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September 25, 2016
Ankita Rai, Financial Express
New Delhi, 25 September 2016
The
upcoming festive season has e-tailers gearing up with a unique
strategy: That of focusing on premium services to build up the
momentum. The coming festive season is no longer just about discounts
and deals, but also about which player succeeds in roping in the
maximum customers towards its platform.
No wonder that the
launch of Amazon Prime in July saw similar competitive offerings from
both Flipkart and Snapdeal, aimed at improving customer stickiness and
reducing re-acquisition costs for lapsed customers. But remember that
Flipkart First was the first mover in India in the premium loyalty
services space, which didn’t find many takers.
By launching
Amazon Prime ahead of the festive season, with a free 60-day trial,
Amazon is looking to convince shoppers to try its premium membership
programme. The reason: Customers who choose to subscribe to Prime at
the end of the trial period will stay with the retailer beyond the
Diwali sale. Also, it generates valuable customer data, which it can
use to attract customers back. Industry experts think what works for
Amazon in the US and other markets may not be true for India, at least
for now, as Indians are still used to the idea of free shipping.
“For
discount hunters, subscription doesn’t work. However, over the last two
years, a premium segment of online shoppers has emerged, which
appreciates good experiences and is ready to pay for them,” says
Mrigank Gutgutia, engagement manager, RedSeer Consulting. “The premium
one-day and two-day deliveries are around 5-10% of the total orders in
e-commerce and a subscription service like Amazon Prime is likely to be
restricted to this small subset of online shoppers — possibly only the
top 5%.”
However, there is a catch here. “In
India, the number of customers who subscribe to such services will be
small, but the value per customer will be high,” points out Devangshu
Dutta, chief executive, Third Eyesight.
Globally,
subscription-based e-commerce services offer the customer increased
value in one or multiple forms such as faster deliveries, assured
availability, free content, etc, and charge the customer a fixed annual
fee for the same. But Flipkart Assured and Snapdeal Gold are offering
such services for free, with no aim of monetising them later. “Customer
acquisition is expensive. Hence, a business needs to retain its
existing customers to drive profitability,” says Pankaj Gupta, senior
practice head, consumer and retail, Tata Strategic Management Group.
However,
no matter how attractive the proposition of ‘free and fast’ shipping,
it is not sustainable in the long run. As of now, customers see it as a
freebie. “The free and fast shipping proposition seems more of a
reaction to competitive pressure. At the end of the day, you also have
to make sure the consumer stays with you,” says Pragya Singh,
vice-president at retail consultancy Technopak.
(Published in Financial Express)
