DAILY DEALS

Domain Knowledge04/08/23 1Subhasish Ghosh, 2012

‘You never stop innovating even when you’re at the Top’ – Steve Jobs

04/08/23 2

Top 5

SMS was the *most* important viral channel which got affected by recent TRAI regulations from Govt. of India, thus, visits across all deals sites have drastically fallen.

Source: In September 2011, TRAI had directed all access providers to limit sending of more than one hundred SMS per day per SIM or three thousand SMS per month per SIM and ensure that any commercial communication including SMS, other than transactional messages, is sent to a customer only between 0900 Hrs to 2100 Hrs.

In November 2011, TRAI had extended the daily SMS limit from the existing 100 SMS to 200 SMS and had imposed an additional 5 paise charge on Promotional SMS.

TRAI had also modified the definition of transactional messages and had included several institutions and companies including DTH operators, e-ticketing agencies, social networking sites like Facebook, Twitter, Orkut and agencies providing directory services like Justdial, Zatse, Callezee, Getit and Askme within this category. Last month, it had also included Jaxtr SMS, Hike, and Latlong into this category, exempting from the limit of two hundred SMS per SIM per day.

Full article: http://bit.ly/WthdSm

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Core 1,00,000 visits to site via:

SMS campaignSMS campaigneDM campaigneDM campaign

display adsdisplay adsmobile adsmobile ads

social mediasocial mediaSEOSEO

2-5% avg. Conversions1

# of visits to site

if visits = 1,00,000; assuming 2% signups = 2/100*1,00,000 = 2,000

# of signups

2-5% avg. Conversions2if signups = 2,000; assuming 2% coupon purchases = 40 coupons were bought/purchases/printed (currently for tdeals.com this is free)

# of coupons printed

# of redeemed

30% redeem rate in India, 30% redeem rate; 70% breakage rate in US, 80% redeem rate; 20% breakage rate

i.e. in India = if 40 coupons were printed, we can expect around 30/100*40 = 12 coupons to be *actually* redeemed by our users @ merchants

approx. $$$$ coming inassuming basket size = Rs. 2,000/-, and assuming trail-back commission to be 20% of spending from merchants, we can make from 1,00,000 initial visits to site = 12 * 2,000 * 20/100 = Rs. 4,800

1,00,0001,00,000

2,0002,000

4040

1212

Rs. 4,800Rs. 4,800

deals model for most deals sitesdeals model for most deals sites

+ Merchants paying $$$ amount for listing on website

Average CPA in “Indian B2C eCommerce space” = Rs.500-2,000. i.e. to acquire these 2,000 people – a)at cheapest, we spend = Rs.500*2,000 = Rs. 1,00,000b)at costliest, we spend = Rs. 2,000*2,000 = Rs. 40,00,000

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Calculations# of visits to site

eCommerce site

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eCommerce Site # of visits to siteAvg. Basket Size = average # of units in single bill = total SKUs (stock keeping units) sold/# of invoices.

Avg. Ticket Size = average bill value = total Sales / # of invoices.Avg. Unit value = average price of single unit = total Value / no of. units

eCommerce (adapted) definitions:Avg. Basket Size (aka Purchase Size) = average bill value = total Sales / # of invoices.Avg. Unit value = average price of single unit = total Value / no of. units

Scenario1:We have Ram who clicks on a Banner ad and lands on a site.On first visit, he checks out the site, and buys a t-shirt (size M) whose value = Rs. 300.Also, he buys a polo for his dad (size M) whose value = Rs. 500.

•average basket size = (300+500)/1 = 800/1 = 800/- of Ram’s 1st visit.•if the company spent (say 100/-) on CPA margin = 800-100 = 700/- for this transaction.•average unit value = (300+500)/2 = 800/2 = 400/ of Ram’s visit.

Scenario2:Ram comes back after 15 days, and this time clicks on an email campaign sent by the site.He buys a jeans whose value = Rs. 900; also, a polo for his dad (size M) whose value = Rs. 500.But bills them separately cause he needs to send the polo to his dad’s address directly who lives in another city now.

•average basket size = (900+500)/2 = 1400/2 = 700/- of Ram’s 2nd visit.•if the company spent (say 50/-) on CPA this time margin = 1400-50 = 1350/- for this transaction.•average unit value = (900+500)/2 = 1400/2 = 700/ of Ram’s 2nd visit.

Classic Retailer definitions:

Basket Size for Ram on 1st Visit > 2nd VisitMargin for site better in 2nd visit

Unit Value for site on 2nd visit > 1st Visit

Basket Size for Ram on 1st Visit > 2nd VisitMargin for site better in 2nd visit

Unit Value for site on 2nd visit > 1st Visit

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eCommerce Site # of visits to site

Because prices per unit is controlled by eRetailer = importance is on –

a)average unit valueb)average basket size

c)margins per unit level transactions

CHALLENGE = “increasing average unit value & average basket size per transaction WITHOUT hurting margins per unit level transactions”.

Because prices per unit is controlled by eRetailer = importance is on –

a)average unit valueb)average basket size

c)margins per unit level transactions

CHALLENGE = “increasing average unit value & average basket size per transaction WITHOUT hurting margins per unit level transactions”.

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Levers

increase visitsincrease visits

increase conversionsincrease conversions

increase coupon purchasesincrease coupon purchases

increase redeem ratesincrease redeem rates

You can:

by burning more $$ OR running more campaigns OR more branding by burning more $$ OR running more campaigns OR more branding

by offering joining incentives, free credits, freebies, campaigns on top brandsby offering joining incentives, free credits, freebies, campaigns on top brands

How:

by offering points / credits for buying certain couponsby offering points / credits for buying certain coupons

by offering “assured valet” customer service for premier brands etc.by offering “assured valet” customer service for premier brands etc.

OR

increase basket sizesincrease basket sizes

introduce categoriesintroduce categories

< Falls under ‘Strategic Maneuvering’ which requires expertise of understanding market dynamics, need of the hour, and very fast precise execution

NOTENOTEthings like “auctioning” OR “flash sales” OR “tie up with a brand to sell their coupon on our site” OR “re-selling others’ coupons” are NOT ‘Strategic Maneuvering’ but “short-term” tricks/tips/strategies for getting some revenues. NOT sustainable in the long run.

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Revenues# of visits to site

Brand not known

visits to redeem rate

a) $$ from “trail back commission” from merchants +

b) Merchants paying $$$ amount for listing on website

Brand known

a) PPP (pay-per-print) from bargain hunters + b) $$ from “trail back commission” from merchants + c) Merchants paying $$$ amount

for listing on website

visits to redeem rate

Powerful Brand

a) PPP (pay-per-print) from bargain hunters + b) $$ from “trail back commission” from merchants + c) Merchants paying $$$ amount

for listing on website + d) sell banner spaces as per

CPA/CPC/CPM models

visits to redeem rate

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The Good, The Bad & The Ugly# of visits to site

Growing middle-class in India Growing salaries in middle-class Growth of Net + Mobile in Tier1

and Tier2/Tier3 cities Growth of credit cards in Tier1

and Tier2/Tier3 cities

Merchants not seeing long term benefits

High acquisition cost (CPAs) which does not justify the “unit-level-transactions” (ULT) economics (aka 0 loyalty)

Low differentiation potential in the current space

Indians are extremely “price sensitive”

Indians are extremely “used to” discounts/bargains; thus, “loyalty” becomes 0, which doesn’t push the CPAs down.

Indian service providers at lower basket values provide extremely poor service, thus, users never come back.

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India is India. Not US, France# of visits to siteThe difference between an US deals site, a French deals site and an Indian deals site is not in branding, basket sizes, visits, UI, UX, design or

coding – these are not determining factors for the “deals industry” as a whole. The core lies in the fact – the “Redeem rate(s)” in India is the lowest in the world; around average 30% across most sites, and 50% across “category product leaders”. Thus, the “Breakage rate(s)” is the highest at around 70% or more.

On the contrary - The “Redeem rate(s)” for most deals sites in the US is around 80% to 90% with a few reaching 95% or more in chosen categories.The “Breakage rate(s)” are always equal or less than 20%.

Thus for a given site operating with same services OR products in India & US, for same # of visits, for same # of registrations, the number of deals redeemed in US would be substantially higher than India.

With rising costs, inflation, CPAs, these costs incurred would increase more and more.

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Is there NO hope?# of visits to siteIn India there is – by:

a)maneuvering company to launch products (phase1), balance services:products on site (phase2), phase out services completely (phase3) – e.g. Snapdeal.com

b)acquiring local branding & visits so that local market – 100.1% is covered; i.e. established brand name in a region in the country. e.g. Deals&You.com

c)exit by M&A by a bigger brand. e.g. SoSasta.com acquired by Groupon in Jan 2011

d)enter into B2B Goods selling directly offline. e.g. Groupon via “Groupon Goods”

e)make premium club and offer members special deals at special prices for an annual fee. e.g. Groupon VIP since Feb 2012

These 5 points are ‘strategic maneuvers’ that Investors do in B2C eCommerce space to increase “differentiation” amongst portals but it does NOT guarantee $$$$ and increased “differentiation” in the vertical space.

URL: http://bit.ly/R6SQGO