Retail

What customers really want: Cashbacks and deep discounts can only go so far


By Ronnie Screwvala

Two years ago a study by IBM Institute for Business Value and Oxford Economics found that 90% of Indian startups fail within five years of opening shop. Another more recent report said that the 5 best-funded startups in India combined, haemorrhaged more than a billion dollars in 2018. These top five losers – Paytm, Flipkart, MakeMyTrip India, Swiggy and Zomato – are also household names each valued at over a billion dollars and more than a decade old with millions of customers on their books.

This mindless chase for customers is not exactly helping even the best amongst us. It should therefore not come as a surprise that ‘running out of cash’ is the second most common reason among the top 20 reasons why startups fail, the first being an even more ridiculous reason – ‘no market need’ according to an April 2019 report by CBInsights.

The writing on the wall can’t get any bolder. The Indian startup ecosystem is a little over a decade old now. Luring customers with cashback and deep discounts might have worked in the past. But the same ecosystem has since moved into the post-cost arbitrage environment where old ways of thinking are not helping. While the lure of a good deal or waving cash at customers may seem helpful in onboarding new customers, it is not enough to retain them or earn their long term loyalty.

At a recent startup conference on customer experience or CX, almost every executive in the room who saw the fallacy in blindly chasing customer numbers also said that they valued CX more. The CIO of a growing healthcare chain specialising in maternity, childcare and fertility said, “Pregnancy is not an illness but wellness. Every aspect of the pregnancy and delivery should be celebrated and the customer deserves the best experience during this time.”

The product head of an online travel business said, “We focus more on engagement and solving the base problems as it is evident that these engagements will eventually lead to conversion into loyalty in the product and help in building retention.”

Constant improvements in CX through innovation is a lot easier said than done. The IBM Institute report also said that 77% of venture capitalists surveyed believe that many Indian startups lack pioneering innovation based on new technologies or unique business models. Indian startups are prone to emulate already successful global ideas. Simply put, we are a bunch of failing copycats.

If there is one area where innovation is needed most, it is perhaps CX. An online fashion chain that delivers multiple pieces of apparel to the customers’ doorstep to try before buying is an innovation in CX. And so is a premier car brand providing roadside assistance after regular dealer service hours.

Sustained innovation to keep improving CX is a culture thing. It involves the founders’ and senior management’s passion for CX, technology and investing internally to permeate the culture throughout the organisation. Maintaining the right air temperature in a mall that will make customers want to stay longer and hopefully shop for more should be the concern of the electrician as much as it is of the shopowner.

In the post-cost arbitrage world, scale alone will not guarantee success. A few thousand passionately loyal customers are far more valuable than a million dormant ones. And that kind of loyalty cannot be bought with discounts and cashbacks alone.

So when resources are limited and the choice is between ‘buying customers’ and investing in improving customer experience, the wise will lean towards the latter. That means investing in understanding customers’ pain points and technologies that will resolve them best without costing the customer a fortune. That little spotlight in the Uber app that helps the driver and customer find each other easily in crowded areas (or night time) is the kind of innovation that assures loyalty and rich dividends in the long run.

(The writer is a first generation entrepreneur and philanthropist)





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