California and Mumbai-based fitness and wearable startup GOQii is taking legal action against ecommerce giant Flipkart due to deep discounting of its products which allegedly violate the sales agreement between the companies.
GOQii founder Vishal Gondal told ET that the company had an agreement with Flipkart for the sale of its fitness bands. However, the etailer allegedly began offering deep discounts on the products since the first week of May. According to Gondal, Flipkart has been selling the products at prices lower than the cost price which violates their agreement.
Gondal explained that it reached out to Flipkart earlier and had also sent legal notice on May 18 (Saturday) but the problem was not solved. GOQii is now planning to drag Flipkart to court over the issue.
At the heart of GOQii’s complaint is the allegation that Flipkart has been selling the GOQii products at unauthorised 70 to 80% discount, which the fitness company calls predatory pricing.
GOQii has also reached out to Department for Promotion of Industry and Internal Trade (DPIIT) and the Competition Commission of India for their aid in this issue.
GOQii’s wearable devices help users track their step count, monitor sleep, and other fitness activities. The company also offers a fitness coaching programme in conjunction with the wearable devices. .
According to Gondal, in a bid to show compliance with the ecommerce policy, Flipkart had stopped offering deep discounts for big brands and electronics such as smartphones, but it’s still selling products offered by startups such as GOQii at lower prices, which is causing a big disruption. “Since we also supply to corporates, some orders got cancelled. Trade partners like Croma and distributors are unhappy. We have never faced a situation like this in Amazon,” the report quoted Gondal as saying.
Ecommerce Companies Under Scrutiny For Predatory Pricing
Predatory pricing also known as undercutting refers to a strategy where retailers sell products at near-cost prices to boost sales volumes, or to create an entry barrier for new players. Businesses regularly offer discounts on their products to compete against rival products on the basis of price, but ecommerce marketplaces also use discounts on third-party products to gain a sales advantage on rivals, which in the case of Flipkart is Amazon.
In November 2018, mobile devices industry body, India Cellular and Electronics Association (ICEA) had alleged that ecommerce companies used predatory pricing to boost sales, which is hurting the sales of phones in the offline retail market
In May 2018, traders’ body Confederation of All India Traders (CAIT) had demanded a review of Walmart’s acquisition of Flipkart. CAIT had argued that this deal would promote loss funding and encourages further predatory pricing through discounts in the ecommerce space.
The issues had also been highlighted by All India Online Vendors’ Association (AIOVA) which had written to Competition Commission of India (CCI) against ecommerce companies including Flipkart and Amazon in 2017. It complained that both platforms use ‘predatory pricing’ and discounting for their private label products which hamper the business of other sellers on their platform.
To create a level playing field, DPIIT introduced the draft ecommerce policy in February, which and also implemented the new foreign direct investment (FDI) norms in ecommerce to curb deep discounting by the ecommerce companies.