on. (Today, the customer database is the Holy Grail that everybody is pursuing, because it can be mined using analytics to unearth insights related to consumer needs and preferences. In turn, this data can be used to push new products in the market and cross sell/upsell existing products and services.) Also, this database can be sold to other corporates for a price.

So, if discounting is the norm rather than the exception in e-commerce, what is its effect on consumer behaviour and the consumer’s perception of the brand he/she is buying (in other words, the manufacturer brand)? To understand this, Vertebrand undertook an informal survey among online shoppers across product categories. Here are the key findings (and therein lies a surprise):

a. There is a tendency to scan the radar for discounts before shopping online
b. Many consumers are willing to wait for a discount before making a purchase – the wait time ranging from a week to a month
c. When faced with a choice, majority prefer to buy a large, well-known brand that is offering a smaller discount than a smaller brand offering a larger discount
d. Most respondents said they would not mind owning a heavily discounted product or advocating it among friends and family either so long as it was useful to them at that point of time
e. In case of premium brands offering heavy discounts – even as much at 80-90% – most respondents said they did not feel it affected the image of the brand
f. Most online shoppers do not suspect the quality of the product even when a well-known brand is selling at a heavily discounted price
g. Most shoppers said they would continue to purchase their favourite brand even if it was heavily discounted because they trusted the brand
h. Most online shoppers do not suspect the quality of the product even when a well known brand is selling at a heavily discounted price

The last three findings may seem somewhat surprising, since heavy discounting has always been believed to erode the equity of a brand in the market. Apparently, this rule is being overturned in the case of e-commerce! Brand Trust and customer-friendly return policies are driving sales online with almost negligible impact on perception of quality, brand loyalty, brand advocacy and brand image. This survey suggests that online marketplaces are redefining the rules governing brand perception and brand equity. There is need to deep-dive into this through a large-sample formal study, in order to validate these findings.

But, here is the sting in the tail. Even if the image of manufacturer brands is not being eroded (or at least, not to the extent conventional Branding theory would presume), what is the impact of frequent discounting by e-commerce players on the profitability of the manufacturer brands?

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