Mystery solved! Know how Amazon, Flipkart manage to sell items at heavy discounts on Diwali & other festive sales

Diwali 2022: Piyali Ghosh, 29, could not wait to buy the iPhone 11 available at less than Rs 40,000 on Flipkart's festive season sale. The phone that seemed beyond her budget even a month ago is now in her shopping cart. Like Piyali, there are millions of customers across India who wait for the festive season sales to begin on e-commerce sites like Amazon and Flipkart so they can buy products at a heavy discount.

But have you ever wondered how such e-commerce platforms manage to offer such hefty discounts and yet maintain their profit margins? Here is their secret: 

Focus on MSMEs 

The hidden key to the massive discounts lies in promoting local business owners and other MSMEs across the country. Both these e-commerce giants have reached out to several local business owners and other Micro, Small, and Medium Enterprises (MSMEs) and amplified their sales.

Amazon recently mentioned that customers loved crores of product selections from lakhs of Small and Medium Businesses (SMBs) and local Shops on Amazon.in registered two times growth and sold over 8 products every minute.

Both companies have focused largely on women entrepreneurs and small business owners from Tier 2 and Tier 3 cities. With thousands of business owners selling their items on these platforms, the companies could offer hefty amounts of discounts and yet maintain their profit margins.

As per the data produced by Flipkart, Fashion and lifestyle continued to be a big attraction in Tier-2 and -3 cities, with suitcases, running shoes, men’s jeans, and footwear being some of the top-selling products, drawing in 45 per cent more customers over last year. Similarly, Amazon Business witnessed participation from over 4.75 lakh MSME buyers.

“Small and medium businesses, startups, artisans, and women entrepreneurs offered a wide selection of products to our customers across India. We are delighted by the increase in new Prime member sign-ups and sellers joining us this festive season, especially from tier 2-3 cities’,” said Manish Tiwary, Country Manager -India Consumer Business, Amazon India. Amazon witnessed a more than 44 per cent increase in new MSMEs who created a business account with Amazon Business during the Great Indian Festival as compared to 2021.

Why do MSMEs prefer these platforms? 

The prices of the products various companies offered offline or on their respective websites vary a lot as compared to the price offered on Amazon and Flipkart. Then, the question arises why do they choose to sell the products on such platforms at such a low price and compromise their profit margins?

The answer lies in the huge volume order that they get while on these platforms.

“Amazon and Flipkart help us a lot to sell more products on daily basis. If we have to sell 1000 pieces a day offline or through our own website, it will take an enormous effort in terms of promotion or advertising. Whereas selling a few thousand products through Amazon or Flipkart is easy. Thus, despite having comparatively lesser profit margins we prefer such e-commerce sites as they help us with huge volume,” added Vijaya Kumar, Director & Co-Founder, of Rare Planet, a company promoting handcrafted pottery.

Local business owners also confirmed that they agree to offer heavy discounts on items as Amazon and Flipkart push the item on top results when the customers look for that product.

"Today, we have close to 11 lakhs small businesses enabled through the festive period including 2 lakh Kiranas who are an integral part of our delivery infrastructure. Out of 100 million deliveries that Flipkart does in a month, more than 30 per cent are enabled by these kiranas. We work closely with our seller partners who are working ingeniously to meet the overwhelming demand we see from consumers," Flipkart told Zee Bizz. 

Easy payment options

Another major factor that spiked the sale of products on such platforms is its convenient payment options like Buy Now Pay Later, discounts using credit cards, etc.

As per the official data released by Amazon, every 8 out of 10 buyer had access to credit through products like Amazon Pay Later, Debit Card EMI, Credit Card EMI, and NBFC EMI; also new options were introduced for customers to shop such as cardless EMI purchases on ICICI and HDFC.

Similarly, Flipkart Axis Bank Credit Card with the Instant Discount & Unlimited Cashback proposition witnessed twice the increase in overall spending and customers using the credit card when compared to last year.

“People are looking for easy access to money. They are okay with paying slightly higher interest rates but the accessibility matters to them the most. So, people are often choosing instant credit options like credit cards and buy now pay later,” said Rahul Gochhwal, the Co-Founder of BankSe, a digital lending aggregator platform.