E-commerce discounts: Economist decodes FOMO, pricing tricks

Huge online discounts often hide hidden costs and strategic pricing. Economist K Prabhakar explains why customers must shop smart — and not just shop more.

As big sales flood e-commerce platforms with flashy discounts and EMI offers, Prabhakar breaks down what really goes on behind the scenes. In this conversation with The Federal, he explains how customer psychology, deep-pocketed platforms, and opaque pricing structures fuel India’s online shopping boom — and why being a mindful consumer matters more than ever.

Why are online discounts so tempting and frequent now?

It’s a mix of marketing and psychology. Most consumers are responding to FOMO (fear of missing out). When you see 70 per cent off, even if you don’t need the product, you fear you’ll miss a rare deal. This creates impulse buying behaviour, especially on electronics, fashion items, and smartphones, which see the highest discounts.

Electronics get discounted up to 50 per cent because their versions change rapidly. For instance, when Microsoft moved from Windows 10 to 11, sellers had to clear older stock quickly, even if it meant offering steep discounts. It’s a cycle of constant upgrading and inventory push.

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But are these discounts genuine? Aren’t the prices inflated first?

That’s a valid concern. The real manufacturing cost of a product is not publicly available, so it’s hard to know whether a discount is genuine or if the price was marked up first. What’s marketed as a discount may just be a recalibrated price.

Platforms like Flipkart and Amazon also benefit from volume. Amazon recently processed 18,000 orders per minute during peak sales. This scale allows them to pressure manufacturers and banks for volume-based discounts, enabling flashy markdowns for customers.

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Are no-cost EMI and bank discounts actually beneficial for the customer?

There’s no such thing as truly “no-cost” EMI. By RBI norms, platforms can no longer advertise “zero-interest” EMIs. What happens is that manufacturers and banks absorb the interest component as a part of their promotional budget.

However, there are hidden costs — processing fees, convenience charges, etc., which could add 2-3 per cent extra to your bill. So even though you feel you're saving, the actual discount may be lower than advertised. It’s always wise to calculate the final cost before committing.

With such massive sales, are these companies even making profits?

Interestingly, Amazon India hasn’t made real profits in recent years. Its operational profit — EBIT (Earnings before interest and taxes) — was just Rs 588.6 crore, while turnover reached Rs 25,906 crore in 2024. These platforms focus on customer acquisition value and lifetime customer value, even at a loss.

The goal is to make online shopping a habit. Companies spend heavily on logistics, delivery guarantees, and return policies to build trust. Snapdeal, for instance, couldn’t sustain this and lost market share because of poor logistics and customer experience.

Do rural consumers benefit from these platforms as much as urban buyers?

Yes, especially with platforms now supporting regional languages like Tamil and Hindi. Products that were once inaccessible are reaching Tier 2 and Tier 3 markets. However, issues exist.

For instance, during marriage seasons, buyers have ordered lehengas from Myntra, worn them once, and returned them under the 10-day return window. This became so widespread that nearly 30 per cent of some product categories were returned. It highlights a lack of responsible consumption.

What’s the smartest way to take advantage of these sales without being misled?

You need to plan purchases. In Japan, there’s a practice of discarding anything not used in six months. Similarly, create a list of needs for the next six months. If you genuinely need a product — say, an outdated laptop that needs upgrading —and you find a discount, compare reviews, check actual retail pricing from reliable sources, and go ahead.

Ask yourself: will this product reduce my pain points or improve my quality of life? If yes, the discount makes sense. Otherwise, it’s just clutter.

Do customers often overspend because of emotional reasons?

Yes. People buy more when they’re stressed or low. This behaviour is psychological. To avoid such impulsive decisions, build a mindful purchasing habit. Write down your needs and measure the utility of each product before making a purchase.

Many small items — accessories, household goods — are bought without real usage. Over time, these add up. Thoughtful buying not only saves money but also builds long-term financial discipline.

So platforms aren’t cheating customers?

No, they’re not cheating. These companies have deep pockets and are investing to grow their user base. But it’s the customer’s responsibility to make informed decisions. The discounts are real, but the pricing strategies, cost absorption, and marketing tactics mean you must look beyond the banner ads.

(The content above has been transcribed from video using a fine-tuned AI model. To ensure accuracy, quality, and editorial integrity, we employ a Human-In-The-Loop (HITL) process. While AI assists in creating the initial draft, our experienced editorial team carefully reviews, edits, and refines the content before publication. At The Federal, we combine the efficiency of AI with the expertise of human editors to deliver reliable and insightful journalism.)