Relevance: mains: G.S paper IV: Emotional Intelligence
Context
- Wiping out market-creation losses typically involves reducing customer subsidies bit by bit and getting service partners to taken on some or all of the burden
- If you’re looking to order food home or book a table at a restaurant, you may soon find that your favourite eat-out place is missing from the app you swipe open on your phone.
Effects of discount addiction detox
- According to a news report, about 300 restaurant brands in Gurgaon are delisting themselves from aggregators and table-reservation services such as Zomato and EazyDiner, over deep discounting.
- They’ve cited adverse revenue implications as the main reason, and have come together to detox consumers from their discount addiction.
- And this is not just about Gurgaon; Eateries in Delhi, Pune, Mumbai, Kolkata and Bengaluru are likely follow suit.
Key implications of this business strategy
- The business strategy of many online services is to first offer price cuts to lure people, and then gradually raise prices to turn profitable once they have a large customer base habituated to the convenience on offer.
- The assumption is that large sums of money ploughed in to gain a bit of the world’s most prized real estate place for an app on your mobile phone can be more than made back at some point in the future.
- The success of this strategy, however, depends on whether online businesses and their partners can endure the expenses along the way.
Conclusion
- Every such user-subsidising business must face a moment of reckoning, for sure, and answer tough questions on its so-called “path to profit”.
- Wiping out market-creation losses typically involves reducing customer subsidies bit by bit and getting service partners to taken on some or all of the burden. It’s not easy.
- In the food-ordering business, some restaurants have turned restive, arguing that they would be better off on their own. How food apps respond would be interesting.