The future of ‘Group Buying’ sites is still dicey in India
Was seeing a segment on ET Now earlier today and they were covering ‘Group Buying’ sites in India and how 100’s of them are sprouting up all over.
Sandeep Murthy (from Sherpalo Ventures) mentioned in the show how such companies are adding value to users + services.
Kunal Bahl from SnapDeal said something very interesting, it was on the lines of:
A product purchase such as a pair of shoes or an electronic item is made once in 12-16 months, while a retail service like a restaurant or spa visit will happen far more often.
Interesting and valid point, but now lets think from the point-of-view from the Restaurant owner (service owner)…
Firstly, he’s giving a 50-70% off on a meal / spa treatment..
So assuming that this a new joint, this will come out from his marketing budget and get first-time consumers to his place.
Why is he doing this?
a) To get first time consumers.
b) More importantly - To convert those first time consumers into repeat consumers.
Point b) is something which will not happen. So while a user who makes the purchase on mydala / snapdeal / dealsandyou etc will keep going back to the site to get more deals like this, he is unlikely to go back to the same place and pay 70% more than what he did the first time.
Its basic human psychi. If I pay Rs 300 for a meal, I will not go back to the same place and pay Rs 1000. At 300 it was VFM, at 1000 even if its VFM - I know that I’ve had this at 300 and the brain will sub-consciously tell me that I’m making a loss.
How does a Restaurant become popular?
Good service and great food.
You won’t see word-of-mouth happening in the following ways:
“Dude, check out XYZ. Very cheap.”
it will always be…
“Dude check out XYZ. Awesome food, great ambiance and its not too expensive.”
Cheap will always be associated with an additional adjective. Be it convenience or quality.
Hence after a trip to XYZ on 70% off…
You’ll tell your friends…
“Dude, check out abc.com. I got 70% off at XYZ. Awesome stuff man.”
So at the end of the day, for a new joint - for a one time marketing effort, such a tool will be great. But definitely not for regular business. Cos’ at some time or the other, the restaurateur will want to make profits. Even if its a week-day buffet lunch.
Another thing which you might feel is not a real problem but is a ground reality is that always using such offers portrays you as - cheap.
College going students will love your site but as and when you offer spa treatments and packages which are usually life-style purchases, your target audience will change.
A working professional earning more than 6LPA will not mind spending an additional Rs 300 while at a fine-dining place on a dinner date than risk appearing cheap in front of his partner as he asks for the check. These are basic psychological reactions.
Anyways, local players in this space who don’t have too many over-head costs should continue to do decent business but I seriously doubt that advertisers/marketers/services will repeatedly use a service like this.
On the contrary this model will do well for products (apparel, mobiles etc), but will take a considerable amount of time to flourish. As you go into the nitty-gritty’s of such discount deals, you’ll realise the number of obstacles in the course. No company will give only you a great unique deal - because this will actually make him risk his current relationship with his other vendors. For providing 100 laptops at a 30% discount, you’ll often have to commit numbers and even pay before hand…
This will bring up issues like - capital for up front payment, warehousing/storage, courier/delivery/warranty related problems. Plus of course what if you can’t get 100 buyers.
Interesting times ahead in the social ecommerce space in India!
Also worth a read: The Digital Switch (eCommerce)
