#LogOut more a detox for restaurants than consumers
The Economic Times recently published a piece about 300 restaurants logging out of aggregator applications titled as: To detox consumers from discount addiction, 300 eateries to opt-out of aggregator menu.
Something doesn’t sit right with this statement, I see this as a detox for restaurants themselves. Let me explain why.
F&B businesses in India run on shaky economics, this industry quite often sees high churn rates. Businesses start & shut in the blink of an eye. Is deep discounting or aggregator power play to blame for that? No.
Over the years with the rise of power consumer applications like Zomato, Dineout & Nearbuy, consumers have gained more power of choice and convenience. Businesses in the meanwhile have over time become dependent on these applications to acquire new customers. Slowly but steadily the influence of these aggregators has grown in the industry. Naturally, the more power they have received over the success of a business, the higher the pocket share they demand. With the ever-increasing influence that such applications are set to have over consumers and businesses alike its a good time to sit back and assess some key points and factors that need to be considered as the retail and hospitality industry evolve at breakneck speed.
1. Acquisition versus Retention
The article at one point refers to Zomato Gold, Infinity Dining, Nearbuy amongst others as a loyalty program. These are not loyalty programs for businesses. They function more as loyalty programs for the aggregator itself — you are hooked to Zomato because of Gold. These applications work as acquisition channels for businesses.
We need to start understanding the value difference between customer acquisition and retention. It’s common knowledge that customer acquisition costs are very high compared to retention costs. In some cases acquiring a customer is almost 25X higher than retaining a customer. Yet businesses fail to focus on their loyal customers or even potential loyalists which eventually leads to their demise.
There is no basic customer segmentation that businesses adopt. Discounts are given out to first-time customers and recurring customers each time they visit. Ex. I can use Zomato Gold on every visit to my favorite restaurant, so the restaurant is incurring an acquisition cost each time their customers visit. Are restaurants understanding the cost of this value difference?
2. Are consumers today spoiled for discounts?
Yes, consumers are spoiled for choice & discounts. Across every aggregator, there will always be discount hungry consumers. But how do you make them your loyal customer? That’s a true introspection that every business requires. For example, Zomato’s ethos has always been simple concerning advertising and its other acquisition tools; we help customers notice you — but how you bring them back truly depends on how your product and experience is. Successful businesses focus on their product and service and execute their vision to perfection. If your growth strategy is discount hacks then be prepared for it. There is space for every kind of experience in this market especially India with its growing long-tail demand.
3. Are businesses looking at the right metrics?
Aggregators have always been clear about who bears the brunt of these discounts. But as a business are you aware of a few key metrics that will help you know which platform or strategy is right for you? Businesses need to be constantly evaluating:
- What is the customer lifetime value of my customers?
- What does my customer acquisition cost?
- How likely are they to return?
- What is the customer purchase frequency?
- How likely are they to recommend my business to their friends or colleagues?
Hell, just try one metric; what is the average order value of my new customers versus my loyal customers. It’ll set your priorities and focus straight.
The retail and hospitality industry landscapes have rapidly changed over the last decade. A successful business from either industry soon is an amalgamation of online and offline — omnichannel.
The four foundational pillars of such a successful omnichannel business are Product & Service, Physical/Digital Store Framework (Inventory & Billing), Customer Acquisition and Retention.
Businesses have loosely adapted each of these four pillars, and in hindsight, those which failed lacked in one or more of these focus areas — retention being the most commonly overlooked.
In this day and age where technology has become more of a necessity than a luxury — customer retention technology is revolutionizing the industry landscape.
Aggregator and acquisition apps like Zomato, Dineout & others are here to stay, they offer convenience and ease of use to consumers. At the same time, customer retention technologies such as Hashtag Loyalty are revolutionizing the industry landscape. Businesses need to step back and understand what their priorities are.
It’s the dawn of the engagement economy. Businesses that adapt themselves to the new consumer reality and truly focus on a balance of the four pillars can set a new paradigm to success in the restaurant and retail industry.
