Wednesday, June 22, 2011

A deal is a deal…

Unlimited Idlis and Dosas for only Rs. 149 at the reputed Mr.Idli! Multiple varieties to choose from!

What intrigued me was the headline that came to me as a mailer from SoSasta.com, a product of Groupon which is the worlds’ biggest group-buying site. Groupon was launched in November 2008, created by Andrew Mason who is also the current CEO of the company whose former employer Eric Lefkofsky provided him $1 billion “seed money” to develop the idea. The business model is that the site offers “group coupon” and the deal is valid if a certain minimum number of users (as predetermined by the company) buy it within a particular timeframe. Usually, there is one big “Deal of the day” and it is informed to registered users by emails and SMS. The discounts usually range between 30-60% but can go as high as even 90% in some cases. The offers are proposed on Health & Beauty, Cosmetics, Eyewear and even at Restaurants, Pubs, Cafes, etc. The company, which was valued at $1.35 Billion in April 2011, is expecting to make $1 billion in Sales faster than any other business, ever. Below is the Menu Card of the offer that was sent to me by email. I called up to enquire how this works and I was informed that by paying Rs. 149 on the site, one will get a voucher which can be redeemed by the user for unlimited number of Dosas and / or Idlis from 9-11am at their store. The spokesperson whom I enquired said that they expect a person on a average to consume not more than 3-4 dosas, the original cost of which could be around Rs. 200, but this kind of promotion could go viral, and hence may attract enormous footfalls into their store, many of whom could be first timers.

Apparently, Groupon gets 50% of the price that’s paid by the buyer of the coupon and the balance goes to the Retailer. But that would depend on the marketing ability of the site and the retailer who negotiate their best respectively. Similar to Groupon, there are over 500 such sites world over and more than 100 sites in the US alone. In India, several sites such as SnapDeal, MyDala, Taggle, Koovs and many more have swarmed the market over the months. Since January this year, Snapdeal has been growing its revenues at over 100%, selling unused inventories of everything from sunglasses, wallets and even travel packages, totalling over 10,000 discounted deals everyday. At 25, Kunal Bahl had quit his cushy Microsoft job based in Seattle and even convinced his IIT Delhi batchmate Rohit Bansal to take a leap of faith in 2007. In a recent interview to The Economic Times, India’s leading business daily, he says "We sold about 2,200 Reebok Sunglasses in a day, at an 80% discount deal. About 400 packages to Kerala were sold in February. Our model is to go after unsold distress inventory," says Bahl who along with Bansal had to shell out $3,000 for buying the Snapdeal.in domain name — an investment that's paying off well.

Here is how Groupon works, as explained in a video placed on their home page.

Video Courtesy: http://www.groupon.com/learn

Some of the key benefits for Retailers to tie-up with such sites are as follows;

  • Create new customers for a specific category / brand. The “deal” may appeal to first time users who may not have entered the Retail store / restaurant otherwise
  • Sell off unused or distress inventory – one that most product retailers would carry at some point in time. Typically one would find them at discount stores in the suburban areas or outskirts of the city, but this model is even better as they can be shipped out of the warehouse directly
  • Utilise the unused service time, typically at beauty salons, restaurants and pubs. What used to be Happy hours may be extended as “Happier hours!”
  • Viral Branding – While the cost of discounting may seem ruthlessly high, it also acts as a brilliant way of advertising – Cloud advertising!
  • Word of Mouth publicity is very high – typically works in colleges / office environments where people could share the deals and make purchases as a group. After all, shopping and dining is a fun activity and makes so much sense when done in a group. So, a set of 4-5 friends may all buy out coupons for unlimited F&B, so they all could spend a gala evening or may buy holiday packages as a group to enjoy over the weekend

So, what’s in it for Retailers after the second or third purchase or visit? Would such a business model be sustainable in the long run? Would consumer fatigue set in sooner than later? These are some questions that are best left unanswered as this column is published. However, I assure I will review this in a year from now again with results and feedback, but for now this is one model that’s going to drive innumerable footfalls to the Retail stores. If you are a Retailer, try talking to one of these guys and get your offer up and running, wait and watch the results. If you are a potential consumer, then just register yourself in one of those websites and look forward to some exciting offers soon. Whichever way, Happy Retailing…

Photo courtesy: sosasta.com

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