Price discovery in e-commerce
Indian e-commerce should try an emulate a perfect 'Mandi' or Marketplace. I see such solution as holy grail of Innovation in indian e-commerce. This is my attempt to think in that direction, proposed solution definitely needs refinement. I worked on in it for 4 hours and thought to share it with everyone.
Published on: Mar 4, 2016
Transcripts - Price discovery in e-commerce
Is there a way to successfully implement a true marketplace
model online ?
- Abhinaw Kumar
1. My understanding of the problem and intended goals
2. My Approach and Solution
3. How does this approach solve differences between
Offline Vs Online Marketplace ?
4. How does this solution engage customers and compel
sellers to set the right price ?
5. How can this solution help in arriving at best price of
the product? How can customers communicate that
price is attractive/not-attractive ?
1. Understanding of the problem and Goals
Currently, e-commerce portals in India have been successful in building an inventory based model
(e.g. Flipkart) .E-commerce companies are also working towards building the marketplace model
and have implemented some features such as multiple vendors(e.g. Snapdeal) .
In an offline marketplace, customers talk to different vendors , negotiate prices and make an
informed purchase decision based on vendor’s profile(reputation,Quality of service, post sale
experience etc.) However, in such offline models,vendors are not aware of the demand projections
and hence they are unable to offer the best price.
Goal is to utilise technology to innovate along with keeping the best practises of offline
marketplace. This platform should leverage the countrywide reach to customers and vendors while
creating a transparent medium for price discovery and transactions to ensure customers get best
2. Approach and Solution
I recommend that platform offer both kind of shopping experiences - 1. Buy Now and 2.
Buy Now - This is similar to what is existing in current e-commerce platforms.
MarketPlace - In this approach, let’s create an auction based model where customers can indicate
their preferred price for each vendor for a particular product. At the end of the day when the auction
ends, based on projected demand at a specific price point of the product, vendor decides the final
price and dispatches the product to interested customers.
Major Steps involved in use case(slide# 5) and sample Auction panel(slide #7) for a consumer is
2. Approach and Solution (Contd.)
Flow of the use case in Marketplace model is mentioned below -
2. Approach and Solution (Contd.)
Next slide depicts mock-up of auction panel for a particular user.
- User wants to purchase a seagate 1 TB hard disk.
- This product is offered by 3 different vendors (RS,WS and SS retail.)
- User is also presented with profile(QoS, ratings, delivery and reputation etc) of vendors.
- Each Vendor indicates stating price and a minimum price that he can offer for a particular product.
However, this minimum price can be changed by vendors in real time.
- User indicates that he can purchase this product at 4.3K , 3.9 K and 3.6 K respectively from 3
- User is also asked for the preferential order among vendors in case all 3 vendors decide to sell at or
lower price than the specified price by user.
- Demand projection is only visible to vendors not buyers. Based on this projection, vendors will
decide the final price. Admin panel for vendors will be different where they can see projections and
change the prices in real time.
- What happens to 200 users who indicated 4.5K and 4.3 K if RS retail decides to sell the product at
4.2 K ? Answer -All 400(4.5K, 4.3K and 4.2K) users will get the product at 4.2K.
- Platform also suggests users the most probable final price from each vendor based on historical
- Users can also suggest a new price for a particular vendor if they don’t see any suitable price.
- At last, user can also suggest if the price offered here is not minimum similar to - price matching from
3. Differences between Offline and online Marketplace
Feature Offline Online Solution
Negotiation over price Yes No Suggested approach empowers consumers to
specify the preferred price based on vendor’s
profile and product value.
Access to accurate
No No Vendors get a precise demand estimate for a
product and can reduce the prices to a
minimum in order to get more customers.
Access to large
number of vendors
No Yes Platform will provide access to N number of
competing vendors and countrywide customer
No Yes Platform will provide financial security and
trusted partners to do business with based on
4. How do sellers set the right price by engaging customers ?
1. Selling price of a product is a factor of its underlying cost, competition in the
market and customer’s willingness to pay. Vendor has the flexibility to change
the price in real time based on the information on prices being offered by other
vendors. Customer’s desired price is also captured by his preferred price for the
2. Through the platform, seller also gets the critical input related to demand
projection. Providing an estimate over demand projections and customer’s
willingness to pay upfront helps sellers play a volume game and maintain their
3. Price Matching feature enables customers to provide input on why is he not
buying from this marketplace.This feedback can be utilised by existing vendors
to offer competitive price as well as by the marketplace to bring best vendors
into the system.
5. How can customers communicate that price is attractive/ not-
1. I assume that such a solution will have strong network effect and will
generate huge customer and seller base. This will further ensure fair and
2. In case of single sellers (designer products or brands), customers can
suggest a new price ,which he or she thinks is fair for the product. This
will help the seller understand the product’s market value and promote
3. I also suggest that in case of designer products, platform gathers
feedback in an easy and engaging way (e.g LinkedIn endorsements) to
provide valuable insight to sellers.