The Indian Government announced a policy allowing 100% FDI in online marketplace platforms. But the policy added that ecommerce entities operating in a marketplace model will not directly or indirectly influence the sale price of goods & services and will maintain a level playing field. In effect, this means that etailers will now not be able to provide discounts as a business strategy to acquire or retail customers.
While many in the startup eco-system were critical of the government interfering on how ecommerce companies run their business, many, especially brick & mortar retailers and those who were critical of the deep-discounting strategy, welcomed this move as something that will ensure a level playing field.
While I fully agree with those who want the government to stay out of deciding how companies should run their business and what marketing strategies they should deploy, I find no merit in the argument that this policy will create a level playing field.
Why do brick & mortar retailers feel that the field was not level?
What prevented them from raising capital – from banks, VCs, PEs or from public markets that some of them have experience in tapping – to follow similar strategies that ecommerce companies deployed. And if they did not want to raise capital because they did not agree that discounting was a sensible business strategy, they should simply follow the strategies that they feel are most suitable for a retail business. Just because I disagree with your strategy does not give me the right to declare it as unfair.
A handful of PEs and VCs were / are willing to bet big bucks on their conviction that discount will be a more capital-efficient way of acquiring customers faster, and their belief that once a customer is acquired, there will be a way of retaining the customer to benefit from the expected ‘lifetime value’ of that customer. Whether this strategy is prudent of not, only time will tell. It is their money and they are willing to bet it on their conviction and belief. Just because you do not agree with discounting as a prudent business strategy does not give any one, brick & mortar retailers or the government, the right to protest against the strategy or block it.