Lately, there is immense talk about online festive season sales. Many e-commerce websites left no stone unturned to advertise their sale long before it even started. No matter what website you open, you will still see Amitabh, Virat, Deepika, Ranbir, Dhoni or Alia reminding you of the ongoing sale and the huge discount it is offering. But the question of how these companies manage to give their customers such huge discounts and still remain floating might have crossed your mind many times. This mystery is a bit complicated. But to put it in simple words, the discount attracts more customers which obviously lead to more sales which in turn increases the profit. This is one of the ways the e-commerce companies remain immune to losses. The other reasons could be as stated below.
Compared to the physical stores, it is easier and cheaper to manage an online store. The time taken for assimilation and streamlining of the business processes such as purchasing and logistics network, accounting, transportation and so on, is low.
In the traditional method, there was too much money involved just for the distribution, wherein the products went from manufacturer to distributor to wholesaler and finally the retailer. The online store cuts down most of the middleman hassle. Here the manufacturer directly supplies to these stores when demanded, from where they are supplied to the customer.
While the brick and mortar stores are bound to a particular area, the online stores have the opportunity to fledge their feathers and take their business across the globe. It is difficult for manufacturers to set up physical shops everywhere. Here the online stores could be pretty helpful to save a lump sum amount of funds. Manufacturers simply supply their products to these e-commerce stores, who in turn ship them to the customers, world-wide.
Never ending stores
While the traditional physical stores have a practical time limit for their services, online stores provide the luxury of — 24/7, 365 days– services. This literally makes a difference of at least 10 to 12 hours, and the profits they can procure in this time are huge.
Lifetime Customer Value
In layman terms, lifetime customer value refers to a prediction made on the future returns from a customer based on the present outflow of the cash towards the customer. Imagine you buy a product for less price or discount from ‘XYZ’ online store. You are content because this store offered you the least price compared to rest other stores (online or offline). Now during your next purchase, you will visit XYZ store itself since you believe they list low prices on their products. Now the store owner earned a long-term customer through which he can assure a continuous flow of income. This itself is termed as lifetime customer value.
Importance of the Customer
Apart from the seller, another prominent player in this game is the customer. E-commerce stores value the customers’ need, timing, and their money. In physical stores, customers often have fewer options to pick from. The options are could be as low as 15 to 20. On the other hand, online stores provide customers up to hundreds of options on any said product. The online stores also provide an option of refund or replacement of the product, if the customer is unsatisfied with it. Sadly, the offline stores only have the option of replacement. They never return your money.
The money involved in these global e-commerce stores is huge but so are the returns. These bulky businesses often save money in other ways. So even after giving discounts, they remain profited. Discounts are just to lure the customers, to keep the business running.