Traditionally, companies are set up with the intent to earn income. They provide a service or a product in return for money. They strive to keep their cost price lower than their selling price. They invest in plant and machinery, employees, expansion etc. Some of them come out with IPOs allowing small investors to participate in their growth.
The valuation of a company does not necessarily depend on the income it earns, it depends more on what it can earn in the future. People are willing to shell out more for shares in companies which operate in segments like Ecommerce, Internet of Things and electric vehicles, which are likely to grow at a fast pace.
Companies like Flipkart command valuations based on their growth. They don't make profits. Flipkart and its subsidiary, Myntra, report their performance in terms of Gross Merchandise Volume (GMV). If they sell 10 units of a product with an MRP of $100, the GMV is $1000. GMV does not take into account the cancellations, returns, discounts etc.
GMV can be easily inflated and companies can show rapid growth even when there is little or no growth. By showing rapid growth they can attract investment at higher valuations. Investors play along as they hope to exit at higher valuations through or post an IPO, dumping their shares on small investors at astronomical valuations.
Companies which represent performance in terms of GMV will not see their GMV reduce if your order is cancelled, undelivered or returned. In fact, they may be able to increase their GMV by selling the product again. If a company delivers a $100 product in great condition to a customer, it will have a happy customer and $100 in terms of GMV. If a company sells a $100 defective product to customer at 80% discount, it is returned and sold again, it gets $200 in terms of GMV! Surprisingly, the second company commands higher valuations! In many cases, the MRP is inflated to inflate GMV. Be careful with those private labels!
Some ways in which Ecommerce companies inflate the GMV are:
1. Cancelling orders - Customers often find their orders being cancelled. The company may not really have those products. They may just let people place those orders attracting them with huge discounts and in the process inflate their GMV. They may be more than happy to issue a "goodwill coupon".
2. High RTO - RTO stands for "returned to origin". These are undelivered orders. Managers set high targets for their delivery staff and ask them to "deliver or RTO or don't come to work again". Unable to deliver all orders, delivery agents end up marking some orders as "RTO". These products are sold again! All that adds up to the GMV numbers. A company representing performance in terms of GMV may show growth even if all their Logistics staff go on a strike!
3. Tender Liquidation - Certain Ecommerce firms allow customers to place "cash on delivery" orders, pay using a credit card at the time of delivery and then return the product and obtain a refund into their bank account. A lot of people just place orders to convert the credit limit on their cards to cash.
4. Shipping damaged and wrong products - Companies deliberately ship defective merchandise to customers. If they are returned, they are sold again. Higher GMV!
5. Inflating the MRP - ACSI recently pulled up Flipkart for displaying a higher MRP on the website than what was printed on the MRP sticker. In order to prevent getting caught companies may be shipping many products without the manufacturer's MRP tag. They may just be printing the price on the barcode sticker. Watch out! Those prices may be inflated.
Mindful customer care staff may stop a lot of such activities, like high RTOs and returns. They may highlight issues to delivery centers and want improvements, so the companies insist that communication with DCs take place only through an established hierarchy. To prevent customer service staff from following up and taking ownership, companies set high targets and allow the system to be gamed. Those who can game the system, are rewarded will higher performance ratings, more money and are promoted.
The people who come up through such a system which is rigged, may be excellent at the following skills:
1. Disconnecting calls while making it look like a technical issue.
2. Exploiting loopholes in the CRM software to increase their email count.
3. Avoiding difficult or time consuming work (a.k.a skipping).
4. Providing meaningless responses like asking you for "more images" or requesting you to confirm if "product is unused" even if you might have already selected that option while initiating the return.
5. Networking with TLs, Managers, QAs etc.
Those who are good at these skills will be able to show higher productivity and quality scores and are awarded supervisory roles and perform functions like reviewing return requests and employee performance. Don't be surprised if a perfectly sensible and straightforward return request is rejected.
Companies induce their employees into acting in this manner by applying pressure, initiating disciplinary action, offering rewards and recognition and watering seeds of greed. Companies offer high salaries to supervisors to attract staff into chasing supervisory roles. At one Ecommerce firm, the customer service staff are paid as low as Rs. 200000 a year while team leads are paid Rs.700000 a year. Flipkart paid Mekin Maheshwari Rs.18+ crores in FY 2014-15. That's 100 times the salary of India's Prime Minister and over 1000 times the salary of a delivery agent.
The problems of operating in this manner are:
1. Customers are losers. They lose money and peace of mind.
2. Honest workers are punished. Good delivery agents and customer service staff are replaced.
3. Employees are pushed into a habit of acting unethically.
4. A hierarchy functioning unethically makes all decisions.
5. Lack of transparency (to protect the hierarchy).
6. High income inequalities.
7. Poor work culture spreads across workplaces.
8. Government loses out on taxes.
This is not how things should be. We must always strive to maintain high ethical standards. If we reward the wrongdoers then there will be more wrongdoers. We are fast becoming a nation of cheats, corrupt and greedy. Economic inequality is at an all-time high.
If we want change, we will need to create awareness about this and demand action. Each one of us can do our bit. All states and the center must take appropriate action to protect our values. We need powerful agencies and laws to protect the consumers and non-supervisory employees. At a personal level, we must learn to treat everyone equally and not seek more than others.
(The author, Saurabh Singh, is a student of Thich Nhat Hanh.)
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