The revenue model of most of the entities that operate e-tailing portals are commissions and gross profits ? if they also follow the hybrid model. But the costs of e-tailing are intriguing and they cause of a lot of heartburn to offline retailers as well as brands.
Contrary to perception that online retail entails lower costs as there are no costs associated with operating stores, these businesses have high costs in the form of discounts / coupons, free delivery for products (where cost of the product is sometimes lower than delivery costs), and customer returns. In e-tailing parlance, some of these costs are known as customer acquisition costs.
The largest cost for e-tailers in a nascent ecommerce market such as India is customer acquisition costs - this is because it includes discounts offered. These discounts are offered over and above the discounts offered by brands or sellers of the product and are usually offered to customers in the form of coupons. They are known as cart discounts because they can be availed once the customer adds the product to his or her cart. The discounts sometimes tantamount to losses at the gross level (transaction level) in the hybrid model; in a marketplace model, they sometimes exceed the commissions that the e-tailer earns. E-tailers bear these losses for customer acquisition.
E-tailers bear these losses for customer acquisition. However, these discounts are not limited to a one-time purchase and are often open for all ? they don?t distinguish between old and new customers. This implies that they are given not only for customer acquisition but also for customer retention.
Search Engine Marketing Cost
But customer acquisition costs don?t end here. The other significant costs are Search Engine Marketing (SEM) costs. These are costs that ecommerce players incur to direct traffic to their portals on leading search engines such as Google. One of the most interesting cases of SEM costs is when flipkart.com ran its big billion day sale on 6th October 2014. When one searched for big billion day on Google the search actually led to amazon. in instead of Flipkart!! ? it seems like Amazon paid Google to direct the search to their website.
