Amazon, Flipkart slash fees as battle for smaller cities intensifies

Amazon and Flipkart are intensifying competition for sellers by reducing or eliminating commissions on a wide range of products, a strategy aimed at expanding their presence in India's smaller cities and towns, where online shopping is witnessing rapid growth.

The two e-commerce giants have cut seller fees twice since last year for products priced below Rs 1,000 across multiple categories, according to a Times of India report. Lower-priced products account for a significant share of purchases in tier two and smaller markets, helping platforms drive higher sales volumes. Earlier this month, Flipkart also removed commissions entirely for sellers in the fashion category. Typically, sellers on Amazon and Flipkart pay the platforms a commission on every product sold.

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The move comes as e-commerce companies increasingly shift their focus beyond India's top metropolitan markets. According to industry experts, succeeding in smaller cities requires a different strategy because consumer preferences, shopping behaviour and price sensitivities differ significantly from those in metros.

"So far, e-commerce was largely a top 10-city play. As it spreads its wings, firms will have to strategise differently because the way things are bought, shopped as well as the price points that work in smaller cities are distinct from metros," Ankur Bisen, partner at The Knowledge Company told TOI.

Lower seller commissions reduce operating costs for merchants, enabling them to offer products at more competitive prices. The policy also encourages smaller and local businesses to join online marketplaces, expanding product selection for consumers in regions where buying preferences vary across geographies. For Amazon and Flipkart, which are seeing a growing share of new customers from non-metro markets, strengthening their presence in these regions has become central to future growth.

The shift is reflected in changing consumer behaviour. According to a joint report by Kantar and DB Corp cited by TOI, just over one-fifth of consumers in non-metro cities shopped online in 2016. By 2025, that figure had risen to nearly one-third.

"If the commission is not low or zero, sellers will not be able to get sales on these platforms. And to capture consumers looking at affordable products, items at low prices are needed," Satish Meena, founder of Datum Intelligence told the publication.

Industry analysts said the fee reductions could weigh on profitability in the near term but are expected to support long-term growth by increasing transaction volumes.

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"It is a balance between sales and profitability. In the short-term, Amazon and Flipkart's profitability will take a hit due to the commission waivers but in the long term, as sales grow, profitability should improve," said Ashish Dhir, senior director, consumer and retail at 1Lattice.

The companies are also stepping up efforts to onboard sellers from smaller towns. "The kind of places we are going to today are very different from the places we used to go to. We are onboarding sellers from places like Azamgarh, Saharanpur, Bhilwara. We are focusing a lot on ensuring that sellers from tier two cities start selling online," Kapil Thirani, vice president at Flipkart Fashion, told TOI.

Amazon is also witnessing strong traction from these markets. According to the company, more than 70 per cent of its new Prime sign-ups this year came from tier two and tier three cities, underscoring the growing importance of non-metro India in the country's e-commerce expansion.