Moving beyond Loyalty Programmes of Food Delivery Platforms
Brij Disa Centre for Data Science and AI
A common platform for conducting and disseminating cutting-edge research on data analytics and artificial intelligence
The food delivery market has consolidated over the past few years in India. After Zomato acquired Uber Eats in January 2020, Zomato and Swiggy remain the two most dominant players in the Indian food delivery market. In a business where instant gratification must be delivered at scale, these platforms have used a combination of marketing strategies to entice customers to stick to their service. In this article, we bring into sharp focus the loyalty programmes offered by Food Delivery Platforms (FDPs). We discuss what factors affect their price and how they are different from membership schemes offered by traditional businesses. We understand how they work and enable an FDP to earn more money. Additionally, we also discuss advances in Artificial Intelligence (AI) that can help FDPs build effective service platforms that provide differentiated service to their consumers.
Fig. 1: Revenue of Food Delivery Platforms (in Billion INR) Source: Statista
Both Zomato and Swiggy offer premium subscriptions to their customers. Zomato launched its premium programme, Zomato Gold, in 2018 where members could get two dishes at the price of one while dining at partner restaurants. After Covid-19, Zomato rebranded this subscription as Zomato pro that offered discounts both on delivery and dining out. Swiggy launched its premium service, Swiggy One, in 2021. Members get unlimited free deliveries on orders above Rs 99 and additional discounts on ordering food from select restaurants under this programme.
Typically, when a business offers two versions of its service, economists call it second-degree price discrimination. The main motive behind a price discrimination strategy is to earn more profits by capturing a bigger part of the consumer surplus. However, food delivery platforms are not traditional businesses and standard predictions about price discrimination might not hold true in their case. An FDP is a two-sided platform that connects restaurants and buyers where both sides (restaurants and buyers) value the presence of the other side. In other words, restaurants benefit if there are more buyers and buyers benefit if there are more restaurants. This is the defining feature of a two-sided platform that determines its pricing structure. Loyalty programmes are launched not necessarily to increase the money made from consumers but to earn higher commissions from the restaurants.
In fact, on both Swiggy and Zomato, the delivery charges paid by consumers have gone up over the past few years [1]. However, FDPs have not capitalised on this opportunity to increase the price of their premium offerings, especially when demand for online food delivery has increased sharply after covid-19. Swiggy has altered its three-tier membership plan, Swiggy Super, to a flat one-tier membership, Swiggy One, which is priced at Rs. 79 a month. Zomato Pro is also priced at Rs. 75 a month as compared to Zomato Gold for which consumers paid around Rs. 1800 per year.
Fig 2: Food Delivery Platforms are Competitive Bottlenecks where restaurants list on multiple platforms, but consumers mostly use one platform. *Figure is for representational purpose only
One contributing reason behind this is that food delivery platforms are essentially competitive bottlenecks. While restaurants enlist on multiple platforms, consumers generally prefer using one platform over the other [2]. In effect, this makes consumers more valuable for the platform. Platforms compete more fiercely on the consumer side where even premium subscriptions are offered at prices that are exceptionally low. Loyalty programmes push consumers to order more which in turn enable FDPs to earn more through restaurant commissions. Not only do consumers get attractive prices, FDPs also offer them services beyond food delivery. While Swiggy has started delivering groceries and daily use items through Instamart, Zomato is now promising instant delivery which it claims would deliver food in less than ten minutes.
If not for the attractively low prices of premium subscriptions, the consumers would be attracted to the services provided by another FDP, at lower prices, that offers more or less the same choice of restaurants. Taking the example of Amazon would give us a better insight into the main argument. Amazon began offering its premium service in the US in 2005 at $79 per year. The price increased to $119 per year in 2018. Today, Amazon Prime costs $139 per year compared to Walmart+ which is $98 a year and offers identical delivery services. However, even at its current price, Amazon's prime subscription is a steal given the unrivalled benefits of delivery, cloud storage and streaming content that Amazon offers to its US customers [3]. These services help differentiate Amazon's core service of selling goods online. Studies have shown that Prime customers on average spend more than non-prime customers [4]. This enables Amazon to make more money from the sellers through commissions. Increased spending from consumers leads to higher sales by the sellers and higher earnings for Amazon. In India, Amazon began offering its prime subscription at INR 599 a year in 2016. The membership price has today increased to INR 1500 a year, where Amazon guarantees a truly unique service to its customer base, one that its competitors cannot match. This includes two-day delivery along with access to entertainment content on its streaming platform.
The road ahead requires FDPs to leverage technology to provide a truly different experience to their consumers. FDPs cannot continue to depend on partner restaurants to sustain the discounts they give on the buyer side. As consumers become more tech-savvy, they are using multiple food delivery platforms to satiate their hunger needs. In effect, they are increasingly becoming loyal customers of online food delivery but not of a single platform. Copycat marketing strategies rolled out under competitive pressure can hardly provide the differentiating factor that would make a customer pay more. Amongst all this, restaurants are rallying against the high commission rates charged by FDPs as it becomes increasingly unsustainable for them to cover such high costs [5]. We briefly discuss some ways through which AI can help enhance user experience and help an FDP build differentiated customer service.
Chatbots: Conversational AI can provide a much simpler and seamless experience on online food delivery apps. Currently, users have to open the app, find their favourite restaurant, select the dishes they want to order, choose customisations, move multiple items to the cart before checkout and then finally make the payment to place their order. It is a long sequence of steps that has a huge potential to be simplified. A chatbot with capabilities to customise orders can make the entire process simpler. All the consumer needs to do is to tell the chatbot the cuisine they want and the number of people they are ordering for. It is up to the chatbot to recommend appropriate dishes based on past order history and the profiling data of the customer. It also provides an opportunity to share promotional messages and cross-sell different food items. However, operationalising a seamless chatbot experience is not an easy feat. Clumsy interactions can defeat the entire purpose and leave the consumer exasperated. Investment in natural language processing is only the first step toward building a seamless chatbot experience. In the US, many drive-through restaurants have increased the amount of orders they can handle by employing a chatbot [6]. The platforms also have to ensure smooth collaboration with restaurants to build a satisfying customer experience. For now, FDPs only use chatbots to address consumer complaints and queries regarding their order.
Menu Engineering with Partner Restaurants: Platforms can help restaurants build custom menus using data generated on their platform. These menus can be created based not only on the consumer preferences but keeping in mind different characteristics like the time of the day, customer's location, weather, traffic conditions and availability of delivery partners. Taking it a step, ahead end-to-end customisation can also incorporate any information regarding food allergies, specific instructions regarding cooking, use of cutlery, etc. given by the consumer.
Multiple Ordering: At present, it is not possible to order food from multiple restaurants at the same time. Multiple orders will have to be placed by the customer to have food delivered from different places. It is also not possible to combine restaurant delivery orders along with orders placed for items such as groceries. FDPs can simplify this experience by stacking multiple orders and delivering all of them at once. Partnership with nearby restaurants can help achieve consolidation in last-mile delivery, especially delivering multiple orders together.
Even though the online food delivery market is dominated by a few players, competition is fierce. Although a majority share of consumers patronises a single food delivery platform, preferences can change as consumers become more tech-savvy. They can use multiple food delivery platforms depending on what they want and ditch one platform in favour of the other based on their needs. Food delivery platforms must look beyond run-off-the mill promotional strategies and deep discounts to truly provide a unique experience to their customer. They will have to ensure that the consumer chooses their brand for product-specific reasons rather than to exhaust discount coupons and avail cashback offers.
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PhD Researcher - Marketing Area
2 年Will be interesting to see how #swiggy #zomato go about this journey!