Solution to Assignment #1 Case Study #3
Pepperfry’s Early Hours
Reasons that led Pepperfry to shut down 40% of their revenues:
1. Internal Company Perspective
According to the company’s internal data (Exhibit 3.1), the GMV of the furniture vertical has grown more than 600% Y-o-Y in 2013 which is the highest compared to any other vertical. Housekeeping and Pets verticals have also grown significantly, but the overall size is much less compared to the furniture vertical.
The revenue growth was also highest in the furniture vertical compared to any other verticals (Exhibit 3.2).
In terms of margin also, the furniture vertical was more or less consistent and highest for 2 years (Exhibit 3.3).
All these data suggest that the furniture vertical is a high-growth , high-margin business, and it made sense for Ambareesh Murty and Pepperfry to focus on that vertical.
2. External Market Perspective
Major players in the home and furniture vertical:
- Pepperfry.com
- FabFurnish.com
- UrbanLadder.com
GMV figures for the last 3 years for the above-listed three major players in this segment (Exhibit 2.1)
GMV figures for the last 3 years for others in horizontal and vertical models.
The GMV of 3 large players have grown almost 8–10 times in last 3 years. There is clearly a big market for this vertical. Since there is less competition ( only 3 established players )in the market, this is clearly the area to focus on without spreading thin.
3. Qualitative Consumer Perspective
- Through a survey of respondents spread across Metros, Tier-1, Tier-2, Tier-3 and Tier-4 cities, Pepperfry found that more people are willing to change the way they buy their furniture, from offline to online, with 53% overall citing “likely to buy furniture online.”
- What Pepperfry is doing is “organizing” a much disorganized marketplace.
- Some major offline buying pain points like traveling to the store (32%) and difficulty comparing products across various stores (47%) are going to prompt more people to get on the online bandwagon.
- Some factors like “touch and feel missing” and “prices too high” in online shopping did not deter Pepperfry as they were not major red flags in terms of % of respondents with only 36% wanting “touch and feel” and 23% complaining about “prices too high.”
- Furniture vertical is an expensive segment, but Pepperfry sensed a major shift with more people willing to go beyond their maximum purchase and that potentially covers the furniture segment which is on the higher end of the spectrum when compared to the ones on the starting curve like footwear, books or clothes.
- This is on top of 42% of past buyers of carpenter-made furniture willing to buy readymade furniture, which is one of Pepperfry’s mainstays.
- So Pepperfry has rightly gone ahead and built a value chain by offering a managed marketplace with standardized listings and packaging, own hassle-free fulfillment, stringent quality checks at every crucial juncture, rendering a great customer experience, organizing a highly fragmented and non-standardized category with critical success factors like offering a huge variety of furniture products and a user-friendly UI/UX going hand in hand, all aimed towards making the customer happy.
Submission by Team V15 — Fantastic Four.
