Snap Deal Analysis

SnapDeal. com — Launched in February 2010 “Our model is to go after unsold distress inventory”, Kunal Bahl, Founder & CEO “Our target audience is between 18 and 35 years who loved to spend on the nice to have things like a good restaurant dinner, a soothing spa, or a pair of luxury sunglasses. The distributors who are not able to sell directly sell at rock bottom prices through our medium” According to Bahl, India’s competitive nature and low barriers to entry for starting a new business leave only one place to stand out from the crowd: scale.

So with a live site, Bahl and his developers began scaling immediately. Demand was high, but not in the way you might think. Rather than demand from the customer, it was from the businesses: The recession helped because businesses became desperate to move product. They were literally coming and saying “we’ll do anything. ” SnapDeal. com has grown its 300-person staff to 500 and jumped from 1 million to 8 million members over a matter of six months With Snapdeal operations now extending across 50 of India’s largest cities and 10,000 brands and retailer partnering with the daily deal site, prospects are good.

What’s more, according to Snapdeal Founder and CEO Kunal Bahl, the startup is currently averaging 1. 5 million new members per month. Part of the reason the site has been able to scale so quickly, Bahl says, is that half of the deals currently featured on Snapdeal are inbound requests from merchants. This has significantly reduced sales cycles for Snapdeal, and with its new capital in tow, Snapdeal plans to continue expanding into hyperlocal markets across the subcontinent. Most of the daily deal and group buying sites in India are clones. Incidentally, many Indian portals try and replicate a successful and proven business model in the US.

Sure, credit must be given that the Indian daily deal start-ups have kept many major players at bay and made them play second fiddle. But, the pace with which innovation is happening on the web is just stupefying. That applies in the Indian context as well. None of these companies are actually innovating on the business model (Groffr might be an exception). Adding more subscribers and new merchants alone won’t suffice to stay alive in this cut throat market. Complacency may not set in actively. But, lack of innovation will do exactly that. * What works? 1. Minimal terms and conditions 2.

Clarity on conditions – clear communication – no last minute surprises 3. Discount hungry India/ Indians being given hefty numbers n discounts (50%-80%) 4. Industry CAGR 35% – SnapDeal. com CAGR 40%-50% 5. Online Retail pie worth $400 million and SnapDeal. com has 70% Mkt. Share (=$280 million in revenue) 6. Payment options aplenty, convenience to the customer. 7. “Inventory Liquidation”, “Customer Activation” and “Marketing Investment” are the three options SnapDeal. com provides to its merchants and they offer huge discounts on “off” days of business in order to bank on customer windfall and increase in volumes. according to Sandeep Komaravelly, Head, Marketing, SnapDeal. com) 8. Taken from http://youngblah. com/? p=62 Arguments in Favour 1) Great Discounts: I don’t see this notion of getting such huge discounts on different services will go away so easily. Indian consumers love discounts and specially youngsters with their limited spending power now can afford & enjoy expensive services at cheap prices. 2) Inventory Management for Merchants: All merchants can manage their inventory by offering discounts & allowing customers at the time when there is minimal sale on their shops.

Usually, merchants organise Happy Hours to clear their excessive inventory and now this is done through daily deal sites. 3) Guaranteed Traffic: By offering services like Spa, Health, Tattoo, Salons, etc. at huge discounts; merchants get guaranteed traffic on their stores. Most of these services are based on skills which require minimal inventory and variable costs. So once the fixed cost has been covered by the merchants, they can generate more traffic and revenue by offering deals on these sites. 4) Strong Marketing: Snapdeal has been really strong as far as marketing is concerned.

Offline campaigns, TV Advertisements, Online advertising, etc; they have left no stone unturned to drive users on their website. * What doesn’t? 1. Source: http://www. indiadealsites. com/wp-content/uploads/2011/10/SnapDeal_Traffic_Graphs. png 2. “Cash-on-delivery” points need to be set up in India – competition from Flipkart. com in this arena. 3. “Touch and Feel” savvy Indian shoppers (generally for big ticket items) need assurance of product offering before purchase – SnapDeal. com doesn’t provide reviews of people already taken the service or used the product 4.

THREAT: Angry consumers – social media bashing – clones from industry – customer treatment 5. Unsustainable – WHY would it happen? (taken from https://ronnie05. wordpress. com/tag/snapdeal-com/ ) Rocky has offered the following reasons to the unsustainability of the Groupon/Daily Deal model: 1. There is very little information on which merchants can make decisions 2. Tracking (of Coupons) and infrastructure is really getting to be a difficult problem scheduling of deals are based on factors that optimize the deal for Groupon, not the merchant.

Thus traffic walk-ins could be unmanageable at the merchant’s end at a point of time when they least require it. 3. Daily customers are really deal hunters as against being loyalists. Thus the traffic keeps moving around. 4. Merchants make money when customers buy more and not just limit themselves to deal value. If customers only use deal values, the ability to cross sell to higher footfall traffic dies. This is an opportunity for the merchant to make higher margins on related products. However, daily deal customers seldom move beyond the deal value. 5.

Operational glitches like lack of training. 6. All these mount up to customer dissatisfaction which is pernicious to the initial cause of taking the business to a wider cross section of people * Taken from http://youngblah. com/? p=62 Arguments Against 1) Poor Customer Retention: According to multiple reports, it has been found that customers who have bought deals are not treated very well at the merchant stores leading to less customer retention. 2) No Loyalty: Generally, it does not create loyalty among customers as most of the customers are free takers.

They look for more discounted opportunities rather than buying at your shop again and again at normal price. Mostly all are price sensitive customers which are not tending to be most loyal of customers. 3) Brand Image Can be damaged: By offering huge discounts, your brand becomes susceptible to a reduction in the perceived value of the customers. It also lower down the profit margin and increase the expenses. 4) Short Lived Promotion: It can generate attention but it only last for few days. It is very difficult to build long term relationships with customers who are using coupons.

Merchants need to provide excellent services to build up the relationships. 5) Fierce Competition: SnapDeal. com is now facing competition from more than 30 daily deal sites. 6) Low Quality of Deals: As business model of daily deal sites is growing, these sites are providing low quality of deals. It is very important that deals should be appealing to customers. Most of the sites are creating a need for Spa, Tattoo, etc which a consumer would not go for normally. So they should focus on fulfilling the needs of customers by understanding their requirements. ) More effective in Recession: It works better in recession than in normal/boom economy. The whole concept of Group Buying reached new heights in America only in the recession period. This is because retailers use these sites when they have excessive inventory esp. in recession. For example, in salons they have so many seats and beauticians. If they don’t sell that 10-11 AM time slot this morning, they cannot carry that time slot in the inventory tomorrow. It perishes. In recession, there are abundance of people who prefer avoiding beauty salons and other types of luxury. ) Effect on Loyal Customers: It can create resentment in the minds of loyal customers as they are paying full price and new customers are getting the same services at half the price. * What they can do? 1. Collaborate with retail stores (Big Bazaar/ The Loot/ Star Bazaar) to give bundled discounts 2. Incentives to regulars (Shop more get more) 3. Keep it always simple 4. Service standards promise – else return the money – guaranteed customer loyalty 5. International products – Indian markets – hot up competition for ebay. com and 20North. com – don’t ignore segment of tangible/ physical products 6. 2. 32 million Internet users in India as of June 30, 2011 (according to TRAI) – segment and tap 7. Footwear, Apparel and Electronics – the new hot cakes (according to Pinaki Ranjan Misra, Partner and National Leader, Retail & Consumer Product Practice, Ernst & Young) – one can concentrate on these sectors to get deals for customers. 8. High Ticket Items (Cars) on the radar now – Group Buying Techniques – Allowing for higher margins – New Market – Existing business model cushioned enough to stomach the risk 9. * How they did it Plan A: The early experiment

As Bahl and Bansal took the entrepreneurial plunge, there was one thing they were extremely clear about; they believed discount couponing certainly works for both consumers and merchants. According to Bahl, in the U. S. there were over 400 billion coupons (in the year 2007) distributed to consumers through various channels – the web, mobile and even printed coupon books. In India, this number was negligible. Snapdeal’s Plan A was to create a whole new category and the company launched their first product ‘MoneySaver’, a printed book of tearable coupons from multiple brands (with a particular validity per coupon).

The coupon book was sold to consumers for Rs. 400. Bahl says, “The first six months was spent in cold calling merchants. We signed up brands like Levi’s and Reebok and the early phase looked promising. ” But a few months into the business, Bahl realised there was a problem. These discount coupons expired in a stipulated time, but Snapdeal still had these printed books, with expired coupons, lying around in its office. “We had worthless paper (worthless inventory) in our hands. We had to do something different, so, we moved to mobile coupons,” says Bahl.

With mobile coupons, there was no inventory; the coupons would be delivered to a customer’s mobile phone. Plan B: Fixing the inventory issue Snapdeal tweaked its model to deliver these coupons onto a mobile phone. For Rs. 99 per month, it would deliver an unlimited number of discount coupons. In order to buy this service, consumers had to buy a scratch card (with a unique code) for Rs. 99, send out an SMS to Snapdeal with the code, register one’s phone and then start receiving the coupons. The first month was a free trial; over 1,00,000 consumers signed up. However, a very small percentage turned paying customers.

Bahl says, “The moment you said, you have to buy a scratch card, no one wanted to take action. ” Plan B didn’t work either. Plan C: A model that works Bahl opted for the middle path and launched a discount card called ‘MoneySaver Prime’. It looked like a credit card and consumers were willing to buy this. The challenge was there were no retailers who sold a product like this. “We started off with selling these discount cards at Cafe Coffee Day outlets,” recalls Bahl. However, this could not be scaled either since the touch points with consumers were too far and wide.

Bahl modified the concept again and made it a B2B2C (business to business to consumer) product. Corporate customers could use the discount card to hand out incentives to employees and customers. The cards were co-branded with a client company. This approach moved in the right direction. Profit margins were good and the company sold a few lakh discounts cards every month. Most importantly, in this phase, the company built good relationships with several merchants and brand owners. Plan D: A skeptical experiment that, in hindsight, is extremely successful  It was this relationship with merchants that paved the way for Snapdeal’s oray into the Internet medium. In January 2010, one of its merchant-partners mentioned to Bahl about how he acquired seven new customers by selling a discount coupon online. The merchant suggested that Bahl should explore something similar. On January 26th 2010, Bahl and Bansal spent their Republic Day holiday brainstorming the company’s foray into the Internet. On February 4th 2010, with the help of just one designer and one developer, the duo launched Snapdeal. in (. com wasn’t available then). “We were hoping to reach 100 transactions / day after three months.

Contrary to what we thought, the early adopters came in hordes. We touched 100 transactions per day within three weeks. ” The Internet was working as a medium of customer acquisition for brick-and-mortar retailers. For Bahl, it was a watershed moment. Once the potential was recognised, Bahl and his team wasted no time in scaling up. Today, just 20 months after launching online, the company employs over 500 people (its strength was less than 50 people while working on Plan C). The company raised over $ 52 million in venture capital financing and is working towards launching Snapdeal in over 100 cities in India.

From selling discount deals for retail services, it has now expanded to sell deals for online products and travel deals as well. It acquired Grabbon, a Bengaluru-based group-buying portal to scale further. Snapdeal also launched the Innovation Fund to acquire smaller companies which can help the company scale further. Today, Bahl’s focus is on more explosive growth. His prime day-to-day responsibility centers on defining processes for scaling up and building the team. Bahl’s entrepreneurial journey is not very different from the stories of other entrepreneurs.

Bansal and he launched products based on gut-feel and research, but constantly modified the business model based on market realities. Snapdeal’s journey from Plan A to Plan D is only the beginning. He says, “The next question is, how do we make this business large – like really large – and grab the entire share of a consumer’s wallet. ” Key lesson learnt from the Snapdeal journey: Once you launch a product, keep measuring the key metrics of your business, evaluate, fine-tune and take action based on what you find. Bahl was running a good business when he sold MoneySaver Prime, the discount card, to

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