Coupon websites make merry as deal-hunting Indians go online

Four years ago, Kaveri Nandan bought a discount coupon for a session at a hair salon in New Delhi from Snapdeal, which at the time was a website for daily online deals and a pioneer in the segment in India. When Nandan called up the salon to book an appointment, she found that the place had closed.

“The segment (digital coupons) was just starting out, so I guess they had not sorted out many things. They were idiots for not doing their homework. I complained and got my refund,” said 35-year-old Nandan, who works at a business magazine.

But as daily deals vendors refine their services and India’s growing online population increasingly go online to look for discounts, coupon websites say customers are using discount vouchers for almost everything from baby diapers and television sets to body massages and five-star hotel stays.

“The Indian mentality is getting something for free or getting some offers. [As long as] that thing remains, this will work perfectly,” said Ramneek Jhamb, a marketing professional in Mumbai who uses deals websites to get discounts for restaurants.

“The last coupon I used was around four months back. I went for breakfast with two of my friends at Ramada hotel in Gurgaon. It was pretty OK. No hassles, no worries.”

Experts say e-coupons are gaining traction because they can be easily targeted, and are cheaper compared to distributing physical coupons. The rising number of Indians online is helping. The Internet and Mobile Association of India estimates that the country has an online population of 243 million.

Industry watchers say the daily deals business, which includes sites such as Groupon, Mydala, Freekamaal and CouponDuniya, will soon grow faster than India’s $13 billion e-commerce industry, which is expanding at a compound annual growth rate of 34 percent.

“This is just the beginning of a trend. It’ll have a steep growth as e-commerce has a very steep growth in India. And as the usage of smartphones increases very, very rapidly, we will also see couponing as one of the activities to get much more traction,” said Arvind Singhal, chairman of consulting firm Technopak.

There is little data on how big the nascent online coupons industry is, but Groupon India CEO Ankur Warikoo estimates coupon sites could potentially drive deals worth $2 billion to merchants in India, although he didn’t say by when this would be achieved.

Groupon India says it sells a voucher every 23 seconds. Freekamaal gets close to 3,500 transactions per day worth 3 million to 5 million rupees ($48,971 to $81,645), while Mydala says it sells 120,000 to 150,000 coupons daily.

Mydala founder Anisha Singh said her four-year-old company relies on a large mobile phone user base to help them expand to more than 100 locations and tie up with 110,000 merchants.

Ashish Jhalani, founder of eTailing India, an e-commerce knowledge platform, estimates that deals sites contribute about 10 percent to 15 percent of e-commerce traffic in India.

“You’ll see at some point that maybe 30-35 percent of e-commerce traffic will be driven from the couponing sites. I think within the next one year to 18 months, we should see that thing happen,” he said.

Freekamaal founder Ravi Kumar says he expects several coupon sites to come up in the next two years as more players in the highly competitive e-commerce market — where most compete on price — use coupons to woo customers.

“One or two years ago, when we used to talk to these guys [Flipkart], they were saying we are not focused about coupons and deals. But [in June] they did a promotion through Freekamaal. Amazon is also planning to target this deal and coupon market. So when big players are targeting it, the potential this market has is very big,” Kumar said.

Physical establishments such as spas, hotels and restaurants are also turning to deals websites to reach a wide customer base without any upfront payment for advertisement. Deals sites make money either through a fixed commission for every sale or by getting a percentage cut from the merchants.

“As an individual property, it’s very difficult for us to target the whole market. We tied up with Groupon because it has a very wide reach pan-India. On average, we do 10-12 room nights in a month and about 20-30 vouchers per month for F&B [food and beverages] through the Groupon deal,” said Upen Anand, general manager of the Express Sarovar Portico hotel near New Delhi.

The hotel has worked with Groupon India for the past year, offering discounts of 30 percent to 50 percent on rooms and F&B through digital coupons.

“Today you would see on Groupon five-star hotels listing themselves, the likes of Taj, Oberoi, Hyatt – names which you would not even think need promotion. And they are offering absolutely unreal crazy deals,” said Warikoo of Groupon India. Around 80 percent of the company’s business is brick-and-mortar. “We are clocking way more than a 100 percent growth on a year-on-year basis.”

Despite the attractiveness of discount vouchers, product and service quality concerns persist, with many customers turning to review sites like MouthShut.com to share bad experiences.

“I recently purchased an online photography course on groupon. I was to get access to contents on the photography website using redemption voucher bought at groupon website. Just a few days after I bought this, the photography website stopped working. When I tried to call up on the no. of the photography co., I got a message that the no. did not exist!” wrote user chandangc2003 on MouthShut.com

Deals website executives say that complaints are rare if one takes into account the number of sales. “Complaints very rare. Less than 1 percent. It does not represent a big challenge [to the business],” said Kumar of Freekamaal.