Amazon, Flipkart put discounts in brands’ cart to stick to FDI norms

Amazon and Walmart-owned Flipkart are seeking to quell price distortions, making steep discounts less of a possibility, to ensure strict compliance with ecommerce rules for foreign marketplace companies.
They are asking brands to give in writing negotiated, pre-determined prices — also called market operating prices — for products to sellers and certify that any discounts beyond this will be borne by them – marketplaces and sellers will have nothing to do with it, said executives with knowledge of the matter.
The agreement between seller and brand, initiated primarily by the marketplaces, includes a price guarantee clause. Under this, in case a product is available on another marketplace at a lower price, the seller has the liberty of matching that. However, the brands will reimburse the difference by issuing a credit note to the seller.
Earlier, sellers would drop prices at will by funding the discount to remain competitive, the executives said.
The entire process involving maintenance of market operating price, discounts and credit notes has been automated so that any audit will show the marketplaces are obeying the revised foreign direct investment (FDI) norms in ecommerce that came into effect earlier this year, the executives said.
India allows 100% FDI in ecommerce marketplaces but they can only function as platforms that connect buyers and sellers and cannot influence prices. Brickand-mortar retailers have alleged for years that the deep-pocketed marketplaces have been indirectly influencing prices by funding deep discounts of products on their platforms.
Last month, commerce and industry minister Piyush Goyal told top executives of local and foreign ecommerce companies that marketplaces must follow rules in both letter and spirit and avoid price distortion on their platforms.
Amazon and Flipkart officials have also informed sellers that there will be no preferential treatment for any vendor, all will be levied uniform seller commission and logistics rates. There have been reports that some of the large sellers used to receive preferential rates and would pass the savings on as discounts, the executives said.
The new system has been implemented in consumer electronics and smartphones, which account for 60-65% of total ecommerce sales, the executives said. It could soon be rolled out to other categories, they said.
An Amazon India spokesperson said Amazon.in is a marketplace and sellers decide customer-facing prices. “As a company we have a high bar on compliance,” the person said. Flipkart did not respond to queries.
Brands will only pass on discounts for slow-moving products and old, unsold stock, said Avneet Singh Marwah, CEO at Super Plastronics, maker of online-focused Thomson and Kodak televisions “The sellers will not fund any discount and have informed us that they will not drop their margins. Nothing will be sold below the net landing cost at the seller’s end,” he said.
An executive said the concept of market operating price and price guarantee is prevalent in the offline trade including large retail chains, which the online marketplaces want to replicate.
Discounts will be much more regulated going forward, said Ankur Dayal, CEO of Primarc Pecan Retail, a leading seller on Amazon and Flipkart. Some of the steps that the marketplaces have taken will be good for all sellers, he said, refusing to share any other details, citing confidentiality clauses.
The executives said Amazon and Flipkart had started to put these changes in place over a month back since they wanted to be fully compliant in case there was any scrutiny after the general election. Flipkart CEO Kalyan Krishnamurthy told ET last week that the marketplace is in full compliance with FDI norms and is ready to face any audit. Amazon India has also asserted that the marketplace is fully compliant.
Puma India MD Abhishek Ganguly said the company supplies to the alpha sellers on Flipkart and Amazon at wholesale trade terms for which there is a joint agreement whereby they are incentivised to sell at a better price. “The discounts have no doubt come down,” he said.
Executives said discounts have moderated across categories such as electronics, smartphones, apparel, shoes, furniture and even fastmoving consumer goods and grocery. However, discount offers from specific banks, wallets and cards during special sale events will continue and be available across all sellers in the marketplace as per the FDI guidelines.