The upcoming festive season has e-tailers gearing up with a unique strategy: That of focusing on premium services to build up the momentum. The coming festive season is no longer just about discounts and deals, but also about which player succeeds in roping in the maximum customers towards its platform. No wonder that the launch of Amazon Prime in July saw similar competitive offerings from both Flipkart and Snapdeal, aimed at improving customer stickiness and reducing re-acquisition costs for lapsed customers. But remember that Flipkart First was the first mover in India in the premium loyalty services space, which didn’t find many takers.
By launching Amazon Prime ahead of the festive season, with a free 60-day trial, Amazon is looking to convince shoppers to try its premium membership programme. The reason: Customers who choose to subscribe to Prime at the end of the trial period will stay with the retailer beyond the Diwali sale. Also, it generates valuable customer data, which it can use to attract customers back. Industry experts think what works for Amazon in the US and other markets may not be true for India, at least for now, as Indians are still used to the idea of free shipping.
“For discount hunters, subscription doesn’t work. However, over the last two years, a premium segment of online shoppers has emerged, which appreciates good experiences and is ready to pay for them,” says Mrigank Gutgutia, engagement manager, RedSeer Consulting. “The premium one-day and two-day deliveries are around 5-10% of the total orders in e-commerce and a subscription service like Amazon Prime is likely to be restricted to this small subset of online shoppers — possibly only the top 5%.”
However, there is a catch here. “In India, the number of customers who subscribe to such services will be small, but the value per customer will be high,” points out Devangshu Dutta, chief executive, Third Eyesight.
Globally, subscription-based e-commerce services offer the customer increased value in one or multiple forms such as faster deliveries, assured availability, free content, etc, and charge the customer a fixed annual fee for the same. But Flipkart Assured and Snapdeal Gold are offering such services for free, with no aim of monetising them later. “Customer acquisition is expensive. Hence, a business needs to retain its existing customers to drive profitability,” says Pankaj Gupta, senior practice head, consumer and retail, Tata Strategic Management Group.
However, no matter how attractive the proposition of ‘free and fast’ shipping, it is not sustainable in the long run. As of now, customers see it as a freebie. “The free and fast shipping proposition seems more of a reaction to competitive pressure. At the end of the day, you also have to make sure the consumer stays with you,” says Pragya Singh, vice-president at retail consultancy Technopak.