Inspiration
UPDATED INSPIRATION: Current date: March 9, 2021!
Below is the original note on the inspiration that I had to start this blog, some 12-13 years back. That was when I was tracking some startups and evaluating them. I had not updated this blog much in recent days. And now, the focus would be very different, in any case. At this time, the purpose of my occasional blog post here, would be to discuss and debate a business strategy or an investment idea, for purpose of interaction with other like-minded people.
Hope you find it to be of interest.
The original inspiration from 12-13 years back is as follows:
Attending a Bar Camp, Startup Saturday and the Entrepreneurship Summit, in the last 3 weeks, took me back to 1997-98 days when we were starting up for the first time, with Homeindia.com, along with few other first-generation dot com entrepreneurs in India.
I can see the same energy now, perhaps only magnified by the changes in the economy over these years, the emergence of India as a country to reckon with, the maturity of the ICT businesses, the far larger familiarity of the technologies for students climbing out of their campuses, and of course, the awareness now, about an ecosystem that can encourage entrepreneurship.
There is another change. Me. With 11 years of hands-on Internet experience, there is a larger “intuitive” feel on the industry, there is beyond the romanticism of the business, a better understanding of business realities, of markets, of revenues and results. As one young participant respectfully pointed out, there is the “gray hair” difference.
This has inspired me to start this new blog. To share my 2 cents worth, on new startups that I see coming up. Based only on information that is in the public domain (or shared by the company in public forums), and not based on any private information that entrepreneurs share with me. With an idea to give some new perspectives. Ultimately the business succeeds because of the entrepreneurs and they need to trust their gut. But “outside” views help sometime. And which is what I strive to provide here. With only one goal in mind: to enable the entrepreneur to SUCCEED!!
The Gray Hair Speaketh 
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Sanjay,
Great article!! Having over 15 years of purchasing/sourcing experience, I have noticed that many of these small business owners (who are being targeted by the large group buying sites) don’t understand or accept the impact of “lost leader” sales. We, at groopful.com, have an innovative way to group buying. Instead of driving the business to the lowest possible sale price just to get sales, we are approaching it differently. We want to truly partner with the business to understand their margin levels and what volumes of sales can be met to help drive the targeted sales. This means that they may need to sell 20 units instead of 10 to get the same margin but they are getting additional footsteps while mainitaining their targeted margin dollars. I would love to get your feedback on our model.
Hi J Castle,
Margin vs volume is a natural process, and must be followed.
But the brand needs to make sales at larger margins, needs to keep their visibility to tomorrow’s market, and not divert all their marketing dollars, to passing on volume discounts as loss leaders, for getting today’s footfalls. That to me, is a disaster strategy.
Even airlines have multiple classes of seats, only to ensure that they not only use most of their capacity, but also at different margins, so as to make a net desired sum, for every flight!
Sanjay,
Great read..agree with u there..
my 2 cents is:
Large discounts to the end customer dilutes the perceived value the customer has for ur brands n it also leaves ur distributor/ resellers with a lower margin..
tat said, group buying is a wonderful concept which should strongly communicate the disc given BECOZ ‘the purchase is in bulk’ and not the discount itself..this, I believe will go a long way towards brand building..wat u r doing here is building tat community feeling which builds a trust factor on the product..where ppl say – hey there r these many ppl buying this product with me, they trust it, i should too…becoz of the bulk availing i am getting a disc!!
Cheers
Saptarshi,
Agree with what you say. That there is bulk being purchased gives a sense of trust and credibility for the brand. But discounts to the tune of 50% on physical products (as against services) seem hard to believe, even in the bulk sense. Those will do more harm to the brand, in long run, than good.. is what I feel.
I was considering this for two of my clients, one a Hotel and the other a theater hall.
Both have perishable goods and partially service based. A strange co incidence that just this week have fixed meetings for both the clients with one such group buying portal. Nice to read this just before entering into taking a decision
Good timing then..
For hotels and theatre, it will help..
Thanks Sanjay
Completely agree on the product part. And even if I buy a product from a group buying site today, I am not likely to be a return customer for that product co. I got a discount I took it, tomorrow its a new story.
For service again, I may not go to the same place again, but if its the perishable inventory that they encashed at a discount its a win win.
From a service providers perspective, If a group buying site has a good classification of local customers (and I don’t mean city level but deeper), than it may make sense to send out a buzz once. After all I started Dominos after getting the 1+1 coupon years back.
Annkur,
See, with services, if there is a regular saloon that you go to, and you get a discount, you can imagine – they have empty seats, and they are filling it up. Same for theatres. But when it comes to products, you cannot imagine that discount.. so you do question. And you may not get it again, and you will not use the brand again!
So for the brand, it looks like a lose-lose!!
As regards going deeply local, that is indeed the holy grail of group buying sites. And which is why they fear the entry of a local yellow pages brand, who may eat their lunch after all!!
🙂
Sanjay,
I wonder how they can afford to give 50% discounts! Is it really feasible or they are selling those products (physical) at loss just to increase their numbers or meet the targets?
Harman,
That is what I was conveying.. they divert 1 cr of ad money, to give 10,000 discount on each piece.. they can get 100 customers? Now, for the brand, it is diversion of budget to acquire actual sales of 100 customers. The budget of 10,000 x 100 has not come from product costing, but from marketing budgets. So on paper, the transaction is still profitable.
That is the theory at least.
What I point out in the post is that this theory has huge flaws.. and it is like a mistake for the brand!
– Sanjay
Sanjay.
Makes sense! BTW in your example, there should be 1000 customers. 🙂 It is certainly an experiment & definitely can have adverse impact on Brand Image.
[…] For those who follow this blog, it is no secret that Group Buying, especially in the shape that it has taken in recent months, is my favorite whipping boy!! […]
very very clear concept …………..