India’s largest e-commerce firm, Flipkart Ltd, has changed its policy toward third-party sellers on its platform, charging higher commission rates in key categories, passing on costs of product returns to sellers and encouraging them to use its logistics service, as part of an effort to improve its customer service and brand.

Earlier this month, Flipkart told more than 90,000 of its sellers that it will charge higher commissions in categories such as fashion and that sellers will have to bear the full cost of product returns. Flipkart also reduced the return time for customers on smartphones and some other categories to 10 days from 30 days.

“This puts the onus on the seller on how to reduce returns, how to improve quality of the products and the overall customer experience. Our incentives are now aligned with those of the sellers in terms of offering higher quality and a better experience for customers," said Anil Goteti, vice-president, retail, at Flipkart.

Rivals Snapdeal and Amazon have also changed their commission rates in various categories since May, though it is unclear whether their overall commission rates have increased or decreased. Flipkart’s overall commission rates have increased, though the company declined to give the exact numbers.

Flipkart, Amazon and Snapdeal operate as marketplaces, charging commission fees and other charges for connecting customers with third-party sellers.

After Flipkart announced its new policies, a few hundred sellers protested against the changes and said product prices will increase on the platform.

“Some of the sellers are happy that it is going to drive the right behaviour, some are not happy about the increase in rates and they have asked us for advice on how they can bring their costs down. We listen to this feedback very actively and we think of ways of potentially incorporating it when we make our next round of changes," Goteti said.

In the worst-case scenario, even if a few hundred sellers abandon Flipkart, it is unlikely to have a significant impact on the company’s business.

Flipkart is moving to a faux-marketplace model where a majority of its sales will come from a handful of so-called alpha sellers that will be set up by the company, Mint reported on 5 April. More than a third of sales on Flipkart’s platform come from WS Retail Services Pvt. Ltd, a seller with which Flipkart has close links.

The proposed arrangements with the other alpha sellers will be similar to what Flipkart has with WS Retail, Mint reported. This arrangement is also expected to help Flipkart comply with the new foreign direct investment regulations that cap a single seller’s contribution to overall sales at 25%.

However, it is currently unclear how this new structure will affect Flipkart’s relationship with tens of thousands of its other sellers.

In any case, Flipkart wants a majority of its orders to be shipped from its own warehouses so that it can vet product quality, ensure consistency in packaging and get products fast to customers.

Since starting in 2007, Flipkart became the most popular e-commerce, and perhaps retail, brand in India by offering a wide range of original products and delighting customers by delivering these products in record time.

In 2015, however, Flipkart’s brand and customer service suffered in comparison with Amazon. Last year, Flipkart tried moving to a pure marketplace model (until then, more than 85% of its business came through WS Retail). Third-party sellers couldn’t offer the same product quality, consistency and delivery speed that Flipkart earlier offered via WS Retail.

On the other hand, Amazon India successfully wooed customers by spending thousands of crores of rupees on offering the widest product assortment, deep discounts, extensive advertising and fast product delivery.

As a result, Flipkart’s market leadership is under threat. Earlier this month, Amazon said it will pump in another $3 billion into India after it exhausted its earlier investment pledge of $2 billion, as it goes for the kill.

To keep Amazon at bay, Flipkart chief executive officer and co-founder Binny Bansal, who took over as CEO from Sachin Bansal in January, has made improving the company’s customer service—wide product selection, low prices and fast delivery—its top priority.

To this end, Flipkart is encouraging sellers to ship a majority of products to its own warehouses even before customers have placed orders. A similar service by Amazon, called Fulfilment, has been one of the key reasons for its success in India. Such services allow marketplaces to provide consistency in product quality, packaging and delivery speed.

“We’re offering promotional rates on our fulfilment service to sellers so they can test it. Once they use our service, we believe that the subsequent increase in sales and the removal of hassles of operations will get them to keep using it," said Goteti.

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