Zomato traversed an enviable arc, from joining the coveted unicorn club in March 2018 to becoming one of India’s leading food service aggregators (FSAs) in August 2019. But the food delivery company is in a turmoil now. Hundreds of restaurants under the National Restaurants Association of India (NRAI) delisted themselves from Zomato Gold in order to oppose the deep discounts given by Zomato to customers.
Zomato’s CEO, Deepinder Goyal, gave it his best shot but failed to convince the opposing NRAI members. The O2 scheme did not prove to be a game-changer, as expected. Zomato was successful in finding new partner restaurants but the question of deep discounts remains. And it was clear that Zomato was unable to keep all stakeholders happy.
How can the situation be resolved in the best interest of every stakeholder?
For some clarity on this, it may help to first identify what the key requirements of each stakeholder are:
One of the key problems of Zomato is the opaque layer it has created between restaurants and customers. Once this medium becomes transparent, all the stakeholders will be satisfied. Zomato can tackle this situation with a partner-centric loyalty programme, based on the kind of model seen below:
One of the features of such a programme could be that restaurants need not always bear the discount amount. If the restaurant is getting less than X orders per day through Zomato, then the onus to bear the discount amount should be on Zomato, and not the restaurant. The number X could vary from city to city, depending on the density of population.
Setting this ‘if’ clause will increase the trust that restaurants place on Zomato’s ability to deliver, and will motivate them to give their best quality every day to increase sales. In the long run, restaurants will be free to innovate and strengthen their core competence As they are rid of the fear of bearing the discount burden, while Zomato could enjoy the higher commissions through a greater number of bookings, and customers are happy with the quality cuisine and the delivery experience. In this way, all the stakeholders’ needs are fulfilled.
Expected outcomes of the programme:
— Increase in customer loyalty to specific restaurants
— Restaurants can provide discounts only for loyal customers
— Customers get closer to restaurants
— Restaurants can retain their identity and loyalty
— Increase in orders for Zomato and more sales for restaurants
How can Zomato build great partner relationships with restaurants, protect their brand equity and minimise the effect of commoditisation? Should Zomato stop deep discounting? Should ZG go back to be an exclusive invite-only service, as originally envisioned?
Zomato is a great platform specially for young people. The reach it has through social media is wide. And it has perfected the craft of behavioural targeting. The moment you are hungry, you get a Zomato advertisement on your phone.
Zomato can build great partnerships with restaurants by displaying restaurant advertisements through digital platforms for free, clubbed with Zomato ads. It costs next to nothing for Zomato, but earns the goodwill of restaurants, which will be happy with the free promotions. Zomato can prioritise these advertisements based on the best-performing restaurants.
The FSA major can continue with the current Zomato Gold scheme and discounting model; but with a few modifications for discounting, and an addition to the Zomato Gold Scheme. In addition to ZG, Zomato can come up with a new scheme called Zomato Platinum. This scheme will be exclusively available only for 100 customers a month in one city who are the most frequent users of Zomato. The maximum number of customers under this programme can vary according the city’s population.
How can the scheme be redesigned to rein in deep discounts offered to customers? What will be the action plan to shift the focus of diners from discounts to loyalty?
Zomato can relaunch the piggy bank system. It should provide customers with Zomato coins for their orders based on the frequency of ordering and the price involved. These coins can later be used within a stipulated time as real money for further orders; such that one coin equals one rupee.
Better discounts can be provided for regular customers, with the maximum cashback for the consumer who spends the maximum on Zomato in a month or year. Such sales promotion boosts the number of customer orders, and increases the sales of restaurants.
Combining the above piggy-bank system with a partner-centric loyalty programme shifts the focus to loyalty rather than discounts. Zomato becomes a more transparent medium to connect customers directly to the restaurants.
Gunda Babi Harsha
Harshil Doshi
(The Third Runners-Up are students of first-year PGDM at XIME Kochi.)