Why Another Discount Website
First and foremost, PoshVine is not just another discount website, but we’ll come to that.
We started following the latest happenings on local commerce quite late actually, around late last year. Group couponing companies, spurred by Groupon and LivingSocial success were springing up everywhere and almost all of them quickly raising financing. On last count, India had almost 40 such group buying websites, led by Snapdeal (a few of our close friends are in the management team - their startup Grabbon got acquired by Snapdeal). While we were fascinated by the business model, we just couldn’t understand the value proposition for merchants - especially established merchants who cater to the premium segment. Having spent some part of our professional lives in companies which were so focused on merchant successes, we tried hard to see a moat.
Let’s take a case in point. Let’s say you are the owner of a fine dining restaurant - let’s call it Hot Potato. You have been in business for a little over two years, and you have been doing reasonably well, if not great. Your net profits have been hovering around 7-9%. You spend about Rs.5 lakhs on marketing, out of which about 10-15% are on digital marketing. For you, its a shot in the dark, maybe you will get 50 new customers through your billboards and print ads and banner ads, maybe you will get 5. But you understand that such visibility on media is helping creating a brand for your restaurant. And in two years, you have a small loyal customer base, thanks to the great service delivery you have built up.
Now, one day, a company comes to you - let’s call it Snappon - and tells you it reached 4 million customers, and it will do free marketing for you through their website and send direct mailers to their subscriber base. In exchange, you heavily discount your prices, offer 50-80% off for any Snappon subscriber who comes with a coupon in hand. Say your average bill value for 2 people is Rs.2000. You agree to partner with Snappon and offer a 60% discount, effective making your ticket size Rs.800. Out of that, every Snappon customer pays Rs.200 on the Snappon website, which is the commission you are paying Snappon. When the customers comes to your restaurant, you get Rs.600. On an initial planned revenue of Rs.2000. Multiply this one customer by 500. So you have 500 new (maybe) coupon-toting customers asking for Rs.600 meals and effectively you are reduced to any mass restaurant in your area. Your service delivery takes a hit, maybe your quality takes a hit. Maybe the Snappon sales representative tells you that don’t say that your average bill value is Rs.1000. Tell the world that it is Rs. 2000 and then say you are giving a discount of 60%. Need we go on here?
The average restaurant (assumed a premium restaurant in a chic locality) spends about Rs.500 to Rs.2500 to acquire a new customer. “Average” is a highly misleading number here. Some customers come cheap and some costs a lot. Getting a customer for pizza is different than what it costs a fine dining business to get a customer. Some customers are of higher quality and have better lifetime customer value.
The question always is: what is the alternative with the greatest return on invested capital?
I will not get into a numbers calculation here. But the moot point here is, we started talking to various retailers, from spas and hotels and restaurants and salons to even fashion companies, and what we realized is that over a period of time, they are profitable if they sell distressed excess inventory at discounts. It works great for hotels, where a room night unfilled is lost sales.
We in turn tried to apply the same model to our passion - great food. If a restaurant fills 8 tables out of 10 on a Thursday night, hy can’t it extend a good offer on the remaining two tables that help them earn incremental revenue? We started talking to Hot Potato, and his peers, and it became exceedingly clear to us that restaurants who were hitherto not willing to buy in to this group couponing wave, are open to this idea.
So, this is how we started. Yes, PoshVine today features top restaurants from Bangalore - as of now, only 10 - we will soon increase this number - we just launched 2 days back!). You can instantly book reservation at your chosen restaurant at a measly sum of Rs.100 to confirm your restaurannt booking. One, it helps the restaurant manage their supply and demand so that there is never any shortfall on the quality of service. Two, you get great savings as we plan to feature only premium and highly premium restaurants only. Three, we don’t sell coupons. You simply book your table through PoshVine, and that’s it. The discount of 25% or 30% is automatically and discreetly added to (or subtracted from) your bill. No cap on amount, no cap on party size, and wait, it’s on anything and everything you order, alcohol included. Use PoshVine for one month, and if you are the type that goes out dining 4-6 times a month in really nice places, you will end up saving a significant amount. Moreover, you get PoshVine credits. But more on credits later.
As people who had the good fortune of spending two years in premier b-schools in the country, we are aware of the problem that Mr. Michael Porter has with PoshVine - Competitive Advantage, Barriers to Entry, et al. We are working on it. We would say look out for the next 6 months. Bringing a bouquet of restaurants at great insider pricing is just the start for us. Yes, we will limit ourselves to only food. And yes, we will have more offerings. For the time being, we want your feedback. And the best way to give feedback is to actually use PoshVine and then tell us what you loved, what you would have loved, what you didn’t like. As of now, we are just focused on fine-tuning our service, and bring dollops of happiness in your inbox every other day. Go ahead, give us a try!
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