Pepperfry Plays Contrarian, Sticks to Discounts to Drive Business

Co-founder says furniture business offers flexibility to offer differential pricing to hook customers to buy goods

Goldman Sachs backed furniture marketplace, Pepperfry wants to play contrarian to the prevailing mood of e-commerce firms that are cutting down on discounts to earn profits.

Instead, Pepperfry will continue to throw bargain deals as it says furniture business offers the flexibility to offer differential pricing to hook customers to buy goods on its platform. 

“The way we look at discounts is they act as triggers of purchase. If you look at category we make upwards of 45% of margin in our business. The product that we sell there is no MRP or price tag to the product. Discounting is a way to deliver value to the customer,” says Ashish Shah, co-founder of Pepperfry. “Our products are non-standard products in terms of a price tag. I can sell a table at Rs 40,000 or at Rs 60,000 because there is no price tag to it. Discounting in such a scenario triggers the purchase by the customers.”

Pepperfry, founded by Shah and Ambareesh Murthy, have so far raised around $160 million (Rs 1,000 crore) from investors such as Goldman Sachs, Norwest Venture Partners, and Bertelsmann. The latest round being in September when Goldman Sachs made additional investments. The company says that they are looking at a break-even by  Q1 of 2018 and their monthly growth rates in terms of sales are 6-12%. 

India’s e-commerce players have suffered huge losses and many of them have wounded up business with their discount led strategy to grab customers. Firms such as Flipkart and Snapdeal, which raised massive funds and threw discounts to grab market share are still struggling to reach profits, as competition from global rival Amazon intensifies. 

Pepperfry’s rival Urban Ladder, which looks at design led furniture, has been vocal against discounts-focused sales. 

In a study done by RedSeer Consulting, furniture firms see margins of around 30-35% sold online and the value of the product goes up, the margins would also increase as these furniture are directly sourced or custom made for the platforms. 

“In terms of gross margins most furniture portals are comfortable and even doing better than other e-commerce portals. But when it comes over all cost of infrastructure, marketing etc then there may be negative margin in it,” says Anil Kumar, founder and chief executive of Redseer. “The problem they face is in generating sales volumes. The problem they face is mainly of scalability that can lead them to complete profitability.”  

Shah says that unlike a mobile phone or similar categories where a discount means a real discount, actual subsidy on the product in the furniture business still earns enough margins after giving a discount. 

“I am not doing a business where I have bought something at Rs 10 and selling it as Rs 9. I am in a business where I am buying something at Rs 10 , I make Rs 20 out of it, I give it out Rs 2 and still make Rs 8. This discounting strategy is very different,” says Shah. “My cost of servicing is lowest in business and my distribution is highest in the country. So this helps me make each transaction profitable.”

 

Reference - http://www.business-standard.com/article/companies/pepperfry-plays-contrarian-sticks-to-discounts-to-drive-business-116112700389_1.html