Can Zomato Continue its Deep Discounting Strategy? (Abridged)

Abstract:

Zomato, one of India’s leading Food Service Aggregators (FSAs), was engaged in a conflict with restaurant partners over its practice of offering high discounts to customers. On August 15, 2019, hundreds of restaurants under the National Restaurant Association of India (NRAI) launched a logout campaign and delisted themselves from platforms of FSAs such as Zomato, EazyDiner, Nearbuy, Magicpin, and Dineout, alleging that the aggregators had distorted the food service sector through aggressive discounting and predatory pricing, which hurt the core value proposition and bottom line of restaurants. Zomato, in particular, came under severe criticism as its premium subscription-based dining out service Zomato Gold (ZG) had 6,500 restaurants partners and a total of 1.1 million subscribers in India as of August 2019. As part of the campaign, around 2,500 restaurants logged out from the ZG service. Zomato’s co-founder and CEO Deepinder Goyal (Goyal) urged restaurants to stop the logout campaign in the interest of consumers. He admitted that Zomato had made some mistakes and tweaked the ZG program. However, NRAI refused to accept the modified version of the plan, saying that the corrective measures would not resolve the key issue of deep discounts. Goyal then said he would stand by the changes made. He even expanded the ZG service to food delivery. However, time was fast running out for Goyal as Zomato ran the risk of being overtaken by rivals. He would have to resolve the issue quickly in the best interests of all the stakeholders.

Issues: » Understand the issues and challenges in operating a platform business, particularly in the food service sector. » Analyze the pros and cons of sales promotions such as loyalty programs and discounting. » Critically analyze the Zomato Gold loyalty program, and understand the reasons for the conflict between Zomato and its restaurant partners. » Identify the challenges before Zomato and explore strategies that the company can adopt in the future to shift the focus of diners from discounts to loyalty. Introduction Since August 2019, Zomato, one of India’s leading Food Service Aggregators (FSAs), was engaged in a conflict with restaurant partners over its practice of offering high discounts to the customers. While the FSAs were credited with creating a digital platform to bring restaurants closer to customers, National Restaurant Association of India (NRIA) alleged that in their one-upmanship to acquire customers they resorted to deep discounting spoiling customers and eroding loyalty. NRAI alleged that restaurants bore the brunt of these heavy discounts, which came at the expense of their brand value, core value proposition and bottom line. On August 15, 2019, hundreds of restaurants under NRAI launched a logout campaign and delisted themselves from platforms of FSAs such as Zomato, EazyDiner, Nearbuy, Magicpin and Dineout. Zomato, in particular, came under severe scrutiny as its premium subscription-based dining out service Zomato Gold (ZG) had 6,500 restaurants partners and a total of 1.1 million subscribers in India as of August 2019. As part of the campaign, around 2,500 restaurants logged out from the ZG service..

Key words:
Managing Platform Businesses, Managing Networked Businesses, Sales promotion, Deep Discounting, Loyalty programs, Brand Equity, Brand Management, Customer loyalty, Conflict management, Marketing Management Service marketing"

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