Bringing quality merchants on board and delivering exciting deals for the customer is the secret of Groupon’s success in India, Ankur Warikoo tells Rajarshi Bhattacharjee
Groupon is the global leader in its segment. How unique does it find the Indian market?
The Indian market is unique. We were a late entrant and the biggest difference was in the business model itself. All other deal sites were running on a ‘token’ model — which meant the customer had to pay a token amount, say Rs 49 or Rs 99 up front and pay the rest of the discounted price to the merchant directly.
The Groupon fundamental model is to charge the customer the entire sum up front and then pay the merchant. To the customer, it is the same price, but our model encouraged a different attitude in the customer. In the token model you were saying, it’s okay to shift loyalties. Today you bought this deal, tomorrow if you find something better, you will only lose the Rs 49 or Rs 99 paid upfront and need not commit to any merchant and brand. That’s not very good for the merchant — he will realise over time that the customers coming in are always looking for deals and will never convert into real customers. We asked ourselves should we follow the token model because that’s how it works in India or should we stick to our original business model that has worked in 47 other countries? We stuck to the original plan and it worked well.
Most of the other players in this segment are not as strong today as they used to be. Our merchants, on the contrary, are the happiest — 48 per cent come back requesting a re-feature within 60 days of the first feature; 48 per cent of our customers too come back within 30 days.
Not many premium or luxury brands wish to participate in group buying. Does the nature of the group buying business erode a brand’s equity?
It can. There is an extremely fine balance between destroying a brand and running a good promotion for it on a deal site. Unfortunately, our predecessors did not do a very good job in handling it. When I approach a business or a reputed brand, say a restaurant in a five-star hotel in Delhi, I try to find out what is their business problem. May be the restaurant manager has a problem selling his weekday breakfast. So, then, we run a promotion addressing the problem of that merchant instead of only asking for a discount. As a customer, if you buy a deal at 50 per cent off at a five-star hotel restaurant, when are you most likely going to avail it? Most likely during dinner. But if I force you, saying you get a 70 per cent off for a lunch instead, will you go? May be. But will it solve the merchant’s problem? Definitely. The problem this merchant faced was capacity planning, because it’s a fixed cost business. The restaurant manager has to fill the seats up. Will he be willing to offer, say, a 50 per cent discount to fill up the seats? Yes, because that covers more than enough of the variable cost. As such, the restaurant is never going to lose money. But the customer gets a great deal. This is capacity management.
Second is new product introduction. Let’s say a five-star hotel in Delhi introduced a new buffet. They have two options: wait for their known customers to know about the buffet, make it word-of-mouth… this takes a long time, or run a Groupon on it and in one day you have 500 people for the buffet. Everyone you wanted to reach out to is there and then it will instantly spread out.
Our pitch changes based on the business needs of the merchant. How can you run a deal with Rolls Royce? One can’t be absurd and ask for a 50 per cent discount on Rolls Royce. Here, we first identify the business need, and then place the pitch. If you notice our website, we never focus on discount percentage. We always focus on the price and the brand. That’s our USP — we think from the merchant’s perspective and make things exciting for the customer.
Do you agree that the secret of the group buying business is in growing the scale of the business? And, as we talk of scale, where do you think there is an opportunity?
The way we look at our business is in three verticals. First, local services, which is the core of our business. It is not the smartest thing to do to go out into cities as if on a rampage. We are present only in nine cities in India that have enough good quality merchant to support a deal every day of the year. We run deals only with the best merchants. If you look at where you spend most of your money, it’s not buying a mobile phone or a notebook. It goes into eating out, purchasing clothes, spa and wellness, health check-ups etc, in retail. That’s where we are tapping in. It’s for the first time that an Indian consumer can buy a meal online, or they can schedule a health check-up or spa treatment online. So the potential is massive in these cities.
The second vertical is travel. Travel accounts for around 80 per cent of Indian e-commerce, but most of it (93 per cent) is ticketing. Where we can add value is in the discovery leisure travel segment. Seven per cent of travel e-commerce is hotels and packages. Out of the hotels and packages part, 50 per cent is determined hotels, which means you already know where you are going, because it includes business travellers . The remaining is flexible intent travellers — city getaways that are driven by impulse and are more frequent. There are no other players in this category in India. The scale for this is massive — the market for flexible intent hotel destination alone is $300 million annually.
The third is products. However, we didn’t want to get into the electronic products category in a big way, because it’s a crowded territory and a low-margin one. We chose fashion and home & kitchen. Lingerie and shoes are great selling categories for us. We are all about impulse and that is perhaps one of the most dominant feeling in any human being. It is about the difference between an explicit need and an implicit need. If you want to buy a phone, you know where to go. That’s an explicit need, you know the decision. There are at least five other products in your mind which you haven’t taken a decision on. But if you see a deal on that, you will automatically go for it. So, local services, travel and products are the three areas we are tapping into. Together, the scale of these three in a country like India is insanely big.
As one of the leading group buying sites in the country, what’s your pitch to excite your customers and merchants for the long run?
We are not in the business of deals. We are in the business of helping merchants reach to customers. Internationally, Groupon is emphasising on technology targeted at merchants. In the US, we give them an iPad, which is connected to the Groupon operating system and allows the merchant to run a deal, reward repeat customers, instantly check the analytics and success of deals. Plus, the merchant can process all the payments connected through this iPad. It is an eco-system that Groupon is trying to build with technology, so what Groupon does is that it goes beyond just deals. That’s what our vision is — to become the operating system for local and small businesses across the globe. Deals are the easiest way to excite a customer but that’s just one part of our business. In India, we have launched ‘merchant centre’—it will give the seller real time analytics of how his deal is doing and live customer feedback free-of-cost.
Groupon has thousands of copy-cats. Even Facebook is reportedly experimenting with daily deal services; Google may also be thinking on similar lines. Do you feel threatened? What are Groupon’s challenges today?
It’s a very easy business to get into. But it’s an extremely hard business to scale. None of the players are remotely close to becoming as global as Groupon. Facebook only experimented with a Groupon-like model. They failed. Google also runs a deal site. But who knows about it? Though it’s an easy business to get into, the key is to build the scale.
Think about it: Facebook today has around 1 billion people on its website. The next big network, may be, is LinkedIn. Which is the next big one? Groupon — 200 million subscribers. The only difference is, it is extremely local. And because it is global and local at the same time, it is very hard to replicate. And it is not about subscriber base; it is about having someone at your neighbourhood to close a deal right at your neighbourhood. Facebook never had a sales team. But we are a sales company. We have about 12,000 employees globally who go out physically and close deals. No one else in this domain have that kind of reach and scale.
I think the threat is within: not changing as fast as the consumer and the merchant. The threat is in believing that deals is the way out. It’s a reason why we are investing in technology. Our threat is when the merchant says, ‘I want to do a TV ad. I don’t believe in Groupon any more.’ Our threat is when someone says, ‘I want to do a radio campaign. Groupon doesn’t work for me’.
A competitor is not our threat.
