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Brand Equity & the E-Tailing Wars

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The festive season of 2014 will be marked as the year of the e-tailing wars in India, which are intended to get the e-commerce sector to cross a tipping point of scale. If the print media reports are to be believed, it has succeeded. Flipkart achieved Rs.600 cr of sales in 10 hours and its rivals report increased sales as well.

In its wake it has unleashed protests and retaliatory action in the consumer electronics sector more than any other. It seems from this that the maximum consumer interest in the discounted prices has been in consumer electronics or the fear of lost sales by the conventional retail trade is highest in this product market.

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One of the bigger points of contention is the loss of brand equity for brands like Apple, Sony, Samsung, LG, Whirlpool etc due to being sold at highly discounted prices on Flipkart, Amazon and Snapdeal. What happens when a consumer finds that a 45” flat screen Sony TV costs Rs.45,000/- in the showroom, but is available on Flipkart’s Festival Sale for Rs.20,000/-? And a Whirlpool refrigerator that costs Rs.25,000/- is now available for Rs.10,000/-?

There are different brands that participate in the unfolding drama – the manufacturer brands, the e-tailer brand as well as the bricks & mortar retailer brand. What happens to brand equity in each of these cases? What aspects of the brand’s symbolic elements are impacted by these price wars? Is it trustworthiness? Is it exclusiveness and consequently status and badge value? Is it affinity?

Arguably, Flipkart, Amazon and SnapDeal should earn consumer trust, affinity and goodwill because they are making all shopping much more affordable, thus enabling consumers to enhance their lifestyle multi-fold within their budget. For the consumer, these sales are a lifestyle bonanza being showered upon them by the e-tailer brands, which they should reciprocate with growing goodwill towards these brands.

On the other hand, brands like Sony, Samsung, Apple etc have to contend with the net impact of high price variability for end-consumers. Even if consumers understand that it is the e-tailers who are selling below cost price, extreme price drop can lead buyers to question either the trustworthiness or the authority/leadership of the manufacturer in the product market. An alternative scenario is that consumers continue to trust and respect the brands, but they begin to attach the label of the ‘discount-brand’ to some of them suggesting that they are permanently on ‘sale’ or that they are only worth buying at a discount via e-tailers, rather than full price or higher mark-up price in regular retail.

Extreme price drop and price variation across retail channels can be seen by consumers to break the trust code of integrity/reliability vis-à-vis the manufacturer or originator brand. It also sets up for the implicit ‘greater fool’ drama around who is smarter in cheating whom and by how much, in a price negotiation. In addition, it opens up space for a consumer watch-dog or protector of consumers’ interests to enter, one who regulates the actions of the players or keeps consumers informed on what is a fair price to pay for products and services.

It is with these considerations in mind that manufacturers seem to have decided to take action to rectify the situation. Some are now saying they will no longer supply products direct to e-tailers, nor will they provide original service guarantees to products bought from e-tailers. This would stop e-tailers from indulging in heavy discounting to move stock. Even if they source products from wholesalers, the lack of service guarantees would be a deterrent for customers.

Online fashion retailers such as Myntra and Jabong also had to contend with push back from fashion brands with regards to their discounting for fear of diluting the brand’s status signification as well as addressing franchisee retailer concerns on lost revenue. To address this issue, some brands therefore set a policy that the current season’s fashion would not be made available in the online channel, only previous seasons.

In sum, the rapid growth of e-tailing in India as a ‘discount’ or ‘lowest price’ channel, positioned on compare, save and buy from the convenience of your home or office does not augur well for manufacturer brands. There are points of caution for them to take note of in order to protect not just their brand equity, but the usefulness and value of branding per se.

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