Discounts are not the only way to acquire customers: Jabong MD

Praveen Sinha
Age: 35
Career: Deputy manager at Maruti Sukuzi; program manager at Microsoft; consultant at McKinsey & Company
Education: Delhi College of Engineering; IIM-Calcutta
Interests: Reading, travel

Online fashion retailer Jabong.com’s MD and co-founder Praveen Sinha is not the kind to follow the herd. At a time when major ecommerce players like Flipkart and Myntra are going the ‘app-only’ way, Sinha believes a smartphone app is a destination while websites and mobile sites are the journey towards that destination. He is also the contrarian voice who says his company does not plan to become hyperlocal “by design”, and customers will come to online retailers even without discounts. Edited excerpts from an interview with Forbes India


Q. Major ecommerce firms like Amazon and Snapdeal are going hyperlocal, where the online retailer ties up with local merchants enabling customers to purchase goods from their neighbourhood stores, reducing delivery time. Do you plan to go hyperlocal as well?
We are trying to bring onboard many boutique sellers because, at Jabong, we want to aggregate whatever we think is fashionable. There is a gate-keeping mechanism maintained by our team of experts, who try to assess if something is fashionable. That much we have done. But we don’t see ourselves going hyperlocal, by design. That is an eventuality, not a design. With scale, hyperlocal will happen. We cannot start at a hyperlocal level. I have friends who are into small fashion businesses. [Those businesses are] successful and profitable but not scalable. I don’t think we are going to directly compete with any of them. General merchandisers selling fashion, pure play fashion merchandisers and a long tail of small fashion and boutique sellers will co-exist.

Q. How do ecommerce portals manage to provide such massive discounts?
Discounts can be sustained by ecommerce players because of the way their operations are designed. Since we have a consolidated inventory, no front-end field force and no rentals, we can pass on certain discounts. That said, there is a limit to the discount that can given, because we have to ensure the business does not fall apart. And what is that limit? That’s the tricky part, which the market is facing. In fashion, discounts can be higher because the gross margins are also high. Secondly, in fashion, there is an end of season sale, where we have to clear our stock so that we have a fresh season. Third, if there is a wrong decision in terms of purchase, then again, we have to liquidate our merchandise. Finally, during a campaign, many stakeholders come together to create a euphoria, precipitating discount sales. So banks, payment gateways, marketing channels, affiliates or brands might come to create huge offers. Discounts are a business requirement. But if, by market pressure, you start giving discounts that are more than permissible, it becomes unsustainable.

Q. Will people still come to ecommerce if you stop giving discounts?
Of course they will. It is demand and supply economics. At a certain price point, there will be certain demand. Generally, there is a lot of math involved in deciding the price. Today, those pricing decisions are not based on math. Instead, it’s mainly based on how many new customers we get and this does not lead to a stable market. In a stable market, the price algorithm will work depending on the marginal price, the marginal revenue and whether it makes sense or not. That maturity has not yet come to the online retail space in India.

Illustration: Chaitanya Dinesh Surpur

Also, discounts are not the only way to acquire customers. Assortment plays a much larger role, but can I communicate it? Second is the service level. You can play on convenience as well. And there can be offline events as well to get customers. But the easiest is to give discounts.

Q. With companies like Myntra and Flipkart going ‘app only’, do you plan to follow suit?
No. There are certain categories where it makes sense, like cab booking, where over 90 percent bookings might be done on smartphones and where transactions happen on a daily basis. But, I don’t think transactions in fashion happen everyday. Once or twice a month is a good rate and once a quarter or twice a quarter is when fashion shopping usually happens. So customers need choice. Many don’t want to download an app that they are not going to use everyday. We never force our consumers, we guide them. My personal belief is that the app is a destination, websites and mobile sites are the journey. I can influence you by giving you Rs 1,000 discount [to use the app], but after you shop you will uninstall it.

Q. What is your take on the migration of retailers like Pantaloons and Shoppers Stop to the ecommerce platform?
I am an optimist. The ecommerce ecosystem is evolving and that’s a good sign. It is not a war between offline and online. The two will co-exist. Most of the players will come to the online channel either independently or in partnership with a marketplace platform. Retailers were initially saying online is not a stable model and won’t work, now everyone is playing along. So we are moving in the right direction.

Q. There were media reports that Jabong’s board is looking to replace its MD.
Well, I’m still here. The news was speculative. I am currently leading Jabong the way it was earlier. I am also looking to develop a leadership structure within the organisation. I will create a CXO-level profile. So we will have a CFO, COO and CMO. We already have a CTO. I will try to create all the other layers, so that when we need to move towards sustainability, we will have the structures in place. I have a few personal ventures also, like a manufacturing venture, a water automation company called Aquabrim and an online art gallery called Anasha Art. I have made a few angel investments as well.