CASE: FLIPKART: GRAPPLING WITH PRODUCT

RETURNS

GROUP 8 MEMBERS:
ANUJ CHANDA – 19A1HP114
SAURAV KUMAR – 19A1HP110
ARUN NATH R – 19A2HP468
S RAHUL – 19A2HP421
SWAPNIL JOARDAR – 19A1HP003
SOUMILI DAS – 19A2HP419
 SUMMARY
In 2007, two ex-Amazon employees, Sachin Bansal & Binny Bansal had begun selling books
online in India with an elementary fund of $6000. This venture resulted in the establishment
of Flipkart Private Limited (Flipkart). By the end of June 2016, Flipkart had successfully
raised more than $3 billion by attracting large investors throughout the years since its
inception. But in the same year, the Indian e-commerce giant faced a common issue among
online retailers. The firm was in a need of optimizing its product return rates to reduce the
losses caused by the returns. Accordingly, Flipkart changed its return policy in the form of
raising the commission fees charged to sellers by an average of 5 percent, total commission
being 15 per cent. The policy change resulted in resentment among many sellers, and more
than 1,800 led an online protest expressing their resistance against Flipkart, which was
unprecedented in India. These sellers made their accounts inactive and removed the
product listings for nearly 1 million product units by making them unavailable and displaying
“out of stock” messages on the platform. Seeing an opportunity, Flipkart’s strongest
competitor, Amazon India decreased its commissions on various product categories by 2-7
percent to entice disgruntled sellers to its platform. While its competitors experienced rapid
growth, Flipkart struggled to keep the market share it had acquired so far by falling from
$142.24 to $87.9 per share. The company experienced a massive drop in its valuation during
fiscal year 2015-16 (suffering a loss of $343 million), and had not registered any profit since
its inception in 2007. Flipkart had to reduce its losses resulting from a high number of
returns without displeasing both of its key stakeholders-sellers and customers.

ANSWER – 1
Free and easy returns policy and enablement of Cash On Delivery (COD) payment resulted
in a change in customer behaviours while buying products on online-shopping platforms.
There are various reasons a customer may give for returning those products:

 Due to an increase in mobile penetration, there was an increase in ‘window

shopping’ among youngsters, who often carelessly ordered items without seriously
planning to keep them.
 Common reasons that the customers cited during returning items were that they no
longer needed the product or they had purposefully ordered more than one size of
wearables with the intent of returning the extra items.
 Some unethical buyers may replace the original products with their replicas before
returning them thereby causing a loss to the company.
 Some unethical buyers may wear the clothings for some time before returning them
due to the provision of 30-day return window.
 In categories like clothing & footwear, customers may return it due to mismatch in
sizes or looks.
 ANSWER – 2
A consumer is very likely to check the product-return policy before making a decision of
purchasing. There is an inherent risk to the consumers in purchasing the products online.
Due to lack of physical examination of the products, the quality of the products cannot be
ascertained in any way other than the information provided in the website until the product
is received. Return policy reduces this risk to certain extent as the consumers still have the
option to return back the product purchased. There are many reasons due to which a
consumer may want to return a product, for example: the consumer might have ordered
the wrong size, the product might not be any longer needed, the product received might not
be satisfactory or according to the description on the website, etc. These are also the risks a
customer faces while ordering a product.
Hence, if a company has lenient return policy then consumers are more likely to prefer them
over their competitors such as:-
1. More options of recourse (cash, credit or replacement) - Some consumers may prefer
cash refund while others may opt for store credit, others might just want product
replacement rather than refund. Since there is a variety of consumers, having more options
of recourse is favourable in deciding a consumer’s choice.
2. Free return- The policy of charging nothing on the return of a product saves some money
for customers. Thus they will prefer to shop in a company with such policy rather than
others where they have to pay more.

ANSWER – 3
The return rate of Flipkart has increased by 50 percent. The company can take the following
measures to reduce the return rate.

• Flipkart should reduce the number of days of return as this provides more scope among
unethical customers to show their immorality.

• The company should also confirm whether the product was actually defective or not from
the manufacturer before the refund in case of ‘defective items return.’

• The company may use a policy where the money refunded is divided into cash returns in
bank account and the rest in the customer’s Flipkart’s wallet. The money in the Flipkart
account can be used by the customers on their later purchases.

• The company should also ask for proper reasons for the return.

• The company can also give more product details which will help customers to buy the
more exact product. Videos can also be added which gives a better perception.

• There shouldn’t be any ‘no questions asked’ return policy.

• Flipkart can carry out a survey among the customers through questionnaires about the
brands they prefer and generally use to get a thorough knowledge about the preferences
and size fit.

• Since the sizes of various brands differ from each other so the corresponding
measurement in conventional units should be given along with the brand’s own size
parameters.

ANSWER – 4
Flipkart has to reduce its losses resulting from a high number of returns without displeasing
both of its key stakeholders-sellers and customers. They are facing a constant dilemma
among online marketplaces regarding the prioritization of its customers or sellers. Flipkart
had changed its return policy in the form of raising the commission fees charged to sellers
by an average of 5 percent, total commission being 15 per cent. To appeal to a larger
customer base, it had also introduced a new return policy that proposed charging the sellers
both shipping and collection fees for all products returned after purchase. This caused
resentment among 1800 of its sellers from a seller base of about 90,000. Moreover, social
media being a powerful tool helped the agitated sellers in raising their voices by carrying out
online campaigns. According to a survey conducted by eSeller Suraksha, 57% of the sellers
claimed that they would reconsider selling on Flipkart and 42% reported that they would
increase the price of a commodity by 15-20%

However, Flipkart has taken steps for curtailing the impact of this increment in commissions
on sellers. The company offered a 50% discount on the commission fee for the sellers who
used the company’s warehousing services, thereby enabling them to source cheaper
products from China within India. This should provide assistance with payments and
logistics and would facilitate licensing its in-house brands to selected vendors. Having an
army of online merchants is crucial for Flipkart as well as their rivals including Amazon India
as they have a diverse range of product categories and need trained sellers to ensure
supplies and quality.

In the short run, Flipkart should help the sellers in adjusting to the changes through training,
webinars and visits by key accounts managers. They should communicate with the sellers
effectively and resolve the issue leading to their agitation on social media. In this way, they
can satisfy both its key stakeholders- sellers and customers. From the customers’ point of
view, the new return policy would be preferable to them and would lead to repeat-
purchase among existing customers

In the long run, Flipkart should concentrate on providing more incentives to its sellers. It
should give better incentives to them on reaching certain points in accordance of their
contributions to the Flipkart.