Why Losing Companies Like Swiggy, Zomato, and Flipkart Still Provide Offers

Companies like Swiggy, Zomato, and Flipkart often offer discounts and promotions even when they are operating at a loss. This seemingly counterintuitive practice is underpinned by strategic business decisions aimed at achieving long-term success. Let's explore the reasons behind these offers and the broader context of the market they operate in.

Strategic Reasons for Offering Discounts

These companies provide discounts for several key reasons that align with their business objectives:

Market Share Expansion

Discounts play a crucial role in attracting more customers and increasing market share. By making their services more appealing, they can grow their user base, which is vital in competitive industries. This expansion can bring in more customers who might not have considered using these services otherwise.

Customer Acquisition and Retention

Discounts can incentivize new users to try the service and encourage existing customers to continue using it. This can lead to long-term loyalty, which is essential for future profitability. Customers who are satisfied with the discounts and ease of use are more likely to remain long-term customers even as prices increase.

Data and Insights

Increasing their customer base allows companies to gather valuable data on consumer behavior and preferences. This data can be leveraged to enhance services, tailor offerings, and optimize operations. By understanding their customers better, they can refine their strategies and improve the overall user experience.

Economies of Scale

As the volume of transactions increases, companies can achieve economies of scale that potentially reduce costs over time. This can help them move towards profitability in the long run. By processing more orders and transactions, costs per unit can decrease, making it possible to turn a profit.

Investor Expectations

Startups and tech companies often prioritize growth over immediate profitability. Investors may support this strategy, expecting that market dominance will lead to future profits. These companies may be willing to incur short-term losses in exchange for building a sustainable business model.

Competitive Pressure

In highly competitive industries, companies may feel pressured to offer discounts to keep up with rivals. If one company offers a significant promotion, others may need to respond to avoid losing customers. This competitive environment often drives companies to remain flexible and competitive in their pricing strategies.

Long-Term Vision

Many of these companies have a long-term vision that includes achieving profitability eventually. They may be willing to incur short-term losses in exchange for building a sustainable business model that can generate long-term value.

The Business of Gaining Customers

It is often said, “There is no free lunch.” While these companies are not running charitable organizations, they are here to do business and earn profits. Their investors have deep pockets and understand the amount of spending required to acquire customers, even if these companies are currently operating at a loss.

There are various methods of valuing a business and assessing its potential for profitability. A common person might look at the net profit and conclude that a company is losing money and should not continue. However, investors often look at a broader range of factors such as future estimates, increases in cash flow, reductions in losses, increases in revenue, the size of the market, and numerous other indicators.

A Heartening Market Perspective

India has a population of approximately 1.34 billion. While Amazon, as of March 2018, only had 7 million Prime members in India, this number is still much smaller compared to the size of India and other developed countries. In the U.S., the number of Prime subscribers was 101 million, with the U.S. population being around 320 million. Imagine if one-third of India's population subscribed to Amazon Prime! This would result in 446 million subscribers, significantly surpassing the population of the U.S.

This new market reality provides a clear illustration of the potential scale and long-term growth prospects for these companies. India's vast and growing population offers a huge market opportunity. Giving discounts helps in acquiring customers, and as more people use these services and become accustomed to online shopping, the need for discounts can be gradually reduced. People in metro cities are already familiar with these apps, but there is a significant scope in smaller cities as well.

From a personal perspective, I use Amazon for almost all my purchases. A few years ago, my parents were always skeptical of buying things online. However, now even my parents order from Amazon and Flipkart, and they place orders on Zomato. This change in behavior has come about due to continuous marketing and the ease of finding discounted products.

People used to avoid online purchases due to the lack of available sites and the perceived risk. Now, many purchase Laptops, TVs, and Mobile phones online. This shift in behavior has only become possible because of the continuous marketing and discounts offered, which encouraged people to try these sites and led to the realization of various advantages such as saving time, more discounts, a wider variety of products, and easy returns.

Conclusion

While these companies may be operating at a loss now, they can turn profitable in the coming years. If India can reach a similar level of development as the U.S., the potential market size is enormous. The continued focus on serving a growing and increasingly tech-savvy population in India provides a strong foundation for these companies to thrive and achieve long-term success.

These strategies are part of a broader plan to achieve growth and long-term profitability. Despite the initial losses, the potential for these companies to succeed in the competitive and rapidly growing market of India is substantial. By providing discounted offers, these companies are building a loyal customer base that will support their eventual profitability.