Tag Archives: groupon

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: http://www.indicat.com/Market-Rates/Commodity-Rates/Onion). 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

Discount_GroupOn

Take a Dip – It’s Raining Discounts in India !!

With a flood of Discount / Deal sites in India & a new deal-site name popping up every other day, I thought of making a list of all the possible such websites in India.

Just some googling & some news report analyzing & soon this table swelled up to a distinguished number of 34 sites (table below). The first thing that came to my mind was ..Phew!! That’s a lot of competition in this business space.

S.No Discount Deal Site Traffic Wise Rank (India) S.No Discount Deal Site Traffic Wise Rank (India)
1 www.snapdeal.com 19 18 www.dealivore.com 3123
2 www.fashionandyou.com 149 19 www.upto75.com 3983
3 www.yebhi.com 194 20 www.timesdeal.com 4502
4 www.bagittoday.com 205 21 www.aajkiitem.com 10638
5 www.homeshop18.com 209 22 www.mastsale.com 11362
6 www.naaptol.com 240 23 www.vamoose.in 15427
7 www.sosasta.com 371 24 www.groopoffers.com 20074
8 www.letsbuy.com 375 25 www.soldinsixty.com 27798
9 www.futurebazaar.com 412 26 www.dealyantra.com 28323
10 www.dealsandyou.com 450 27 www.discountsvu.com 30976
11 www.bindaasbargain.com 519 28 www.dealspick.com 38177
12 www.koovs.com 713 29 www.allindiadeals.com 54176
13 www.mydala.com 734 30 www.activedeals.in 91851
14 www.khojguru.com 985 31 www.dealhojaye.com 141614
15 www.taggle.com 986 32 www.dealmela.com 218309
16 www.99labels.com 1075 33 www.makemydeal.com 8077651
17 www.dealface.com 2779 34 www.fashionvia.com 17866336

In Rank Order based on Traffic, compiled  by Puneet Garg | Using Source : Alexa

Just a glance at the table above & you can see that Snapdeal.com is rated as the first among the entire group discount scheme website in India (based on traffic rankings in India –Alexa). With an India rank of 19th in terms of the traffic generated (Google is number one), it surely is far ahead of its competition.

Most of the 70% of Snapdeal’s traffic doesn’t visit any other page than the home page which projects that the conversion rate is definitely less than 30%. Thus 30 people of 100 visiting the site have either clicked the deal, or have shown some kind of interest in the deal. The traffic trend consists of majority men under the age of 25 who are all educated.

The next best site in traffic terms will be fashionandyou.com. Again this is visited more frequently by users who are in the age range 18-24 & mostly men. Another interesting fact being that these men are often accessing these sites from their work place..(so much for office productivity !!)

With the competition space already getting chock-a-block and new sites being launched every other day, the business of group deal or online discount store is really a hit among the growing Indian ecommerce space.All of the above sites are serving same purpose but treatment is different.

Concept of group bargain sites is very new in India (Snapdeal.com was launched in Feb 2010 only & madala.com in Nov 2010) thoughit’s been around in the west started by sites like groupon. Incidentally Groupon has also entered the Indian market by acquiring Kolkata based www.sosasta.com. Internet giant Google also has plans to bring its answer to Groupon – Google Offers – to India. (Yeah this is going to be great fun in future…just wait for it)

Considering this spree of new companies entering this crowded market space it is but obvious that only the fittest will survive this competition. The weaker will either shutdown (mobstreet being latest victim) or will be acquired by others. The best way out is to join hands with others players in the space &consolidate their businesses – a strategy which still has high chances of survival for these new entrants.

Still whatever may be business tactic, In any case I feel the ultimate beneficiary of these sites is the consumer aka you & me, who have gainedfromthe great deals via this e-commerce revolution. I am sure you must have stumbled to at least one of these sites.  Isn’t it?