Why Online Retailers Are Happy to Bear Heavy Continuous Losses
Few decades back Kellogg faced huge challenges when it entered Indian market with corn flakes to provide more options for breakfast food.
The price was so high that only rich people can afford it and secondly, Indians were not ready to experiment with new Western food leaving their local Indian favorite choice of breakfast. As a result the company suffered heavy losses for months and finally decided to do two things to turn the situations, first, to sell their products way below the cost price so that it becomes affordable for more people and secondly, to pay heavy focus on young and small kids to consume their products as they’ll be their customer for long and much receptive for change.
After almost twenty years we see their strategy has worked, today, Kellogg is not only profit making but ultimately changed the eating habits of young and even old generations. In spite of suffering heavy losses the company remain loyal to their plans to slowly convert people and get them used to eat western and high quality food so that one day they are ready to pay premium prices for their products.
Is Flipkart and other online retailer are not doing the same? According to the report published, Flipkart incurred loss of 2000 crores because of heavily subsidizing their products to make online more lucrative place to shop instead of retailers. They too are doing the same what Kellogg and other companies did years ago. They are happy to incur continuous losses in the hope that one day people will be all habituated to buy online and then they can start charging the premium.
Good business plan but this same logic has also created chaos in the market place for small retailers. More and more small retailers are going out of business every day as they cannot compete with big giants online retailers.
The small cloth store which was good enough for the lower-middle class family to buy new dresses during festive seasons now demand more varieties and discounts which unfortunately the small businessman due to huge overheads of rent, labor and lack of economy of scale cannot sustain provide in competitive market.
With time, more and more people will use Internet to fulfill their buying needs and will always look for cheaper and better options all over the world and Internet is the best place to so explore. In this cut-throat competition one must have clear understanding of what makes business successful and be the first one to adopt new technology to stay more competitive and customer focused.