‘You never stop innovating even when you’re at the Top’ – Steve Jobs DAILY DEALS Domain Knowledge12/13/12 Subhasish Ghosh, 2012 1
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 12/13/12 2
Core SMS campaign SMS campaign eDM campaign eDM campaign 1,00,000 visits to site via: display ads display ads mobile ads mobile ads social media social media 1,00,000 1,00,000 SEO SEO # of visits to site 2-5% avg. Conversions1 if visits = 1,00,000; assuming 2% signups = 2/100*1,00,000 = 2,000 2,000 2,000 # of signupsAverage CPA in “Indian B2C 2-5% avg. Conversions2 if signups = 2,000; assuming 2% coupon purchases = 40 couponseCommerce space” = Rs.500-2,000. i.e. to acquire these 2,000 40 40 were bought/purchases/printed (currently for tdeals.com this is free)people – # of couponsa)at cheapest, we spend = printedRs.500*2,000 = Rs. 1,00,000b)at costliest, we spend = Rs.2,000*2,000 = Rs. 40,00,000 30% redeem rate in India, 30% redeem rate; 70% breakage rate 12 12 in US, 80% redeem rate; 20% breakage rate # of redeemed 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 Rs. 4,800 Rs. 4,800 approx. $$$$ coming in assuming basket size = Rs. 2,000/-, and assuming trail-back commission to be 20% of spending from merchants, we can make from 1,00,000 initial visits to site = 12 * 2,000 * 20/100 = Rs. 4,800 deals model for deals model for + Merchants paying $$$ amount for 12/13/12 most deals sites most deals sites listing on website 3
Calculations# of visits to site eCommerce site12/13/12 4
eCommerce Site Classic Retailer definitions: # of visits to site Avg. 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. Basket Size for Ram on 11stVisit >>22ndVisit Basket Size for Ram on st Visit nd Visit Margin for site better in 22ndvisit Margin for site better in nd visit 12/13/12 Unit Value for site on 22ndvisit >>11stVisit Unit Value for site on nd visit st Visit 5
eCommerce Site # of visits to site Because prices per unit is controlled by eRetailer ==importance is Because prices per unit is controlled by eRetailer importance is on –– on a)average unit value a)average unit value b)average basket size b)average basket size c)margins per unit level transactions c)margins per unit level transactions CHALLENGE ==““increasingaverage unit value & CHALLENGE increasing average unit value & average basket size per transaction WITHOUT average basket size per transaction WITHOUT hurting margins per unit level transactions”. hurting margins per unit level transactions”. 12/13/12 6
Levers You can: How: increase visits increase visits by burning more $$ OR running more campaigns OR more branding by burning more $$ OR running more campaigns OR more branding increase conversions increase conversions by offering joining incentives, free credits, freebies, campaigns on top brands by offering joining incentives, free credits, freebies, campaigns on top brands increase coupon purchases increase coupon purchases by offering points / / credits for buying certain coupons by offering points credits for buying certain coupons increase redeem rates increase redeem rates by offering “assured valet” customer service for premier brands etc. by offering “assured valet” customer service for premier brands etc. OR increase basket sizes increase basket sizes < Falls under ‘Strategic Maneuvering’ which requires expertise of understanding market dynamics, need of the hour, and very fast precise execution introduce categories introduce categories things 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 NOTE NOTE Maneuvering’ but “short-term” tricks/tips/strategies for getting some revenues. NOT sustainable in the long run. 12/13/12 7
Revenues Brand not known Brand known Powerful Brand # of visits to site visits to redeem rate visits to redeem rate visits to redeem rate a) $$ from “trail back a) PPP (pay-per-print) from a) PPP (pay-per-print) from commission” from merchants + bargain hunters + b) $$ from “trail bargain hunters + b) $$ from “trailb) Merchants paying $$$ amount back commission” from merchants back commission” from merchants for listing on website + c) Merchants paying $$$ amount + c) Merchants paying $$$ amount for listing on website for listing on website + d) sell banner spaces as per CPA/CPC/CPM models 12/13/12 8
The Good, The Bad & The Ugly # of visits to site Growing middle-class in India Merchants not seeing long term Indians are extremely “price Growing salaries in middle-class benefits sensitive” Growth of Net + Mobile in Tier1 High acquisition cost (CPAs) Indians are extremely “used to” and Tier2/Tier3 cities which does not justify the “unit- discounts/bargains; thus, “loyalty” Growth of credit cards in Tier1 level-transactions” (ULT) becomes 0, which doesn’t push and Tier2/Tier3 cities economics (aka 0 loyalty) the CPAs down. Low differentiation potential in the Indian service providers at lower current space basket values provide extremely poor service, thus, users never come back. 12/13/12 9
India is India. Not US, France # of visits to site The 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. 12/13/12 10
Is there NO hope? In India there is – by: # of visits to site 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 12/13/12 11
A particular slide catching your eye?
Clipping is a handy way to collect important slides you want to go back to later.