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The Case of Unexpected Demand

The Case of Unexpected Demand

By Medha Srivastava

Edited by, Nandita Singh, Senior Editor, The Indian Economist

Who does not love discounts? Sale in Marks and Spencer, sales in Shoppers stop – a relief from the price tags that loom large and make us cringe at the clothes we had looked upon so tenderly. A sale day is a huge deal; having witnessed the long lines outside the trial rooms, customers get tired of the haggling and wait and move to the next store. The cash counters are queued up and the crowd doesn’t disperse.

Something similar happened when one of India’s largest online retail brands decided to go on a discount spree for 24 hrs. The advertisements of the Big Billion Deal Day were everywhere, from newspapers to websites to personalized emails to registered customers. In addition to three YouTube videos with thousands of likes, the Flipkart facebook and twitter pages were relentlessly advertising the Big Billion Day. The date- 6/10 was trending everywhere as flipkart founders- Sachin Bansal and Binny Bansal- announced the importance of the date on their website:

“To celebrate Flipkart’s journey, we are going to have a sale to end all sales. The Big Billion Day Sale is on 6-10-2014..and the date is no coincidence. 6-10 marks the number of the flat we started out from.”

Flipkart has 22 million registered users. Sure enough, with so much publicity, millions of users had logged on well before the expected 8 AM. Within 10 hrs of opening time, the servers had crashed, everything was sold or out of stock, and Flipkart had reached its target of making $100mn.

“The Big Billion Day is an unprecedented day for us as this is the biggest sale ever in India. Our teams and sellers worked days and nights to make this sale a success – and our efforts paid off. We got a billion hits on our site today and achieved our 24 hour sales target of $100 mn in GMV in just 10 hours.”

Nokia lumia 525 was available at 90% discount for a short while, Moto X was available for Rs 17,999 while Moto E was priced at Rs 5,499. There were various exchange offers, rebates and lucky draws every hour. Quite a few discounted electronics flew off the shelves faster than others could log on.

While a lot of users seemed content-

“Snagged an iPad Mini 16GB (Wi-fi Only) for 13,900 on @Flipkart.”

“Please end #BigBillionDay sale @Flipkart. I have already spent Rs. 12230.”

Flipkart’s joy ride left thousands of users disgruntled. The complaints were on numerous issues.  Many items that were being displayed on the sales section were found to be out of stock or sold when customers clicked to purchase it. Flipkart had hiked up prices on various items and then put a hefty discount on them. Debit or credit cards stopped working after a while, however the COD option seemed to get the order through.

Angry customers took to twitter, and Flipkart’s failure was trending on posts, with quite a few jokes and puns cropped up on the social media network.

India’s famous entertainer, AIB, posted:

We just finished making a Flipkart sketch, but it was sold before we could post it.

Flipkart then sent an apology letter to all its customers on Tuesday explaining in detail why they messed up:

There were errors in the pricing, but apart from that flipkart wasn’t really in the wrong. They had prepared well, but what they had not foreseen was such an excessive demand. In economic theory, supply always takes shape according to demand, and in such a short time period, products could not have been made available to bring the market to equilibrium. Ignoring Snapdeal, Amazon and the other online retailers, we can assume that Flipkart was in monopoly. Usually in a monopoly, excess demand is dealt with by raising the prices so that the increased prices discourage customers from buying, and the market retains equilibrium, i.e the demand becomes equal to the supply. Since Big Billion Day was a day for discount and sale, raising prices was not an option as discounts indubitably, lead to increased demand.

Replacing the assumption with a more realistic approach, we can see that Flipkart is a part of an oligopoly of sorts. Snapdeal and Amazon, to keep up with the competition, were running their own campaigns “For others it’s a big day. For us, today is no different,” and “Mission to Mars” weekend, respectively. What makes them competitors is that their products are homogenous and so are the prices. None of them lowers the price to sell a particular product as then, the other too begins to lower the price and this results in a price war. A discount season is essentially a price war season. The customers who weren’t satisfied with Flipkart went and looked on both Amazon and Snapdeal,  buying the product from the site where they found the product cheapest.

“Shopping Checked on #Flipkart for #BigBillionDay then #Amazonindia & finally purchased from #Snapdeal for #CheckSnapdealToday.” A user posted on twitter.

Flipkart did achieve its target of $100mn, but customers also vanished off to Snapdeal portals. Snapdeal was quite unnerved by the sudden rush of online customers and was only too happy to help. It earned almost the same amount as Flipkart without paying as much for advertising and without forgoing their customer base. The level of competition among these national giants can be seen through the front page advertisement by Snapdeal on Times of India.


So even though it was a big day for Flipkart, Snapdeal had the last laugh.

Medha Shrivastava is pursuing Economic Honors from Gargi College, Delhi University. She wants to visit the underground vaults of RBI and she aspires to become a permanent food critic at Master Chef Australia. You have to ignore people who call her weird and hyper. She is creative and her imagination is limitless. She is a futurist, bookworm and a fan of classic rock.

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