The Good News from the Flipkart Fiasco

Flipkart’s quick and mature response to its failures is an indication of both the power of a competitive market and the company’s consumer-sensitivity. Putting State restrictions on e-commerce will be a patently wrong move.

Flipkart founders Sachin and Binny Bansal offered a swift and humble apology to their customers following the company’s Big Billion Day sale fiasco that drew widespread flak from customers across various social networking platforms.

For those who didn’t click on that link above, or weren’t aware of the apology, here’s the gist:

(A)t the end of the day, we know that your experience was less than pleasant. We did not live up to the promises we made and for that we are really and truly sorry…Though we saw unprecedented interest in our products and traffic like never before – we also realized that we were not adequately prepared for the sheer scale of the event. We didn’t source enough products and deals in advance to cater to your requirements. To add to this, the load on our server led to intermittent outages, further impacting your shopping experience on our site. An unprecedented 1.5 million people shopped at Flipkart yesterday. While we stand humbled by the sheer faith that such a large number of customers have shown in us, we are unhappy that we were unable to live up to the expectations of millions more who wanted to buy from us yesterday.

This is not acceptable to us.

Delighting you and every single one of our customers, is absolutely the top most priority for Flipkart and we have worked very hard over the last seven years to earn your trust. Yesterday, we failed that trust. We have learnt some valuable lessons from this and have started working doubly hard to address all the issues that cropped up during this sale.

Again, for those who came in late, what was it that Flipkart promised?

This is what was promised, for the 6^th of October, in a special signed message from the Bansals, that went out to millions of people. Excerpts:

(You can skip this if you got the message. One would guess most of you did)

“The day 6-10 marks the number of the flat we started out from. And holding India’s biggest ever sale on that day is our tribute to dreams and dreamers. It’s also our way of making sure all our customers dreams come true.

On this day, you will have over 70 categories to shop from, with flash sales, deals of the hour, lucky draws every hour and unprecedented offers and discounts to look forward to…

With The Big Billion Day Sale, Flipkart is out to eclipse all other festive multi-day sales over just one single day!…

We want you to be a part of this event, when, come October 6th, Flipkart forever changes the way India shops.”

Chaos ensued. As you can make out from the apology mail.

However, the apology letter was particularly impressive in terms of its candour and the breadth of issues addressed.

Issuing a public apology is perhaps the best action Sachin and Binny could have taken to arrest their customers’ indignation. But will it suffice to ensure their loyalty to Flipkart? That is a question that will continue to haunt the company, even as it struggles to tackle two cardinal challenges.

First, Flipkart largely operates in a free market, characterized by fierce competition. Players in this industry, most importantly Amazon and Snapdeal, routinely adopt severe cost-cutting measures, perform relentless price negotiations with suppliers, and explore new ways to make their businesses more efficient. Customers, on the other hand, have the privilege of choosing from myriad e-retailers to purchase from.

Given this, it is not difficult to see how even small mistakes could potentially prove costly for Flipkart in the longer term. The very fact that its disgruntled customers have power to act upon their choices—simply by preferring to shop from another retailer—so as to “punish” the company for its inefficiency speaks volumes about the beauty of the market economy.

When IRCTC’s (Indian Railways’ e-travel facility) sluggish booking website causes us to lose our patience, we have no other choice but to sit with our hands tied and wait for its servers to respond. More importantly, we do not even have the option to switch to IRCTC’s rivals—because there are none.

Indian Railways is a government monopoly and, like any other monopoly, it “forces” customers to purchase its services in the absence of alternatives. The e-commerce sector, thanks to competition between various private companies, provides us with innumerable choices.

WalMart founder Sam Walton once said: There is only one boss: the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” Fortunately for Flipkart, both Sachin and Binny seem to have internalized Walton’s wisdom, albeit inadvertently. Their apology letter avers: “Delighting you, and every single one of our customers, is absolutely the top most priority for Flipkart and we have worked very hard over the last seven years to earn your trust.”

The second challenge for Flipkart comes from the offline small and medium retailers’ lobby, which has been fervently demanding that e-commerce firms not be allowed to provide deep discounts. Not surprisingly, some Aam Aadmi Party leaders have been leading the campaign to urge telecom companies against supplying mobile phones to e-commerce firms as this would harm offline mobile retailers.

There is now talk in the government about the possibility of bringing in some restrictions on e-commerce. But this will be patently a wrong move.

Complaints from customers about Flipkart pumping up prices before providing discounts in its Big Billion Day sale are legitimate. This is certainly an unethical practice, but quite simply, the law of the market will make sure that the perpetrator is punished by consumers. Because, on the net, customers have the freedom to compare prices and products across various websites and choose only the best.

Discounts are the name of the game in e-commmerce. Most of the time, they are not a form of predatory pricing. E-commerce firms can typically charge low prices because they do not need physical infrastructure such as stores and warehouses. In most cases, they can purchase directly from the producers by cutting out middlemen. These advantages make it possible for online businesses to provide cheaper products to customers. Of course, Indian e-commerce has seen some very deep discounting in recent days, but this is solely due to the all-out war for market share and business between the big players. They are quite possibly selling at a loss when they announce these discounts, and this state of affairs cannot continue indefinitely. Someone has to blink.

Putting any form of restrictions on e-commerce firms would thus amount to unfair treatment, not only to the firms themselves, but also to customers. It would imply that innovations of any kind—which would ultimately lead to lower prices for the consumers (thus threatening existing, non-innovative businesses which charge higher prices)—are anti-development and thus should be repressed through law.

To be sure, it is possible that some local offline retailers may go out of business owing to the distinct business model of online retailers. The noted economist Joseph Schumpeter termed this phenomenon as “creative destruction”. In simple terms, it means that in the course of civilizational progress, some existing jobs are bound to become obsolete as new jobs, mainly spurred by innovation in different sectors, replace them. This is what happened during the Industrial Revolution as the invention of new machines destroyed the need for existing manual labour in various works. The aggregate employment since the 1750s, however, only increased.

Flipkart’s Big Billion Day sale fiasco, as disappointing as it may have been to the company’s existing customers, only goes to reinforce the increasing power of consumers in the free market of e-commerce.

A State-controlled enterprise often makes mistakes of a much greater magnitude, and yet is systematically shielded from market pressures—thanks to a perpetual flow of taxpayer money. What’s more, its top management seldom feels accountable for the inconvenience caused to customers, let alone apologise for it. Not so, for a private firm, which has to constantly make its customers feel special, and are accountable to its investors. Thus, it has an inherent incentive to correct its mistakes and improve its services..

Yet, in India, it’s not often that we see companies apologizing publicly to customers. Sachin and Binny Bansal have not only shown great leadership by doing so and taking full responsibility for Flipkart’s failure, but also promised not to repeat them again.

And given that it is a private company operating in a highly competitive market, we can be sure that they will try their hardest to stay true to their promise, lest the customer, in Walton’s words, choose to “spend his money somewhere else” next time.