Flash Sales Regulations in India – Assessment

[2021] 130 taxmann.com 38 (Article)

During the period of introduction/launching of the product in the market, the consumers are attracted by a product’s ratings, its customer reviews, the discounts on the price, and the fraction of deals that have been claimed by buyers. Flash sales are used by the manufacturers through their distribution system to accelerate sales and incentivize the buyers in a promotional mode. Flash sales are defined as electronic distribution channels that are used for a limited time along with heavy discounts for the advance purchase of products or services. They are also referred to as sometimes Daily Deals and Private Sales. Digital media is changing the landscape for marketers across the globe, especially in the FMCG Sector. Traditionally, campaigns for every FMCG product would depend upon determining the right marketing mix of the 4 P’s (Product, Price, Place, and Promotion) that would best influence the target audience’s purchase decisions. Flash sales help online e-commerce sites to grow at a higher pace as they encounter huge sales of products, along with higher discounts. Today, however, consumers are making buying decisions differently and with this, strategies aimed at impacting this process need to evolve as well. Salient features of a typical Flash Sales as a business model are as follows:

• Discounted products: More discounted products than normal days. The discount is attractive for the customer.
• Free Shipping / Free Returns: Incorporating shipping cost into the product generates security inside the customer that he won’t lose out anything if he had to return the product. Walker Sands Infographic reports that 80% of the online consumers would be more tempted to go for Amazon if offered free shipping; next-day delivery would attract 66% more customers.
• Extra Cashback with Bank tie-ups: Amazon, Flipkart, Snapdeal during flash sales attract more consumers by providing extra discounts apart from the running discount during flash sales, by getting attached to major banks of India like SBI, HDFC Bank, Axis Bank, wherein they offer an extra discount of 10-20% on purchase of a minimum amount of products.
• Different days for different categories of products: Assigning separate days for major categories which include Fashion, Home & Appliances, Mobile & Mobile Accessories, Electronics & Automotive, and Books helps the consumer shop easily on that assigned day, leading to more purchases. This pattern has been followed by all three major e-tail platforms Flipkart, Amazon & Snapdeal.

Flash Sales – Global Experience

• USA – With the varied type of motives, flash sales have become a powerful promotional tool adopted by leading Corporates. ‘Groupon’ had been illustrated as the biggest flash sale success story. ‘Groupon’ which arose from $6 billion buyouts from Google, inspired over 500 types of copycat services and garnered over $850 million in sales around Q4 2010 in the USA. Six months later, ‘Groupon’ launched its IPO with an organizational value-priced around $13 billion. Around this time period, franchise tech companies such as Google, Facebook, and Amazon began to popularise the daily deal phenomenon. Everyday Low Price (EDLP) is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping. A company charges a consistently low price through EDLP over a long-time horizon in the USA. For the consumer, EDLP simplifies decision-making and search costs. For the company, EDLP minimizes marketing costs, staff efforts, and helps with demand forecasting. It was noted in 1994 that the Walmart retail chain in the United States, which follows an EDLP strategy, would buy “feature advertisements” in newspapers on a monthly basis, while its competitors would advertise weekly. Other firms that have implemented or promoted EDLP are Procter & Gamble, Food Lion, Gordmans, and Winn-Dixie.
• Europe – France’s online flash sales industry is one of the most developed in the world, worth between €2 billion and €2.2 billion. Its emergence in the mid-2000s provided a new, cost-effective solution for consumer brands that needed to quickly dispose of excess inventory. Flash sales also benefit consumers by providing huge discounts, typically around 70%, and this value combination led to the industry’s rapid expansion in Western Europe, by 9%-12% annually from 2010, to reach somewhere between €3.5 billion and €4 billion in 2019. A high rate of growth is expected to continue, but the industry is not without its challenges. Gross profit margins have declined from as high as 8%-12% a decade ago to 2%-6% in 2019, and some companies are collapsing under the pressure — Brand Alley, for instance, went into receivership in September 2019. In this Executive Insights, L.E.K. Consulting examines some of the hurdles for online flash sellers and provides the key points to consider as sellers re-examine their business models and fight to remain competitive in this evolving environment.

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