Why are Indian startups suddenly rushing for loyalty plans?

Seeking loyalty.
Seeking loyalty.
Image: AP Photo/Aijaz Rahi
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More and more Indian startups now prefer long-term relationships over one-night stands.

In recent months, they have been trying to build up existing customers’ loyalty by extending them privileges through various membership programmes.

On Aug. 15, online shopping giant Flipkart launched Flipkart Plus, its new customer loyalty program, to take on rival Amazon’s popular service Prime. This is the Walmart-owned company’s second attempt at a membership programme after Flipkart First, launched in 2014, fizzled out. It promises faster delivery of orders, early access to the company’s sales, and better customer support.

On Aug. 29, hospitality startup OYO launched OYO Wizard, promising its members rewards and discounts on bookings. The Gurugram-based firm is offering membership at just Rs99 ($1.4).

On the same day, self-drive car rental company Zoomcar said it will spend $20 million to promote its membership programme ZAP Subscribe. “[It is] a flagship fractional sharing programme where one can subscribe a car monthly and technically have the flexibility of having [a] new car whenever he/she wants,” the company said in a press release.

Here is a list of all such initiatives by Indian startups since Ola’s quiet launch of Ola Select in 2016.

“Membership services make sense for them because selling to an existing customer is easier than selling to a new customer,” said Yugal Joshi, vice-president at the consulting firm Everest Group.

From market share to profitability

For long, these young companies mostly focused on capturing market share. With plenty of funds flowing in, they splurged on attracting new customers and staving off competition.

“Consumer startups were giving huge discounts. But as the entry of new startups into the market has slowed, competition has also stabilised,” said Vijay Anand, founder of accelerator The Startup Centre.

As the market matures, investors are pushing them to improve long-term growth metrics like customer attrition and revenue per customer. “Most of the startups are now backed by the similar investors so they may be leveraging similar types of strategies,” Joshi said.

In recent months, the funding for consumer startups has also gone down a bit, restricting the companies’ urge to splurge, according to Anand.

So there is a growing need to build deeper relationships with existing customers and mine them. And membership programmes can go a long way in maximising profitability on this front.

They have also proved to be quite successful in India.

One in three orders placed on Amazon India today is through Prime. The company doubled the annual subscription fee for Prime from Rs499 ($7) to Rs999 ($14), and customers are still signing up. And in less than a year of its launch, the membership programme of food delivery platform Zomato got so flooded, that the company briefly decided to enrol new members to the service by invite only.

Members with benefits

Membership programmes cost consumers, but the startups say that they can still save money.

For instance, since its launch, grocery shopping app Grofers has saved customers over Rs62 crore ($8.7 million) through its scheme, the company said in a press release earlier in August.

Flipkart is even offering its membership service for free to anyone who buys at least Rs12,500 ($176) worth of products on its platform.

However, the firms themselves are unlikely to earn substantially initially.

“I don’t believe any startup is looking at subscription revenue as a direct monetisation strategy. If it was, that would be a wrong move,” Joshi said. “Amazon is a classic example. I don’t think they care for the hundred rupees per month they get from Amazon Prime. They want that stickiness from their user base.”