“Cash Burn for Marketing and Customer Acquisitions” has become a common phenomenon among the funded Indian startups. The very first thing that startups are doing to enhance their consumer base, profitability and brand name once getting funded is the discounts on their product and expansion in all the major locations of competitors. Heavy discounts on products – Myntra’s discount strategies on selected product catalogue, Shopclues Rs 1 sale, Excessive Cashback on purchase of products – Paytm Cashback strategies, Discounted orders from Zomato and Foodpanda, Discounted rides by Ola and Shuttl; these are some of the ways tried by Indian Startup Giants to lure and acquire consumers.
Though cash burn in form of discounts, cashback, referral earnings etc are decent strategies to get initial traction but the probability of consumer getting back can’t be ensured in long run. Reason being lot of startup work in one particular domain and since the cost of product is near about same for all the players, the undoubted winner will be the one who is capable of cutting the expenses in a phase wise manner and simultaneously grabbing the next pie of funding before the startup runs out of cash. In this way Startup reserve which is source of discount to customers remains green and sustainable growth in terms of number of customers is possible.
But the current situation in Indian startup ecosystem is not that rosy. Thinking about phasing out the discount is not taken as a good initiative for any founder. Customers which are accustomed to buying things at discounted rates. and that too since last five years or so, would obviously not accept this as a noble idea. There seems no end to this discount cum cashback cum flash sale cum cash burn. Every single startup out there is loosing money – Flipkart, Snapdeal, Amazon, Myntra, Paytm, Shopclues – bigger the name bigger the losses.
Rise of such cash burn strategies for the sake of traction is affecting the Indian Startup Eco-System and changing the mindset of all the stakeholders –
- Small players with good service are not able to stand against the consumers luring discount strategies of biggies. FoodHotLine, Gurgaon based food tech startup was shut down due to cash burn tactics of FoodPanda, Yumist etc. Taxi for Sure was sold to OLA just because TFS founders were unable to raise funding ( courtesy Uber accident). Trevo shut down was cold blooded which shut down within one month of initiating operations in Gurgaon – they were somehow got caught in the battle of Ola Vs Shuttl.
- Panicked Big Giants start burning huge cash just to avert the risk of losing customer to a “guy next door startup”. Sometimes these biggies go out of the way to buy the competition who are only booking losses but have good prospects or they target altogether new segments which are on the radar of investors. But all this actions leads to more blood bath only. Flipkart acquired some music based platforms like Chakpak and Mime360 with an aim to build an online music and movie store. But strategy somehow didn’t work. Flipkart lost some money and Mime360 and chakpak were wiped out of startup arena.
- Consumers are so much getting addicted to the tempting words like “Discounts”, “Cashback”, “Free”etc that they are ready to give 72 crore rupee just in 48 hours for an unknown smartphone. They keep switching from one to another just because new startup is offering 100 rupee cashback on next 5 orders and hence none can predict the everyday sales fluctuations of startups.
- As a result, disappointed from not making the big bucks, Investors are forced to consolidate the market to ensure the existence of their portfolio in the market. Tiger global refused to participate in the new rounds of funding of commonfloor. CF which was unable to manage the show due to cash crunch got consolidated with Quikr – another Tiger global owned startup. Valuation which CF got was way beyond what was its real worth. But somehow Tiger global was able to consolidate its portfolio which was nothing but a big news for startup story portals.
The overall effect of such “cash burn” and “discount centric customer mindset”is that the newbies are not getting enough opportunities to take initiatives. If a young entrepreneur want to start an e-commerce portal for villages, the first fear that he is going to face is that Flipkart, Snapdeal, Amazon etc might start burning their cash by distributing goods at free of cost at any point in time to kick him out of the market. Nobody would check what innovative idea that fellow had put in. May be if founder is able to make some crores, his journey would be featured in some “he made crores” type storytellers. But not everyone’s that lucky.
But the most devastating effect of this cash burn and discount centric mind set is not what we just discussed. It’s – where India as a startup nation is heading to? Our Prime Minister works tirelessly to give some advantage to entrepreneurs to promote Make in India, Think Big, Make India center of world innovation type of things ; But media and Junta cares least about innovation or new product. What they care about is a damn cheap piece of china/ Taiwan made fiasko which is next to being worthless. And we bet this is not the right way where Indian Startup ecosystem is heading.
FS comprehended the better cash burn tactics for startups to acquire loyal consumer base that would be beneficial for each of the stakeholders –
The major marketing and customer acquisition strategies adopted by e-commerce player are as follow –
- Myntra – Discount on selected product catalogue. Eg – Straight 70% discounts, Buy 1 get 1 or 2 or even 3 etc.
- Flipkart – Discounts on product, exchange offers etc.
- Snapdeal – Specific discount for specific category of product etc.
The better consumer acquisition strategies that could be adopted by e-commerce giants are as follow –
- Enhanced Discounts on Related Product of Previous Buy – Offering the additional discount on the purchase of related products and accessories of previous buy would help in ensuring the frequency of same consumer visit and buy. If a consumer buys jeans, then giving additional discount than usual on t-shirts or shoes which would force him/her to buy the same.
Benefit : Consumer – relevant product suggestion, trust and reliability, money benefit; E-commerce Player – enhanced frequency of consumers, loyalty
- Service of Products – Offering the free or discounted service would help consumers in selection of right portal for purchase. If consumer buys a laptop, offering him additional warranty would force him to choose the player considering the long run.
Benefit : Consumer – one stop solution, money benefit; E-commerce Player – Brand name, consumer loyalty; Service Providers – Extra business with e-commerce player
[B] Hyper Local Delivery
Grofers, Peppertap and other hyper local delivery startups are acquiring consumers by giving first time user discounts, discounts on order above certain value etc.
These hyper local delivery startup could change their customer acquisition tactics in following way –
- Additional Discount on Repetitive (Monthly/ Weekly) Orders – Offering additional discount on monthly/weekly repetitive orders would be beneficial for consumers as well as attracting. Grocery need is quite frequent and fixed for every person, if he/she is getting it on frequent time span, the player would get loyal consumer base.
- Eureka Delivery option – Every customer of a locality could be targeted by simply sending a representative at customer’s end at the start of the month. Customer’s monthly requirements will be noted down and approx amount will be charged by the service provider. It has got number of benefits – The service provider could avert war footing delivery and gets ample time in collecting and delivering the requirement of a customer, Service provider will get advance money to run his show without the need of funding. It’s a win win situation for customer and service provider, given the service provider is able to win the heart of customer.
[C] Travel and Hotel Booking
Targeting each customer deferentially – office goers/ weekend trip planners / monthly trip planners separately could do wonders to the travel service providers. Linking to corporate houses for planning out their official visits – travel and hotel could also give great returns.
Nowadays religious visits are not even on the radar of any of the travel service provider. Its a segment waiting for a right step from an entrepreneur.
[D] Cab Service
Cab service providers like Ola, Uber etc are acquiring consumers by giving referral earnings, discounts etc. Better cash burn tactics to acquire consumers of cab service could be following –
Reduced Prime Time Charges for Loyal Consumers – The biggest pain area for the consumers of can service providers is the prime time charges. So by offering discounts to loyal consumers on prime/ peak time would help in enhancing the frequency of consumer return.
So if instead of burning cash for short term unstable traction is of limited use for startup. Strategically planned cash burn techniques would help startups to get the loyal consumer base.
Stay tuned with FS Labs to know more.