Economics of the Onion Deal – How Rs.9/kg materialized?

When onion prices have skyrocket, Groupon’s onion deal (check here) comes as a god send. A deal seeking Indian customer is always on the lookout for value-for-money options. The deal websites usually attract customers by using price differentiation strategies through lucrative offers and discounts that go up to almost 70 per cent.  With the best deal on onions, Groupon has caught the pulse of the Indian consumer who is sensitive about vegetable prices. It has tied up with one of largest onion distributors to procure 3,000 kilograms of fresh onions every day for the next seven days and selling it at Rs. 9 per kg.

Groupon India's Rs.9 per kg Onion Deal

Groupon India’s Rs.9 per kg Onion Deal

 Economics of Onion

Lets try to uncover the inside working of this deal.

Well the cost for onion in the wholesale market is ranges from INR 1000 – 4000 per quintal in Maharashtra (ref: Since Groupon have secured a bulk buy of 21 ton of onions in 7 days, with 3000 Kilograms of onions every day I am sure they must have negotiated  a killing price. Lets for the time assume that they bought onions at a rate of INR 2000 per quintal, which is equal to 20 Rs per kg. Thus a total expenditure of Rs. 420000.

At this moment they have already sold 19.8 ton and with this rate will easily sell the whole of 21 ton by tomorrow. At a sale price of Rs. 9 this would have generated an overall loss of Rs. 231000 for the company.

 But why would any company indulge in a loss making practice? And that too simply buying expensive & selling cheap?

The answer lies in the economics of a digital marketing campaign which are regularly run by these deal based sites to capture new customers & amplify their customer base.

Economics of a Paid Marketing Campaign:

There are roughly 10 Lac deal based searches in a month on Google.  The deal based sites often run ads on Google to capture new audience. These 10 Lac searches would have roughly generated 50,000 clicks for such a website assuming a healthy Click through Rate of 5% and at a generous 10% click-to-lead conversion rate there must be around 5000 new user registrations per month. Since the average click cost in a deal based vertical is in the range of Rs. 7-8 per click (CPC), thus we can easily conclude that every registration must have cost GroupOn around 80 Rs as advertising expenses & this should have generated about 5000 registration per month. Thus a total digital marketing expenditure of Rs. 4 Lac in 30 days to capture 5000 new registrations.


Turing the loss into profit:


Google Web Search Trends

Google Web Search Trends

  • Day this deal went live,  the total Google searches for Groupon jumped by 400% in a single day. This was even more than they could have expected & lead to momentarily crashing of their site as well (as reported by Aljazeera here)
  • At the end of the whole sale they will have gain 21000 transactions on their website in flat 6 days & since each transaction mandates a registration, they would have generated a maximum of 21000 new customer registrations, or on an average close to 15750 new customer registrations (assuming 75% as new customers).

The only expenditure incurred for achieving the above statistics is the net loss amount of Rs. 2.3 lac. Thus from a marketing prospective, the total promotional expenditure of Rs. 2.3 Lac in 6 days has been able to capture 15750 new registrations.

Brilliant Strategy! They gained 3x their monthly customer registrations at 50% of the regular digital marketing cost, just by selling onions  :-)

Moreover not to miss the wide spread national/international media coverage and mentions on twitter, facebook & other social media channels – All included in the 2.3 Lac total marketing expenditure.

On the hindsight, its needless to say that Onions have great veiled powers which if used correctly at the right time & space , have the potential to crash anything from websites to political parties   :-D

[Edit:  Someone pointed out that the delivery charges are not accounted in the above calculations. Ideally fulfillment costs are not accounted while measuring the marketing & acquisition channel costs. Even if we add up the normalized delivery charges of Rs. 5 per delivery (normalized due to economies of scale with limited cities covered), then for 21000 deliveries they would have spend Rs. 105000, taking the whole project expenditure to Rs. 3.3 Lac for 16K registrations at Rs. 20 per registration (75% of regular acquisition costs).  All this without not yet accounting for the loads of direct traffic registrations over and top of these 21000 sure shot ones.] Google

China Online Retail

How are they doing it in China?

“A whooping US$ 720 Billion is the value of the Chinese e-commerce industry in 2010 – according to iResearch.” 53,000 items are sold on Taobao every minute of the day.” – Taobao is a Chinese e-commerce website Traditional media in China has observed a steady downturn in revenues as more and more companies are shifting to online marketing and e-commerce “Two-Thirds of Chinese households with internet connections bought an everyday item online in the past six months” – Nielsen.

“10% of baby gear is now sold online in China”

The Chinese love to shop, with retail sales in the country enjoying double digit growth. But it’s the E Commerce industry in China that has experienced tremendous growth in recent years. Sites like (owned by Amazon), Taobao (owned by Alibaba group),,, are the doing huge business & spearheading this growth.

Online retail is about 10.5% of this huge billion dollar e-commerce business in China at around US$ 77 billion with over 18,600 e commerce sites. The total worth of the whole e-commerce business is measured at USD 720 Billion Dollar!!

Most of China’s e-commerce activities occur in the B2B, or Business-to-Business, realm. Although a growing number of B2C or C2C (Consumer-to-Consumer) players are entering the market, the number is still very small for them to dominate the e-commerce scene. Why people here prefer to interact with a screen & not a sales assistant? “Goods are generally sold online at an even greater discount relative to bricks-and-mortar stores in China than elsewhere”a survey by Credit Suisse revealed an average discount of 21%. What customer says?

1. “Even while I live in the outskirts of the city (where housing is affordable), I can still order the best brands online without going to actual stores located  in the main city” 2. “I will do my own research online for this consumer electronic product. These sales assistants at malls aren’t much aware bout the latest gadgets” 3. “The products will be genuine as we are buying directly from the manufacturer’s site” 4. “This saves money, time & effort. Moreover these are a lot many options to choose from” 5. Some clever buyers will even visit a branch to take a look, and then order via the internet due to the discounts offered online.

Payment Facilities

Up to 80 percent of China’s online shopping activities are coursed through Taobao and online payment gateway Alipay. These two companies are both owned by Alibaba, which boasts over 200 million registered users on its e-commerce site. Unlike in the west where payment facilities are mostly pre-paid Chinese e-commerce third-party payment facilities (such as Alipay, Tenpay and Chinapay) only release the payment after goods or services arrive safely and according to the needs of the consumer.

Sales & Marketing

E-commerce companies in China are now making more extensive use of site measurement tools and other analytics tool to optimize their marketing and advertising campaigns. These include

  • Ad tracking tools,
  • Web analytic tools,
  • Customized Bid management tools
  • Video analytic tools.

The general distrust for ad exchanges and ad networks in China is changing now, with affiliate marketing now based more on the final sale and purchases, and not on the clicks and leads. The most common item Unilever sells through Taobao is Lipton’s tea; the consumer-goods firm cleverly matches offline advertising campaigns to online promotions. In other markets, all of these products are typically bought in shops.

Fulfillment & Logistics

Companies are setting up their own storage units across the country & even launching their own logistics business for delivering the products to their customers. VANCL, a fashionable internet B2C brand in China, has recently announced that it will set up storage centers all over the country within a year. The logistics subsidiary of VANCL has opened business in 28 cities, and 17 of which have realized full-range cover. Delivery costs almost nothing: For 5Yuan ($0.73) flocks of scooter drivers are willing to deliver almost anything to anyone in Shanghai and many other cities in less than an hour. Thus, in China the low cost of delivery and the high cost of property are feeding an e-tailing frenzy.

Any learning for India in here?

Well, India’s e-commerce industry has been developing rapidly and is set to hit the US$10 billion mark in 2011. Increasing internet penetration would make online retailers accessible to a large number of potential buyers. Although things are looking better with increasing broadband connectivity and lower costs for accessing the internet, the pace needs to improve.

A major challenge is that online retailers depend on a network of offline service providers (suppliers, logistics service providers, etc.) whose service delivery is not amongst the best, thereby affecting the service of such online stores.

Some of the businesses have already begun to set up their own inventory & logistics to deliver the products to their customers on time, without depending on 3rd party courier services

e.g. Flipkart has set up its own logistics arm called Flipkart Logistics (FKL). They also have their own warehouses & fulfill most of the orders from their inventory only.

China market is already US$ 720 Billion in the e-commerce business & the Indian industry has a lot (a hell lot) to learn from their Asian counterparts who have already perfected this business model & reaped in the desired benefits.   More Similar Stories:


Nokia Fall

Would you still buy a Nokia ?

I have to confess my Nokia N70 is getting old. It already has undergone a liver (read – battery) change operation, the epidermis has decayed & the inner skin layers are exposed. Old age has taken a toll on its audible range as well & the sound drums aren’t that flamboyant anymore. Though the rest of the parts are functioning as desired but sometimes out of blue it gets an epilepsy stroke as well, the screen goes white & a couple of heavy breaths (read – beeps) & whoosh !! Everything comes to a standstill. Only after an emergency CPR while switching the power button hurriedly & slapping the device a couple of times brings it back to life. In-spite of all this (& more) I still love my phone. After all it has stayed with me through thick & thin, a companion thru every adversity & success. We have taken falls together but we both sprang up – you can trust the durability of a Nokia anytime.

Yes ! It’s true that I have been an ardent Nokia fan. I have developed a trust over the brand which is time tested (& multiple falls tested :) ) & after all the brand has been the number one brand for so many years in India & worldwide as well. It had a majority share in mobile phone market & sold over 100 Million phones in 2009 in India. Symbian OS powered most smartphones in the world. Up to 2008, the best marketing machine in mobile telecoms had been Nokia.

But that is passé now. Just have a look at the below graph of Nokia share price which tells the whole story in one shot.

Launch of Touch Screen phone, Android OS, plethora of smart downloadable applications & yes iPhone have taken the market by storm. Apple is masters at marketing & they have revolutionized the smart phone industry. The necessary extra fillip was provided by Google launching the Android operating system for mobile phones which have additionally contributed to the fall of Nokia. It has lost its brand share worldwide with contribution from the Indian market as well.

I still remember my MBA class (IIFT Delhi) where the prof asked us to name the oldest company in the world which is still in operation. There the discussion concluded that most companies don’t survive that long & change is constant for the survival of a firm especially for firm where technology is the main core competency of the business. With the advent of any new technological innovation such non-flexible firms tend to die fast. I guess (and afraid) that Nokia might just not be one of those firms in the making.

Though some respite could be brought by C.K. Prahalad’s Bottom of Pyramid theory which is generating some fortune for the company (at least in India) & keeping it afloat in the India markets where price is major consideration and smart phones are still considered expensive & out of reach of most Indians. Here Nokia still sells like hot cakes & still the most trusted brand among the mass Indian user but for the smart phone category the future seems bleak for the firm.

Ok. Now back to my ailing phone & thus quest for a new one. Unfortunately Nokia doesn’t appear in this list as to my horror they don’t have Android & more, they don’t have a true touch screen smart phone, yet.

I am eagerly looking to buy a new smart phone & get hooked onto the Android-wagon. After huge & extensive search I have been able to zero down on the below models.

  1. Samsung Galaxy S2 I9100 - Priced at around 30 K.
  2. Samsung Galaxy S LCD I9003 (Midnight Black) – Priced at around 20K.
  3. Samsung Google Nexus S (Black) - Priced at around 20K.
  4. Sony Ericsson XPERIA X10 (Black) - Priced at around 22K.
  5. Apple Iphone4 -Priced at around 34-35K.

Please help me with this!!!!

Which one do you think is a good buy, or which ones do you think I should not even consider.

And as our one marketing prof said….Mobile phones are definitely a high involvement product :) please assist me in this decision making :) .

TIA. Puneet

Header Image_Angry Birds

Why is Angry Birds sooooooooooo addictive????

I must confess. I am a victim. A victim of this insanely addictive game with cute bird monsters called Angry Birds. So much has been the addiction that would spend 2-3 hours daily playing this game, trying to kill those green pigs hidden in wood & glass structures, using my little birdies as weapons. It was insane & this addiction stayed on as the game progressed. It only ended once the game did.

Now once my ordeal was over (it was huge fun), I sat & pondered what made the game so addictive for the millions of users worldwide. After all it’s not every day that 50 million individuals worldwide would download a simple game & then get hooked onto it like crazy.

I went through an article by Charles L. Mauro which gives a cognitive explanation of this consumer behavior worldwide for Angry Birds.

First User Experience

Oh, this is easy. I have understood. I can play this”

“And the birds are kinda cute & interesting..sweet”

Anyone who has ever played Angry Birds would have found his first experience as very simple or rather ‘perceived’ it as simple.

Angry Birds’ simple interface allows the user to quickly develop a mental model of the game’s interaction methodology, core strategy and scoring processes.


Simple gets Tougher, but gradually..

“This is exciting & challenging”

“Wow, these new birds have got great powers”

As Charles mentions in his article “These little birds are packed with clever behaviors that expand the user’s mental model at just the point when game-level complexity is increased. The process of creating simple, engaging interaction models turns out to be exceedingly complex”.

The game slowly progresses to be tougher & more challenging with new birds being tossed at advanced stages.


Clever response time with user error correction

“I need to correct the flight path jusssst a little bit”

“Bingo !! I hit the right spot in this attempt”

The flight of the angry flock is designed to be at a leisure pace as they arc across the sky heading for the pigs’ glass houses.Even in many play sequences, seconds are consumed as the pigs teeter, slide and roll off planks or are crushed under slow falling debris.

This gives the user time to think & correct his next attempt. Thus he can easily use hit & trial to become better & better at the game.


Use players short-term memory

Angry Birds is a surprisingly smart manager of the player’s short-term memory.

When the screen first loads, the user is shown a very quick view of the structure that is protecting the pigs. Just as quickly, the structure is moved off screen to the right in a simple sliding motion.

Predictably, the user scrolls the interface back to the right to get another look at the structure. The game allows the user to reload short-term memory easily and quickly. This keeps the player engaged.



Angry Birds is full of little mysteries. For example, as Charles mentions:

“Why are tiny bananas suddenly strewn about in some play sequences and not in others?

Why do the houses containing pigs shake ever so slightly at the beginning of each game play sequence?

Why is the game’s play space showing a cross section of underground rocks and dirt?

Why do the birds somersault into the sling shot sometimes and not others?”


Sound Effects

Angry Birds’ audio effects and music seem simple but are, in fact, very complex.

For example,

In Angry Birds, we hear the birds chatter angry encouragement to their colleagues as each prepares for launch.

We hear avian dialogue as the birds arc toward their targets and hear the pained response from their victims when they strike their targets.

The pigs are by no means silent. When the avian interlopers fail, they are often egged on to try just one more time by the snickering, grinning pigs.

As noticed by Charles, these consistently applied audio elements reinforce the player’s interactions and deepen engagement by emphasizing the human characteristics & qualities of the main characters of the game and providing clever enhanced feedback during critical on-screen behaviors


Memorable Visual Design

So memorable is Angry Birds that the developers have deals for real world “brand extensions”, including Angry Birds stuffed toys, t-shirts, and all matter of off-the-wall consumer goods that make BIG profits. Whats more these have been launched in India as well by Mattel.

To summarize, in the context of Angry Birds, success is bound up in slowing down that which could be fast, erasing that which is easily renewable, and making visual that which is mysterious with nice sound effect and memorable cartoons.

But whatever may be the reason, I just loved playing it & I guess most of us would have? Isn’t it?

Any more people out there who are victims of this addiction? Please share..

Funding for startups

Lets Decrypt – Seed / Angel / Venture / Private Equity Funding !!

What is Seed Funding?

I feel at the very beginning a business Idea is born in the minds of the owners. Only then they look out for ways to give life to that idea.  Once they become more than 100 % sure of the idea & wish to start, then the first process will be to incubate this seed of thought. This is when they will need small sums of money to start the business, to plant this seed. The money collected at this stage of the business can be termed as seed funding. This is normally collected via Friends, Family or Anyone who have the confidence to lend you out without any terms & conditions as such. These people also don’t seek any part in management etc.

  • Ideal Input         : A business Idea who time has come.
  • Ideal Output       : A working prototype, or a working business model.
  • The money last for max 3-6 months.

Time for Angel Funding

The funding at idea conceptualization stage last only for some months However the as a result of the work done during seed funding the owners can now have a working model to get them a few customers or accounts at the least, who are willing to buy the business product generated out this idea. This is the time when can seek for an Angel Funding.

Once the Angel Investors are convinced of the idea & concept & have a belief in it due to the working business model that they will invest some considerable amount in the business. They need some working business in the company to do a financial valuation of the company in monetary terms – to get is actual Dollar/Rupee worth.

An angel investing $200 thousand or more would probably expect any of the following privileges.

  • Might want a seat on the board of directors.
  • Might also want preferred stock.
  • They will seek protection against VC’s getting major chunk in the future or diluting their equity.

The Angel Funding money usually lasts for 1-1.5 years.

Here comes the Venture Capital Funding Now

Once the founders are ready with their now somewhat concrete business plan and able to demo a real, working system which has begun to take shape & grow in size, it time to visit the VCs.

The VC offer their terms in a term sheet – which I think can be stated as an excel sheet with all the conditions related to the funding.  After that if the founders have accepted the offer (i.e. the term sheet) , the VC firm goes for a background check of the company. This due-diligence is a normal procedure done by the VC to check for any hidden flaws or risk with the business model.

The VC then gives their valuation of the company, or in simpler terms what is the worth of the company according to them.

Say they measured the company worth at 4 Million dollars & are ready to offer 2 Million dollars of funding. This funding is usually spread over a period of time & given in small buckets ( we often hear Round 1 of funding, Round2 of funding etc.)

Here is a great quote on the relationship between Angel Investors & VC funds which tells a lot about their relationship:

“VCs regard angels the way a jealous husband feels about his wife’s previous boyfriends. To them the company didn’t exist before they invested”

Only they have the money, the startup will almost certainly hire more people at this point & use the money for expansion.

Private Equity are also here

By actual bookish definition PE funds is an umbrella category that consists of all the funding’s I have stated above i.e. angel investors, VC funding, hedge funds etc.  But in today’s lingo the term Private Equity has the connotation of meaning “everything but angel or VC” – & that would primarily be Hedge Funds.

Private Equity firms’ buys majority control of an existing or mature firm.

This is distinct from a venture capital or growth capital investment, in which the investors (typically venture capital firms or angel investors) invest in young or emerging companies, and rarely obtain majority control.

Leveraged buyout, LBO or Buyout refers to a strategy by private equity firms of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage

Finally it’s time for Payback – Go IPO Go

Once the company has been established well & doing good business with healthy balance sheets, it would be the right time for next round of funding – the biggest of them all – by going for an IPO.

An IPO will act as a payback time for all the founders, seed investors, angel investors & VC investors. As their shareholding will have actual worth in the capital market of the country.

For the business as well, this could be a possible opportunity to collect huge sums of money from the primary market & keep on scaling to new heights.