Posts filed under Uncategorized

Role of discounts/coupons in online retail

Written by: Madhur

On Oct 22nd, 2011

eCommerce market in India is booming right now. Few top reasons why this has been possible are:

  1. Increase in the Internet user base (mobile Internet usage as well as broadband penetration)
  2. Evolution of the ecosystem required for supporting online retailing (third parties providing logistics, payment options, affiliate marketing, coupons)
  3. Flurry of investment in this space. There is some good coverage here.

Each of the above points merit more than one article on their own, but in this post, we cover a small but important piece of the puzzle - third parties providing information on coupons/discounts/promotions.

People shop online for comfort, huge product selection and attractive prices. Online discounts (in the form of coupons/deals/offers) help further sweeten the deal by lowering prices even more and hence driving conversions. There are plenty of sites that provide information on the latest available discounts, some of the notable ones being: couponzguru, desidime, coupondunia. You can get many more by googling for “[retailer name] coupons”. Most of the sites have similar data as well as look and feel. But to their credit, the coupons shown on these sites do work and can result in significant savings for online shoppers in India.

We have been regularly using couponzguru for our own online shopping needs and it has saved as a bunch money in the past few months. We spoke to them recently and got some insights into the coupons business. Here are some highlights:

  1. Business model: They partner with online retailers either directly or via third party affiliate networks and get paid by sending traffic on CPA basis.
  2. Marketing: Search engines are a major source of traffic, so its important for them to follow good SEO practices including good user experience, unique content, inlinks etc. They also get traffic from social media sites like FB, twitter, etc.
  3. Data: They get their coupons/offers data directly from retailers, from promotional emails and user submitted coupons
  4. Quality: They need to make sure that they do not have spam and the coupon code that are displayed actually work.

One interesting tidbit is that Flipkart, which is the poster child of Indian eCommerce story at the moment has moved away from online coupons. They used to have an option for providing coupon code some time back, but they don’t anymore. We wonder if Flipkart actually saw any decrease in conversion because of the presence of coupon code box. One can imagine that during the checkout process when users see a space for coupon code but cannot actually find any coupons, they may abandon the transaction thinking they will buy when a coupon code is available.

In any case, Flipkart does advertise lower prices and sends timely emails highlighting offers/promotions. So one way or the other, as the competition in the online retail space heats up, online retailers will continue to provide lower and lower prices, which is good for online shoppers.

What is your take on the role of coupons/discounts in online shopping? How do you find online coupons/promotions? Any interesting experiences to share?

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Group Buying: Not meant for the Indian market?

Written by: Samir

On May 25th, 2011

With a plethora of group buying websites flooding the Indian markets, E-commerce is certainly on the rise. According to the Internet and Mobile Association of India the market grew 70% from Rs. 19,688 crores in 2009 to Rs. 31,598 crores in 2010 and is expected to grow another 47% to Rs. 46,520 crores by the end of 2011. Over 25 group buying websites are already present (most of them emerging during the past one year) making the market quite cluttered, differentiation is missing between these sites and margins are razor thin.

Snapdeal, Deals and You, Buy the price, sosasta, khojguru, taggle, koovs, among others, are the new drivers of E-commerce in India. Most of these sites are relatively young, but investors are not shy of investing in them. January saw the world’s biggest group buying site, Groupon enter Indian market with the acquisition of Kolkata based sosasta.com. Infoedge (of naukri.com fame) invested Rs. 9 crores in mydala.com and German Group Buying Global AG acquired Mumbai based WanaMo.com and rechristened it as dealsandyou.com. What is also interesting to note is the entry of several major online giants in this space. Prominent e-Commerce player eBay.in entered this space. The last month witnessed two major online shopping sites: rediff.com and Times Internet launch their deal sites, Deal Ho Jaye and Timesdeal.com respectively.

Group buying websites come up with deals offered by different merchants in the city. These deals are active for a couple of days and discounts range from 20% to an incredible 95%. The user is either asked to pay the entire amount of the deal or an advance. However, there have to be a minimum number of people who opt for the deal before it become active. If the number of people who opt for a particular deal is less than the minimum required the deal is scrapped and the users get their money back. The deals are for restaurants, gyms, spas, health clubs, travel and various other services. The websites get a cut in every successful deal. These websites use Facebook and other portals, twitter or bulk emails to reach out to the potential buyers. They also thrive on word-of-mouth promotions.

But wait. Is the picture as good as it appears on the surface? Let us analyze different challenges for this business.

A highly cluttered market: With over 25 websites already present and many more in the pipeline, the competition in this market is cut-throat. The fact that these websites can easily be set-up, as the barriers to entry are very low, will only increase the competition further. Readymade softwares are already flooding the market and web development firms take no time to get you a Groupon type website up and running.

The key here is differentiation. Most of the websites present in this space are exact functional clones of each other (with some using the exact same templates as well). It is refreshing to see sites like Buytheprice.com who have tried to differentiate with a new incremental discount model, where they have deal slabs and discounts vary based on the final number of people who opt for the deal.

Deals: Are these deals too good to be true? I tried picking up a couple of deals at random from these websites. I picked up a deal for Hotel Ramada Gurgaon Central from snapdeal.com. Snapdeal claimed that the price of a night’s stay in this hotel was worth Rs. 12100 but they are offering a discount of 59% which means there price is Rs. 4999. I did a very basic online research and these are the lowest prices across various websites:

Hotel Website       SnapDeal       Yatra            TravelGuru            Cleartrip

Rs. 5849               Rs. 4999        Rs. 6928        Rs. 5099              Rs. 4887

Another deal at dealsandyou.com offers Seagate 500 GB and 1 TB Hard disks at Rs. 2999 and Rs. 5499, respectively. Out of curiosity I called up a local dealer in Indore and enquired about the prices. He got back to me with the hard disks priced at Rs. 2700 for the 500GB hard disk and Rs. 5250 for the 1TB Hard disk. These were prices for single purchase and not for bulk purchases.

Please note, these were just random samples picked up from all the available deals and are not indicative of all the deals available on these sites. The point that I am trying to make here is that there still is room for improvement and the deals that are being offered might not to the absolute best. We will surely have better deals as these websites mature.

Impact on local dealers: So does going to these deal sites really help the local businesses? Initially most of these local businesses see the exposure they get through the website. It’s a very good marketing platform for these sites. Or is it? Let us consider another example here. Dealsandyou.com lists an offer for certain salon services at Vibes in Bangalore. On contacting some of the good local beauty salons I found out the normal cost for these services would be anywhere between Rs. 2000 and Rs. 3000. Dealsandyou.com is offering the same at Rs. 750, which turns out to be a very good deal, assuming Vibes provides quality service. But the problem here for Vibes is as follows:

  • They are being pressed for margins and are providing these deals at prices which might not be profitable for them. Going forward as these deal sites mature they will press these local vendors further reducing their margins to a bare minimum.
  • Is this offer serving as a good advertising opportunity for them? I won’t think so. Someone opting for this offer at this salon might be very impressed with the services. But they will be under the impression that this service would cost them Rs. 7500 if the offer isn’t present, which, I would believe, might act as a deterrent for repeat visit.

Technical Challenges: Most of the websites operating in the virtual space agrees that doing business in India comes with its own challenges. Indian regulations don’t allow the storage of credit card information on the payment gateways unlike the US. 30% of transactions fail at the payment gateways. Companies are working on developing their own prepaid cards to ease the process of making purchases.

Traffic: With the exception of snapdeal, all the sites have struggled to generate substantial traffic for their websites. According to Vizisense.com, the total number of clicks for snapdeal was close to 34.4 million with an India rank at 16 (most visited websites in the last month). The second most visited group buying, dealsandyou.com website didn’t even feature in the top 100 and had less than 10 million overall page views, followed by sosasta.com which was ranked at 282 and barely has 3 million hits.

The good thing is, the e-commerce industry is growing rapidly and is also reflecting in the growth in traffic to these websites as well.

Survival: The abnormal increase in the number of group buying websites is posing serious challenges for every player in the industry. The number of group buying websites is already very high and I don’t think all of these sites would survive in the long run. The space would soon see some consolidation with 3-5 players controlling the chunk of the market.

The future of this industry will be quite interesting to follow. The major players will have to innovate to scale-up. Differentiation will be a key driver in this industry. Mobile phones will emerge as an important tool for differentiation as it would help the websites reach out to a wider audience. Companies would also be exploring alternate revenue sources. Another alternative for these companies on the long run would be the huge database of customers they will be handling as well as their relations with the local service establishments they will be serving.

We would love to hear your perspetcive/insights on this business. Please drop a comment or email me at samir@ileher.com.

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Do you have a story to tell about your business?

Written by: Madhur

On Sep 23rd, 2008

Here is a great opportunity to tell your story of the challenges you faced and how you tackled them while doing business in an underserved market. I am sure there are a lot of entrepreneurs in India who might have a story or two that they can tell.

Call for entries open right now. 500-1000 word essay. Deadline - October 5th, 2008. Here’s the link for more details:
2nd Annual Base of the Pyramid Narrative Competition - 2008

According to the site, in summary:
“The Center for Sustainable Global Enterprise at Cornell University’s Johnson Graduate School of Management is accepting submissions for its 2008 Base of the Pyramid (BoP) Narrative Competition. This short-essay competition seeks to highlight the challenges of implementing business in underserved markets and identify innovative business initiatives or solutions to those challenges.”

Is anyone interested? We can work on this together.

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Interivew with Sandeep Murthy at Cleartrip.com

Written by: gaurav

On Aug 24th, 2007

The online travel business is a fast growing market segment due to increased travel in India as well as growing number of travel service providers like airlines and hotels. This market segment is also competitive with multiple players including travel agencies like Yatra, MakeMytrip and travel search portals/aggregators like iXigo, Zoomtra. Apart from these startups, the airline and hotels themselves are also setting up a strong online presence.

Online travel agencies typically build close business relationships with the service providers, transact on their own site and have offline operations to complement the Web Site. In contrast, search portals are typically online only and scrape the web to aggregate data from any and all sources possible (including online travel agencies) and redirect users to the source’s Web site to buy the ticket. Online travel agencies have higher expenses since they invest more in building relationships and need to have transaction capabilities on their site.

We recently interviewed Aloke Bajpai of iXigo. The following interview is with Sandeep Murthy, CEO of Cleartrip.com. The interviews themselves reflect the difference in beliefs of how to address the market.

I also have done a thorough analysis of which business model is more likely to success in this growing market. You can view at my blog at http://techtrends.in/2007/08/24/the-online-travel-space-%e2%80%93-large-opportunity-with-different-business-models/

What is Cleartrip.com?
Cleartrip is an online travel agency; we intend to make travel simple and booking online a pleasant experience. We currently focus on the domestic (India) air tickets segment with hotels across the globe.
  
Who are the founders of Cleartrip.com?
Stuart Crighton, Matthew Stacey and Hrush Bhatt, all of whom have a background in the travel and/or online industry are the founders of Cleartrip.

When did you join the Cleartrip team ?
Sherpalo and KPCB Ventures made a first round in investment in Cleartrip in September 2005. I joined as CEO a couple of months later

Whose decision was it for the insider to be brought in as CEO and what was the reaction of the founders?
Since I had been involved in the business from its inception, that is before the funding,  I share a  good rapport with the founders it was a joint decision between the founders, the investors and myself to have me play a more active role in the management of the business. Due to a shared vision and direction everyone, including the founders, were very supportive of this decision.

How much investment has Cleartrip received?
The exact number is not disclosed but it is in the millions of US dollars.

What is the uptake on the site?
The site is performing really well. We process upwards of 5000 transactions a day. 30% of our registered users who search on the site end up buying. We are also seeing repeat usage around 25-30%

What, in your opinion, are the critical factors of success in this business?
Providing the best customer services and exclusive deals with airlines/hotels are the key. Good customer service is attained by having a fully integrated solution for people’s domestic traveling needs.

We don’t believe that lowest price is a sustainable advantage. It’s not feasible/relevant. Take for example the airline business. The airlines are selling online and hotels will soon follow the trend. Hence all aggregators will have to have same prices. (or very similar). Can’t have any higher since no-one will buy and can’t have any lower since then there is channel conflict with the airlines and no margin in the business.

A better approach is to have a tight business relationship with the airlines and provide joint promotions and find compelling ways to add value to customers, with features such as fare calendar (you can see the lowest fare across the whole month in one search and ticket printer.)

So what do you do to provide good customer service and promotions?
The simplicity of our Web site we believe is a differentiator. In addition we also provide a very efficient customer support for any users that get stuck while using the Web site. For airlines that require a paper stub of the ticket we will even mail the tickets to our customers.

We’ve had several promotions with our partners (airlines). E.g. we had a scheme for a 15% discount for Indian Airline flights and a gift voucher for Kingfisher flights. We’ve also announced multiple promotions with hotels including Oberoi, Trident group and more recently the Fortune group.

What about hotels?
Hotels are a fragmented market and it is important to provide users with an exhaustive list of options. We currently have over 3,200 domestic hotels and over 40,000 International hotels available on our website. Where we can check availability and book it from our site itself. Initial response has been very good.

How do you market the site? What is the cost of acquisition?
Marketing site is a combination of online marketing, TV and print advertisement, word-of-mouth and various creative promotions with our partners or otherwise.

Cost of acquisition is not cheap in this business. However the demographic is fairly niche so can have positive returns.

How do you make money?
We get a commission for every ticket processed on our site. This is between 4 – 6 % for airlines and 15 – 20% for hotels.

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Resources - List of companies and interesting statistics

Written by: Madhur

On Oct 6th, 2006

Tech entrepreneurship is on a steep rise in India fuelled by huge influx of VC money and a steady increase in the number of internet users. Think of a sector and you will find a bunch of players already trying to cash in on the opportunity. As a result, lot of new Internet companies are making a mark in the market. To keep track of the latest developments, I’ve added a “Resources” section to the blog (always linked from the homepage) that has the current list of companies as well interesting statistics.

This is by no means an exhaustive list, but I plan to keep adding more and more information and keep it updated with the latest developments. Also there are lot of statistics available, but I am quoting only the ones that I think are interesting. If you find anything missing or not adequately covered please leave a comment here or send me mail at madhur at iLeher dot com and I will try to add more info on that section. Your feedback will really motivate me to keep adding more and more stuff in the Resources section.

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