 "Dealing with the promiscuous shopper")
When FreeKaaMaal.com, a deals and discounts website, began its innings four years ago, its founder and CEO Ravi Kumar had no inkling of the hurdles lying in his way. Since the e-commerce website was not about selling products or services - which meant there was no physical inventory to stock or dispatch - investment in the venture wouldn't be high, he surmised, and the prospect of big deals would bring in traffic by the droves. Other daily deals and discounts websites that burst into the Indian e-commerce scene between 2009 and 2011 spurred by the success of Groupon, the website that started the international group-buying gold rush, also thought the model was foolproof - their websites would entice users with lucrative deals and offer merchants a unique set of customers every time. While for the merchant it would mean a chance to showcase their products, for the customer it would take the drudgery off deal-hunting.
Here's how the daily deals model collapsed. The deals dried up fast, merchants moved on, and customers refused to come back. The problem, say experts, was in the fine print of the deal. So even when there was a 70 per cent discount on a spa treatment, a customer could avail of it when she visited the outlet between, say, 3.00 pm and 4.00 pm - difficult to do if she planned to keep her full-time job. And even when she managed to walk in with her discount coupon, the service provider gave precedence to the full-fare customer as opposed to the 'discount' client. So there was no way the customer would come back to the salon, and there was no reason for the merchant to think it was going to do his business any good. Which essentially meant there was no reason either for the merchant or for the deal hunter to go back to the website in question.
The fact people follow brands that offer discounts or other incentives doesn't obviously mean that they would want to have a relationship with the website that facilitated the process. Indeed, they could migrate to any other website that offered a 'better deal'. Also as Kunal Bahl, co-founder and chief executive of Snapdeal, which started as a daily deals site and changed subsequently to an online marketplace, had told Business Standard during an earlier interview, "The deals business is high-volume, low-value in nature and is difficult to scale up."
Affiliate marketing
FreeKaaMaal quickly changed tack when it figured the disconnect between its user base and the merchants. "We knew deals and discounts business model would work in India - after all, the consumer here loves the concept. We just had to work around the hurdles intelligently," says the company's CEO Ravi Kumar. The company decided to ditch offline merchants and deal directly with e-commerce marketplaces - such as Flipkart, Snapdeal, Myntra and a host of other online merchants - for exclusive deals.
"There was no point looking at just the neighbourhood brands. Our business model now runs parallel to e-commerce sites and if they grow we also grow," he says. The affiliate marketing industry (where the affiliates get a small commission in return for the extra traffic) is at a nascent stage right now but as global players enter, it is bound to grow. Since the entry of Amazon.in, FreeKaaMaal has seen its revenue jump 20 per cent. "Global companies understand the value of affiliate marketing and with competition rising, e-commerce sites are exploring this model of sales," says Kumar. Faced with the prospect of going belly up, FreeKaaMaal swung the game in its favour -besides established e-commerce players it has more than 450 merchants on its roster and gets 4.5 million hits per month.
Couponation, another big player in the segment, is also focusing on curating exclusive coupon deals with online retailers for customer traction. In a first of its kind experiment, Couponation has acquired a huge customer base through white label tie-ups with media houses like Indian Express and Hindustan Times on their respective websites.
While some websites were able to make a comeback, a host of others didn't. The likes of Dealsmagic.com, MasthiDeals.com and Taggle. com went out of reckoning, and many others toggled along before shutting shop altogether. Says Siddharth Puri, CEO, Tyroo Media, "Many of these websites have changed their business models because under the earlier model the cost of customer acquisition was high. It did not justify the average value of the deals. Then, unlike in the West where even the neighbourhood merchant (restaurants, stores etc) would have loyalty programmes and understood the concept of deals, in India merchants are not as evolved, making the deals and discounts model even tougher to execute."
Going mobile
Mydala.com, which describes itself as India's largest discount coupon platform, learned the rules of the game the hard way. When it started out (it was launched in 2009), it used to offer huge discounts but eith the condition that the deal seeker had to pay for the service (minus the discount amount) upfront (when she was buying the discount coupon on Mydala.com). It did this to safeguard itself from the fickle customer, who could ditch the merchant and put Mydala in an embarrassing situation. The website realised this route had no future because customers were not willing to pay money upfront before consuming the product/service.
Says Anisha Singh, CEO of Mydala.com, "We knew that discounts and deals worked in India. What we realised, however, was that even though they were our targets, both merchants and customers were also our pain-points." As with other websites in the business, Mydala too was staring at a bleak future when it decided to go back and tweak the whole proposition. The idea was to acquire and retain the customer and have a pan-India focus keeping the core offering (deals and discounts) intact. "Remember, 2010-11 was a time when the number of mobile phone users in India was rapidly increasing. If we could reach out to mobile service operators, our footprint would increase, telecom companies would find value and neighbourhood merchants would find greater value than before for their deals and discounts," adds Singh.
With this in mind, Mydala first tied up with Vodafone exclusively for deals and promotions. "We made investments in analytics and technology thus enabling the telecom operator to understand users better while customising offers for them," explains Singh. Today Mydala partners with telecom brands like Airtel, Idea, Tata Docomo, Samsung and Karbonn to reach out to users who don't own a smartphone yet and encourages them to make transactions for deals and coupons via the mobile phone (these are micro payments, such as paying the mobile phone bill, discount coupons offered by retailers like Big Bazaar etc) through a pre- or post-paid mobile account (not debit or credit card).
It also offers real-time deals based on where a user is located. "This real time model works very well in Tier-II and Tier-III cities and the merchants are seeing repeat value and telecom companies are getting to understand their consumers better," explains Singh. Given that Mydala (like most other companies in the business) gets the bulk of its revenue from commission from its partners (telecom companies, merchants etc), the company can afford to charge a nominal fee from the consumer who avails of a deal/discount on its site. "In a sense, we have become a marketing vehicle for other companies and brands and we are no longer seen as just a deals website," says Singh.
If Mydala went all-guns-blazing for mobile marketing, CashKaro went a step beyond merely offering deals and began offering cash-backs. The company understood that customers had several go-to options and thus it needed to be different to be relevant. So, if you purchase a pair of sneakers for Rs 499 from Flipkart using the deal coupon at CashKaro, the company gives a further 10 per cent through the commission it earns from Flipkart. "It is all about valuing the customer and ensuring she stays with you," says Swati Bhargava, co-founder, CashKaro. As part of its strategy, the company closely tracks what customers look for on its website. If, for instance, 10 customers show interest in buying a Samsung Galaxy tablet, CashKaro gets back to the brand with ideas on creating a lucrative deal for the group of customers ready to buy the product. CashKaro feels it is the right approach that has a high change of hitting the bull's eye when implemented.
Sticking to the knitting
Even as some players learn new tricks and innovate to stay in the game, the flag-bearer of the e-deals industry, Groupon, has come to command a 75 per cent of the business in India by simply sticking to the core business model. Ankur Warikoo, CEO, Groupon India, says that many in the race made the mistake of taking the merchant for granted. Also, while aping the developed market models, where neighbourhood retail offers very competitive deals, Indian companies in the business forgot that more than the discount it was the value of the product that mattered to the customer.
Not that Groupon India was able to do all this initially - in its desperation to be counted among the first people to latch onto a new idea, it promised deals to customers without keeping a check on the merchant or its capabilities. "We quickly realised that we needed to fine-tune," admits Warikoo. Groupon targeted five-star hotels, branded spas and salons, high end stores etc to tie up deals. It started curating exclusive deals - for instance, at Taj Mahal's restaurant Varq, the chef's new menu was on offer exclusively on Groupon. A dedicated team at Groupon is always in discussion with merchants to understand the issues they face rather than just to coerce them to offer deals. "Other players missed the insight that the customers should be able to trust merchants not just the website that's announcing discounts from the merchant," says Warikoo.
The site has a strict screening process for merchants and blacklists companies that go back on a promise. There's also a no-questions-asked refund policy if a customer is not satisfied. The site has a once-in-three-months policy for merchants to appear on the site so that no one merchant comes to dominate the others. All these efforts have started paying dividends-Groupon's customer acquisition rate is among the highest in the business.
As is evident, deal-marketing has traditionally been undermined by bad targeting. People are willing to convert when they are sent a more personally relevant message. That is what makes this space interesting - the web and the mobile have the potential to seamlessly connect the consumer who wants value and the retailer who is grappling with challenges in driving in-store footfall.
The online deal and discount industry has seen many companies changing their business models. Traffic has increased and the channels have matured but incremental revenues remain a challenge
The exponential growth of internet retail in India, advances in technology and a more favourable consumer mindset towards couponing are driving online shoppers to deal sites such as Groupon, MyDala, FreeKaaMaal, CouponDunia etc. These sites now boast of robust merchandising technologies and sophisticated tracking, analytical and reporting tools. While the revenue model of these portals has been a challenge, the landscape of the industry has changed significantly with several deal websites closing their operations, while some others have opted to change their business model.
The last five years or so have seen sites such as Dealsmagic, Dealivore, Vamoose, MasthiDeals and Taggle withdrawing from the marketplace. Taggle, while winding down, stated that irrational price wars and deep discounts made the business unsustainable. Differentiation also became an issue since all these websites offered similar deals and discounts. Other companies also faced issues of high customer acquisition costs and low profitability, forcing many to exit, including investors. In addition, acquiring and retaining bulk customers proved too big a challenge. Several companies were not able to prioritise between the consumers and merchants, largely ignoring the merchants. Koovs abandoned the daily-deal model and transformed itself into an online retail store; Snapdeal turned to e-commerce; MyDala decided to modify its operations instead of entirely transforming it. The site started focusing more on merchants and aimed at becoming an advertising and promotional platform for small and mid-sized merchants instead of only offering discounts on services.
Currently, the deals and discounts market is led by Groupon, DealsAndYou and CouponDunia. The websites have been focusing on innovative marketing strategies to popularise their business. Consolidation has also begun in the industry with Times Internet acquiring a majority stake in CouponDunia in May 2014; it will merge its homegrown deals website TimesDeal with the acquired company.
Thanks to smartphone penetration and growth in e-commerce, the outlook is positive for these players. Cost rationalisation and the use of technology in providing services would be key for survival.
Here's how the daily deals model collapsed. The deals dried up fast, merchants moved on, and customers refused to come back. The problem, say experts, was in the fine print of the deal. So even when there was a 70 per cent discount on a spa treatment, a customer could avail of it when she visited the outlet between, say, 3.00 pm and 4.00 pm - difficult to do if she planned to keep her full-time job. And even when she managed to walk in with her discount coupon, the service provider gave precedence to the full-fare customer as opposed to the 'discount' client. So there was no way the customer would come back to the salon, and there was no reason for the merchant to think it was going to do his business any good. Which essentially meant there was no reason either for the merchant or for the deal hunter to go back to the website in question.
The fact people follow brands that offer discounts or other incentives doesn't obviously mean that they would want to have a relationship with the website that facilitated the process. Indeed, they could migrate to any other website that offered a 'better deal'. Also as Kunal Bahl, co-founder and chief executive of Snapdeal, which started as a daily deals site and changed subsequently to an online marketplace, had told Business Standard during an earlier interview, "The deals business is high-volume, low-value in nature and is difficult to scale up."
Affiliate marketing
FreeKaaMaal quickly changed tack when it figured the disconnect between its user base and the merchants. "We knew deals and discounts business model would work in India - after all, the consumer here loves the concept. We just had to work around the hurdles intelligently," says the company's CEO Ravi Kumar. The company decided to ditch offline merchants and deal directly with e-commerce marketplaces - such as Flipkart, Snapdeal, Myntra and a host of other online merchants - for exclusive deals.
"There was no point looking at just the neighbourhood brands. Our business model now runs parallel to e-commerce sites and if they grow we also grow," he says. The affiliate marketing industry (where the affiliates get a small commission in return for the extra traffic) is at a nascent stage right now but as global players enter, it is bound to grow. Since the entry of Amazon.in, FreeKaaMaal has seen its revenue jump 20 per cent. "Global companies understand the value of affiliate marketing and with competition rising, e-commerce sites are exploring this model of sales," says Kumar. Faced with the prospect of going belly up, FreeKaaMaal swung the game in its favour -besides established e-commerce players it has more than 450 merchants on its roster and gets 4.5 million hits per month.
Couponation, another big player in the segment, is also focusing on curating exclusive coupon deals with online retailers for customer traction. In a first of its kind experiment, Couponation has acquired a huge customer base through white label tie-ups with media houses like Indian Express and Hindustan Times on their respective websites.
While some websites were able to make a comeback, a host of others didn't. The likes of Dealsmagic.com, MasthiDeals.com and Taggle. com went out of reckoning, and many others toggled along before shutting shop altogether. Says Siddharth Puri, CEO, Tyroo Media, "Many of these websites have changed their business models because under the earlier model the cost of customer acquisition was high. It did not justify the average value of the deals. Then, unlike in the West where even the neighbourhood merchant (restaurants, stores etc) would have loyalty programmes and understood the concept of deals, in India merchants are not as evolved, making the deals and discounts model even tougher to execute."
Going mobile
Mydala.com, which describes itself as India's largest discount coupon platform, learned the rules of the game the hard way. When it started out (it was launched in 2009), it used to offer huge discounts but eith the condition that the deal seeker had to pay for the service (minus the discount amount) upfront (when she was buying the discount coupon on Mydala.com). It did this to safeguard itself from the fickle customer, who could ditch the merchant and put Mydala in an embarrassing situation. The website realised this route had no future because customers were not willing to pay money upfront before consuming the product/service.
Says Anisha Singh, CEO of Mydala.com, "We knew that discounts and deals worked in India. What we realised, however, was that even though they were our targets, both merchants and customers were also our pain-points." As with other websites in the business, Mydala too was staring at a bleak future when it decided to go back and tweak the whole proposition. The idea was to acquire and retain the customer and have a pan-India focus keeping the core offering (deals and discounts) intact. "Remember, 2010-11 was a time when the number of mobile phone users in India was rapidly increasing. If we could reach out to mobile service operators, our footprint would increase, telecom companies would find value and neighbourhood merchants would find greater value than before for their deals and discounts," adds Singh.
With this in mind, Mydala first tied up with Vodafone exclusively for deals and promotions. "We made investments in analytics and technology thus enabling the telecom operator to understand users better while customising offers for them," explains Singh. Today Mydala partners with telecom brands like Airtel, Idea, Tata Docomo, Samsung and Karbonn to reach out to users who don't own a smartphone yet and encourages them to make transactions for deals and coupons via the mobile phone (these are micro payments, such as paying the mobile phone bill, discount coupons offered by retailers like Big Bazaar etc) through a pre- or post-paid mobile account (not debit or credit card).
It also offers real-time deals based on where a user is located. "This real time model works very well in Tier-II and Tier-III cities and the merchants are seeing repeat value and telecom companies are getting to understand their consumers better," explains Singh. Given that Mydala (like most other companies in the business) gets the bulk of its revenue from commission from its partners (telecom companies, merchants etc), the company can afford to charge a nominal fee from the consumer who avails of a deal/discount on its site. "In a sense, we have become a marketing vehicle for other companies and brands and we are no longer seen as just a deals website," says Singh.
If Mydala went all-guns-blazing for mobile marketing, CashKaro went a step beyond merely offering deals and began offering cash-backs. The company understood that customers had several go-to options and thus it needed to be different to be relevant. So, if you purchase a pair of sneakers for Rs 499 from Flipkart using the deal coupon at CashKaro, the company gives a further 10 per cent through the commission it earns from Flipkart. "It is all about valuing the customer and ensuring she stays with you," says Swati Bhargava, co-founder, CashKaro. As part of its strategy, the company closely tracks what customers look for on its website. If, for instance, 10 customers show interest in buying a Samsung Galaxy tablet, CashKaro gets back to the brand with ideas on creating a lucrative deal for the group of customers ready to buy the product. CashKaro feels it is the right approach that has a high change of hitting the bull's eye when implemented.
Sticking to the knitting
Even as some players learn new tricks and innovate to stay in the game, the flag-bearer of the e-deals industry, Groupon, has come to command a 75 per cent of the business in India by simply sticking to the core business model. Ankur Warikoo, CEO, Groupon India, says that many in the race made the mistake of taking the merchant for granted. Also, while aping the developed market models, where neighbourhood retail offers very competitive deals, Indian companies in the business forgot that more than the discount it was the value of the product that mattered to the customer.
Not that Groupon India was able to do all this initially - in its desperation to be counted among the first people to latch onto a new idea, it promised deals to customers without keeping a check on the merchant or its capabilities. "We quickly realised that we needed to fine-tune," admits Warikoo. Groupon targeted five-star hotels, branded spas and salons, high end stores etc to tie up deals. It started curating exclusive deals - for instance, at Taj Mahal's restaurant Varq, the chef's new menu was on offer exclusively on Groupon. A dedicated team at Groupon is always in discussion with merchants to understand the issues they face rather than just to coerce them to offer deals. "Other players missed the insight that the customers should be able to trust merchants not just the website that's announcing discounts from the merchant," says Warikoo.
The site has a strict screening process for merchants and blacklists companies that go back on a promise. There's also a no-questions-asked refund policy if a customer is not satisfied. The site has a once-in-three-months policy for merchants to appear on the site so that no one merchant comes to dominate the others. All these efforts have started paying dividends-Groupon's customer acquisition rate is among the highest in the business.
As is evident, deal-marketing has traditionally been undermined by bad targeting. People are willing to convert when they are sent a more personally relevant message. That is what makes this space interesting - the web and the mobile have the potential to seamlessly connect the consumer who wants value and the retailer who is grappling with challenges in driving in-store footfall.
| Changing landscape of India’s online deal and discount industry: Sandeep Ladda |
| |
The exponential growth of internet retail in India, advances in technology and a more favourable consumer mindset towards couponing are driving online shoppers to deal sites such as Groupon, MyDala, FreeKaaMaal, CouponDunia etc. These sites now boast of robust merchandising technologies and sophisticated tracking, analytical and reporting tools. While the revenue model of these portals has been a challenge, the landscape of the industry has changed significantly with several deal websites closing their operations, while some others have opted to change their business model.
The last five years or so have seen sites such as Dealsmagic, Dealivore, Vamoose, MasthiDeals and Taggle withdrawing from the marketplace. Taggle, while winding down, stated that irrational price wars and deep discounts made the business unsustainable. Differentiation also became an issue since all these websites offered similar deals and discounts. Other companies also faced issues of high customer acquisition costs and low profitability, forcing many to exit, including investors. In addition, acquiring and retaining bulk customers proved too big a challenge. Several companies were not able to prioritise between the consumers and merchants, largely ignoring the merchants. Koovs abandoned the daily-deal model and transformed itself into an online retail store; Snapdeal turned to e-commerce; MyDala decided to modify its operations instead of entirely transforming it. The site started focusing more on merchants and aimed at becoming an advertising and promotional platform for small and mid-sized merchants instead of only offering discounts on services.
Currently, the deals and discounts market is led by Groupon, DealsAndYou and CouponDunia. The websites have been focusing on innovative marketing strategies to popularise their business. Consolidation has also begun in the industry with Times Internet acquiring a majority stake in CouponDunia in May 2014; it will merge its homegrown deals website TimesDeal with the acquired company.
Thanks to smartphone penetration and growth in e-commerce, the outlook is positive for these players. Cost rationalisation and the use of technology in providing services would be key for survival.
Sandeep Ladda
India technology leader, PricewaterhouseCoopers
India technology leader, PricewaterhouseCoopers