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Promoting Good Governance.

INVESTIGATION: Jumia and co — the fraudulent discounts of e-commerce companies

 

In the weeks leading up to the Jumia Mobile Week, a lot was said about the period that was expected to be one of great, uncommon deals. The week, fourth of its kind from the e-commerce company, came to a close on Sunday, March 25, 2018, recording thousands sales. Adverts were placed everywhere. Hardly could you surf the Internet without encountering flashy pictures of smart phones and accessories with one implied message: grab your copy now before it is too late!

We were told it was the biggest mobile event in Nigeria, with flash offers, special daily deals, discounts on over one million deals, low prices on tablets and accessories, and free delivery to select locations. We were told the week would not only feature discounted prices but the greatest deals you could get, better than what even Black Friday had to offer. We were told this was a rare opportunity to replace our boring devices or get our dream smart phones. But, motivated by these mouth-watering promises to surf generally through www.jumia.com.ng, it turned out certain things just didn’t seem right.

A N60,000-WORTH SCREEN PROTECTOR?

At first sight, it appears as though what is offered for sale is Samsung Galaxy S6. The product name reads ‘Generic Samsung Galaxy S6 G920F Nillkin PE+ Tempered Glass Screen Protector for Samsung Galaxy S6 G920F’, so maybe it is in fact a Samsung Galaxy S6 ‘+’ a tempered glass screen protector, because how else can the original price be N59,999? But no, what is really being sold is just a Nillkin PE+ screen protector that is custom-made for Samsung Galaxy S6.

Jumia claims the price to be N19,999, and that this is only after they deducted a whopping 67% from the actual price of N59,999. But the problem here is Nillkin screen protectors – and probably any kind of screen protectors – are really not that expensive. Exactly the same product is sold here for $21.08 (N7,600). AliExpress sells the same brand of glass screen protector but for LG G5, and it is $11.24 (N4,050) per piece. And on the website of Konga, another local company acquired by Zinox in February, what we have is N5,000 for Nillkin Tempered Full Cover Glass for Samsung Galaxy S7 Edge.

It therefore appears the suspect product description achieves two purposes – one, give the impression of a discount when in fact the discounted price is quadruple what is found elsewhere; and second, mislead buyers into thinking what they are buying is a phone, and not just a screen protector for the same brand of phone.

Mobile phones or simply screen protectors?

A GENERATOR AND REFRIGERATOR FOR HALF THE PRICE? NOT SO FAST

Sellers on Jumia appear to often be in a cheerful and charitable mood – except that they sometimes exaggerate the level of charity given. A good example is this Sumec Firman Generator ECO 1990S. “It is originally N70,000. But we are giving it out at a discount of 44%, so pick it up for N39,500,” they seem to be telling the potential buyer cruising through the attractive website. But the buyer who is sceptical enough to do a simple Google search should discover the same product on Konga’s website going for N54,500.

On sale also is a Hisense Side-By-Side Refrigerator that has its price slashed by 45% from N350,000 to N192,600. Whereas, on Konga, the same product goes for N215,000, with the original price stated as N275,000.

MOBILE WEEK DEALS

It is not only items outside the scope of the recent mobile week that have their discount percentages suspiciously bloated. One example is this Generic M26 Bluetooth Smartwatch. On Jumia’s store, this product, part of the mobile week deals, sells for N4,480, after a 70% discount from the original price of N15,000. Again on Konga’s website, the same wristwatch is sold for N8,000. There is still a price cut worth more than N3,000; but the value of the product has been inflated, leaving the customer to think he has hit a jackpot of 70% discount, when in fact it is only 44%.

Another striking example, still under mobile week deals, is the sale of one product with two conflicting prices though on the same page (same row, in fact) of the website. It is the Universal S530 Mini Wireless Bluetooth In-ear Earphone Headset. Here it says the product is N3,500 but is sold at a discounted price of N2,549. And here, the original price is N3000 while the promo price is N1500.

S530 wireless bluetooth earphone with conflicting prices

NOT A BLACK SHEEP AMONG WHITE ONES

Consumers prefer patronising online stores to physical ones. One of the big reasons for this is that e-commerce companies often give out huge discounts and coupons. But these “gifts” are generally for good business reasons, not just because of charity or corporate social responsibility – or most times, not even at all. The strategy is adopted when a vendor wants to push slow-moving products or plans to get more customers, merchants, advertisers and investors, thereby giving competitors a tough time. And so they partner with the manufacturers to provide price cuts, or even consider them a temporary loss and investment.

Fictitious pricing, as the practice is called, is the questionable version and is a strategy adopted by companies across the world. It is an advertising tactic where discounts are offered based on a prior-reference price, whereas the advertiser had never offered the product for sale at that reference price. It is understandable why companies are increasingly embracing this strategy. According to a study published by the Harvard Business School, “fake list prices have a strong influence on purchase outcomes, with a 1-dollar increase in the list price having the same positive effect on purchase likelihood as a 77-cent decrease in the actual selling price”. But they certainly can have their downsides too: public scandals and law suits, to start with.

In 2015, Flipkart, India’s biggest online store, was at the centre of an embarrassing scandal when one of its products, a pair of canvera wedges, were put up at the discounted price of Rs399 and the original price stated as Rs799. There was only one problem: if you zoomed in for a closer view, you found a message from the manufacturer boldly written on the strap: Rs399 only. A customer noticed this self-contradiction and posted a snapshot on the company’s Facebook page. The company eventually suspended and blacklisted sellers found guilty of arbitrarily hiking product prices before tagging with a generous discount.

Picture shared on Flipkarts Facebook page by Mani Sankar Sen

Even Amazon, the world’s biggest e-commerce company owned by the world’s richest man, Jeff Bezos, has not had a clean record. Last year, Consumer Watchdog, a non-profit organisation that advocates for consumer interests, petitioned the California Attorney General to investigate the company, claiming it had proof Amazon was inflating reference prices to make consumers think they were getting better deals than they really wre.

In Nigeria, Konga, which appears to be Jumia’s biggest competitor, is also not saintly. One amusing example found on their website is that of a Nokia 8 Android Phone. While most discounts have the effect of reducing the product’s original price, this product has refused to play by the rules and in fact runs against the one-way street of convention. The reference price is stated as N190,000, while the discounted price is surprisingly even more – N195,000!

Konga: Nokia 8 Android phone whose discounted price is above the list price

Beyond just petitions and suspensions, cases are increasingly being won based on this unethical practice and state legislations in some parts of the world, especially the United States of America. For instance, in December, fashion retailer Ann Taylor settled for a $6.1 million class action alleging that prices at its outlet stores were listed as “marked down” from prices that never applied to the items. Another company, Hobby Lobby, was slammed with a similar allegation last May. In what was a mini-victory to the complainants, the court, in February, determined not to dismiss the action as prayed for by the company. Similar actions have, however, not been heard of yet in Nigeria.

PAST CUSTOMERS VOICE OUT

The fact that there are no known legal actions in Nigeria bordering on this practice is not to be translated to mean it does not happen. It only means people do not have confidence in litigation as a remedy for their grievances. Kehinde Funso-Adu, a veterinary doctor who lives in Akure, Ondo state, shared his ordeal. It was the Black Friday of November 2015.

“I had a huge discount on a mini-sewing machine I ordered from Jumia, or let me say it was discounted to its original price.

“The discounted price was about N7,000. The first disappointment was that the image appeared like three times bigger than the actual product. I took it to a tailor who knows better about the price and he told me it shouldn’t be more than N5,000 or maybe N4,000. Luckily for me, it malfunctioned the next day, so I had to return it. One other thing I noticed about Jumia is that substandard products are more heavily discounted.”

Joseph Ogunmodede, Founder of The Legal Diary, told a similar story: “I needed to get a new battery for a Toshiba laptop that had been at home and underutilised because of battery issues. I tried getting from physical stores in my vicinity but they didn’t have the specs. I resorted to Jumia with the hope of getting the best, especially with the impression they gave me that it was at a discounted price.

“To my utmost dismay, it was a China Battery that was delivered and I later found out the ‘discounted price’ of the China battery was N500 higher than original’s. To my reddest shock, I was at Balogun market two weeks ago with a friend who wanted to buy a wristwatch and I found out what these people do is to go to the wholesale or retail sellers of these commodities, snap the commodities and post the pictures online. When people make an order, they go to these shops to get them, add their profit and still leave us under the delusion that we are getting a discount.”

Adekusibe Osasona, a graduate of Pure and Applied Mathematics from the University of Ibadan, bought a power bank at a discounted price of N7,000 and a wristwatch at a discounted price of N6,000, when both products were in fact N5,000 and N4,000 respectively. “After buying the power bank, I later saw the same somewhere else sold for N5,000,” he said. “Since then, I resolved not to buy anything from Jumia again he said bitterly.”

Another peculiar customer experience was Adams Abdulbasit’s. A Law student at University of Ilorin who hails from Ibadan, it happened during the Black Friday of 2017 that he had fallen in love with a slim PS4, and he added it to his cart, hoping the price (N98,000) was going to reduce during Black Friday. Well, it did not – at least, not really.

“I was surprised to discover that what they did on that Friday was slashing another price [the list price] and putting the same N98,000 as the discount price,” he said.

In another 2017 Black Friday incident, Ayodele Oluwatosin, who hails from Ilorin, recalled that Jumia only reduced the price of the commodity to the market price on the day of special offers. He said he had bought a lot from the platform, but a particularly interesting transaction is of one phone: Leeco S3 X626.

“I think I got it for N38,000,” he said. “It was formerly N56,000 and I thought I had hit a jackpot. Until I got online and saw through AliExpress that the original price is around the same I got it for.” Asked if AliExpress was offering a bonanza, he said: “Not at all. It’s still the same price last time I checked. And the last time I checked was this afternoon!”

‘NOT ONLY MISLEADING BUT UNLAWFUL’

Scanning through the provisions of the 1992 Consumer Protection Council Act, the law appears to outlaw this practice, considering Sections 11 and 12. The former provides, “Any person who issues or aids in issuing any wrong advertisement about a consumer item, is guilty of an offence and liable on conviction to a fine of N50,000 or to imprisonment of five years or to both such fine and imprisonment.”

Likewise, Section 12 says, “Any person who provides any service or proffers any information or advertisement thereby causing injury or loss to a consumer, is guilty of an offence under this Decree and liable on conviction to N50,000 fine or to five years imprisonment or to both such fine and imprisonment.”

What is however not clear from these provisions is if the term “wrong advertisement” and “loss” cover fictitious pricing and the financial loss that follows from it.

Babatunde Irukera, Director-General of the CPC, agreed that the practice of bloating discount prices is both misleading and against the law. Although he pointed at the council’s enabling instrument, the CPC Act of 1992, he explained that taking action based on Section 12 is “very tricky because it is difficult to characterise or establish it as harm. It is not subjective; it is an objective standard”.

However, according to him, Section 2(i) may prove more helpful as it empowers the council to “ensure that consumers’ interests receive due consideration at appropriate forum and to provide redress to obnoxious practices or unscrupulous exploitation of consumers by companies, firms, trade association or individual”.

“Absolutely,” he said, asked if this provision empowers the council to take legal actions.

“It is a specific function of the council. However, the way we do that is that we have to literally investigate, enquire and look into their intention, because it is an objective test. It is a totally different thing to say there is a manufacturer-suggested retail price. That’s just a suggestion.  So we have to look at the market dynamics and all the surrounding facts to establish that the advert is unscrupulous.”

Irukera said no complaint had been filed with respect to deceptive pricing, but he admitted that the CPC’s role is “not only to respond to complaints but also to initiate actions”. He promised the council would take action “with this information that you have just provided”.

JUMIA  INSISTS: ‘WE’RE NOT IN BUSINESS TO DUPE PEOPLE’

Kayode Kolawole, Jumia Nigeria’s Head of PR & Communications, explained that the fundamental problem is a general lack of public understanding of Jumia’s operations. Special promos should not be confused with ordinary sales, he said. For instance, during the mobile week, he said ‘S9 or S9+’ was sold for N2,850 with a first-come-first-serve model. The benefit went only to one person and should not be seen as the original pricing adopted for the product.

“It was just that one item,” he said. “It was a strategy on our part to drive people to the website and search for what they might find, and then we reward one lucky person. So maybe when we put out communications like that, people misunderstand them to mean Jumia is selling a phone for N2,850, ‘and when we get to their website, we find out it is a lie.'”

On the question of bloated discounts that give exaggerated impressions to buyers, he maintaine that Jumia does not manufacture goods and fix prices. Rather, it is only a platform for sellers and manufacturers to reach final consumers.

“We do not manufacture these items. We do not produce them. We are not a production company. We have only created a platform for people to come and sell,” he said emphatically.

“So if the seller of the product says it is available for N150, and we have negotiated that because a lot of people who are interested in this product, let’s give it to them at this amount and give them this discount so that we can go on volume, that is reduce the price so that more people can buy, how is that Jumia’s fault?”

On why there are products on the website with conflicting prices, he clarified that Jumia is just like any other market with various sellers. The platform allows many sellers to advertise so as to give the potential buyer several options to choose from, while guided by information provided, and it is the customer’s duty to get the best offer for himself.

“One of the things we have put in place to ensure that customers get value for money and are not cheated is that we have hundreds of competing sellers,” he said.

“If a person is selling pampers, we would not just have one seller of pampers. We have other merchants of pampers, offering different discounts. It is up to you to surf our website and look for the best rates. People need to understand how e-commerce works and they need to understand certain things on our website.

“You cannot just go online and buy because you see one item that you like. You have to keep searching. It’s like going offline from one market to the other. You have to keep looking for the best rate because you will always find the best rate there. And then look at the sellers’ ratings. How is this seller rated? How many of these items have been sold? All of those are things you need to know to be sure of the quality of product you are buying. That is what we have put in place. We are not in business to dupe people. We are in business to make happy customers, because if our customers are not happy, there is no way we’ll grow.”

CUSTOMER IS KING

A lot has been said about the difficulty of running an e-commerce company in Nigeria and, at large, the Third World. Analysts talk about the logistic problems and difficulty in transporting goods, influence of public markets, high costs of broadband, distrust arising from widespread online fraud and phishing, low literacy rates, and low profitability. But there is no emphasis on the implications of fictitious discounts, especially the negative effect it has on trust and return rate of customers, obvious from public perceptions and the sheer number of past customers with upsetting stories.

According to Rocket Internet’s public listing of 2014, Jumia had $28 million in net revenues, with $32 million in losses – and thus was at the time still not profitable. Similarly, Konga, which was founded in 2012 was not profitable until 2017, after sacking 60% of its workforce and killing PoD (Pay on Delivery) options. Despite these challenges, not many have asked if there is a link between fictitious pricing and these not-so-encouraging starts or performances.

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