Zepto Pass
People seem very interested in the fact that Zepto sold 4 million passes. While others are contesting the claim and asking what % of passes were sold for 1 Rs. I don’t care about either. What I am more interested in is:
- Is the pass a loyalty tool or a demand creation tool? A loyalty tool will ensure long term user retention at a short term hit to unit economics, whereas a demand shaping tool will ensure that they generate X additional orders through that demand budget spend. Of course, there are also second-order effects. For example, Zepto gets free marketing because users talk about passes.
- A lot of people get confused between the two. Take Amazon Prime for example. People were freaking out about the money Amazon was burning when they started. But look at them now—Prime was a game-changer. Prime helped Amazon cross the invisible asymptote (see Eugene Wei’s amazing post on this), helped them build their infrastructure that lowered costs in the long run, and helped them think long term about how to increase the value they provide to Prime users. Streaming video, music and other things came along eventually. My recollection is that 70% of US households have Prime. It has helped them to create the infrastructure to reduce the delivery time by X per cent for Y per cent of orders. And over time, you can always increase the price of the subscription. Swiggy has done that in India.
- If it is a demand shaping tool, then you also care about CPIGT (cost per incremental gross take) and CPIT (cost per incremental transaction) as part of the demand budget to generate X incremental orders. Then it is in competition with other demand shaping tools like manual coupons, auto discounts, cash backs and others.
- Over a period of time: Are you subsidising the right customers? For example, are you providing Pass to customers who have LTV > CAC, subsidising transactions with high AOV that makes the transaction UE +ve, or are you subsidising the wrong customers who will never become profitable customers for your platform and you will continue to bleed each order they place on your platform.
- Look at the retention of those using the Pass.
- Is it incremental? Say a user would place X orders without a pass versus Y orders with a pass?
- Does Pass drive enough order density for nearby dark shops to structurally reduct opex for each dark shop? You need X orders per day for each dark store to be sustainable, so do you also subsidise Passes to users based on location?
- If you look at the pass as a stand alone product, like the way it is being talked about on Twatter, what is the P&L of that product?
- I would look at the transaction level, the user level, the dark store level (geo) and also the Pass as a product with its own P&L.
- Can the utilisation of the Zepto delivery boys and the incentives they get be better utilised with each incremental Pass orders, so that the economics make sense at a quantum level?
- The value proposition of the Pass will also be tailored in a consistent manner: What AOV ensures free delivery for pass users, how much of a discount do pass users get, do passes ensure the benefit of the 3rd part (read the podcast from Acquired Costco).
- If market share is the name of the game and you have to subsidise pass users for the next few months, will the incremental market share make it worthwhile and help you raise your next mega round or get acquired by Swiggy or Zomato?