The beginning of 2019 has been a cold affair for paytm, one of largest online retailers in India. The company saw a steep fall in its sales and customer base in the month of January owing to cutting down various cashback offers.
This sudden fall in the sales is seen as the result of slashing of cashbacks and other incentives by Paytm Mall in the end of 2018. The company slashed its cashbacks by almost 80% in December 2018, across all categories like groceries, fashion, electronics et cetera.
“We have cut cashbacks across categories. This is part of plan to build stronger… OTO (or online to offline) play where we are investing big in (2019),’’ Paytm Mall founder Vijay Shekhar commented over the sudden fall in sales. Paytm Malll is now trying to remove cashbacks for warehouse supplied items and is planning to direct them towards physical store supplies. The change in policy can lead to fall is the logistics cost and thus generate good margin over the sale of the product. Paytm Mall was launched in 2017, and unlike the other e-commerce platform like Amazon and Flipkart, Paytm Mall is eyeing on online grocery market. Since its inception the app is offering heavy cashbacks and other incentives like free delivery of the ordered products to penetrate in the offline trader’s dominated Indian grocery market.
Earlier, Paytm Mall, backed by huge funding and investments, tried to build a consumer base by giving big cashbacks, with a notion that the money given as cashbacks will be used to buy other products and thus, creating a perpetual cycle in the Paytm ecosystem with an inward flow of money. The company hoped that this will compensate for their low margins. But every cashback rendered by the company, just added to the loss, which later became impossible to surmount with the ongoing cashback offers. Thus forcing the start-up to slash their cashbacks and other incentives heavily.
The abrupt fall in sales manifested Indian customer’s price consciousness, who is one of the most price-conscious customer in the world. This also indexes towards the high risk of consumer base shredding, which happens if the start-up tries to get hold of a consumer’s loyalty by giving quick incentive likes free delivery and big cash-back. In a high competition market like India, which is witnessing a surge in the no of start-ups the consumer seems to be the only winner, who enjoys early incentives by the one startup and then moves to a new e-commerce start-up.