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The Great Exchange offer of Big Bazaar
Submitted by bhanu on Sat, 03/09/2013 - 23:40.
Big Bazaar is currently running their much awaited ‘The Great Exchange Offer’. Every year since 2009, they have run this offer during this time of Feb-March. In essence they offer tempting rates for your junk (Old news papers for 30 Rs/Kg for example) that are too good to resist, you get exchange coupons for your old items and the same can be redeemed against the new purchases.
Following are the rates being promised for some of the items:
- Old Newspapers: 30 Rs/Kg
- Old Clothes: 250 Rs/Kg
- Old Plastic: 80 Rs/Kg
- Old Utensils: ~200 Rs/Kg
- Old footwear: 30/50 Rs per pair
- Other junk: ~30 Rs/Kg
You can get a quote for other items like furniture, old electronics/computers etc.
So far so good, in fact to put this in perspective, these days an average newspaper subscription costs you ~100 Rs while the same results in ~4 Kgs of raddi every month(thanks to all those supplements). Given this equation, it is possible for you to read your newspaper for free forever.
This proposition is obviously too good to be true, and hence we need to see if there is a catch (and there is, as we see later). Even the high grade copier paper sells at ~50 Rs/Kg in bulk. So this 30 Rs/Kg does sound a bit out of place. This is true for most of the other items as well. We also know that Big Bazaar is not doing this for any green initiatives/environment. So the only possibility is that knowingly they are quoting a rate that does not make economic sense if seen in isolation, and all losses out of this scheme might be taken as selling expense. On Big Bazaar’s part they have linked coupon redemption to new purchases, so all this expense is guaranteed to result in sales.
The redemption is:
- Upto 10% worth of coupons to be accepted for Groceries, Beauty Products, Electronics, Mobiles, T24, Watches, Sunglasses, Jewellery etc. So if you purchase an electronics item worth 5000 Rs, you can utilize coupons worth 500.
- Upto 20% on high margin categories like Apparel, Plastics, Utensils, Crockery, Home Fashion, Toys, Stationery, Furniture, Footwear etc. On such categories if you make a purchase of 5000 Rs, you can utilize coupons worth 1000.
- On certain items like Sugar, rice etc, there will not be any benefits of exchange (0%)
- These coupons will be valid till 7th April
By linking coupon redemption to new purchases and by keeping such low rates of redemptions, company has ensured that the strategy works in their favour.
So let’s see this scheme from the company’s perspective:
1) Costs: Let’s say a customer returned old junk & got coupon worth 100 Rs. Company disposed/used this junk for 50 Rs & effectively made a loss of 50 Rs. (Going by the paper example, old paper can be disposed at ~15 Rs/Kg by a bulk supplier.. let’s assume similar 50% kind of number for other items)
2) On an average, customers will be able to get 10% off in terms of coupons (No exchange on some items+ 10% on some + 20% on some). For simplicity let’s assume an item sells for 1000 Rs. With the coupon the customer pays 900 Rs in cash & takes home the item.
3) Even if the profit margins were as low as 10% on this item (100 Rs on 1000 Rs item), the company still made a profit of 50 Rs.
So, for the company might make a loss only for items where the margins are less than 5%(highly unlikely, given that Pantaloon(future group) has an operating margin of ~10% & the COGS to Net Sales reflect margins of >15%(as taken from the annual reports). Add the following 3 points to this equation:
- Not all issued coupons will be used (given all the constraints & timelines)
- The company will withdrawn some of the on-going promotions and schemes during this period. So if you were getting 5% OFF an item till last month, perhaps it is selling at MRP now.
- This generates tremendous interest in public, resulting in higher footfalls & sales. The coupons can also entice people to purchase things that they don’t really need(and would not have purchased, at least now, if the coupon was not there)
With this, you will realize what a great marketing vehicle this is for the company! They take back waste at exorbitant rates & still make more profit out of the whole deal.
4) Due to all the constraints on coupon utilization, it is possible that many of these coupons will remain unused (bringing the losses further down). If 100% of released coupons are utilized the company loses 50% (point 1 above), with a lower utilization level, this is more likely to be at 30- 40%. This means that the equation will be further in favour to the company
5) This is a delicious proposition to the consumers and something with a viral potential(imagine Ms/Mr X bragging about getting 4000 worth of coupons & the competitive fire that it stokes in others)
Our Take on this offer: Theoretically, this is a great scheme without any doubt. This also speaks volumes about the marketing talent that is at Mr Biyani’s dispense (Santosh Desai comes to top of my mind). After doing this for so many years, and being an Indian retailer, they have built a potential competitive advantage. Given the logistics involved and the scale required, I can’t imagine another retailer attempting something similar.
But despite all the potential, in reality the execution is below par.
Just like any corporate, BigBazaar is too money minded here and falls just short of going all out & wowing you. The biggest issue is that the prices are lower at certain other times (the republic days time), & now they are anyways 5-10% higher than that (in fact this is the period when you will find the lowest discount offerings by them). So if you actually track them closely, you feel slightly disappointed after all the efforts. Moreover the reception at such junk collection points is more or less BigBazaar type. Then, there are just too many riders attached (coupons, category-wise redemption limit, short time-frame, timelines of collection at stores etc), even if they declare all of them in advance, I found that almost all of the customers get some surprise or other at the billing counter. These all are easily addressable but in current state, put together they might sour the experience for most of the customers. There is a bigger risk that a poor execution might strengthen the cheap (in other terms) notions with the brand name.
For Consumers: To really benefit from such a program, we would like you to consider the following words of wisdom:
- Don’t over purchase much just because you have coupons.
- Don’t try to create(hmm I might not use these cloths!) junk out of items that you can yourself re-use, junk is something that you will never use, and should be identified easily.
- Try to break up the junk->coupon->discount cycle into more than one (if logistics involved allow you to). You will able to realize the value of the exercise for yourself. This will also avoid situation when you have a high value of coupons at hand and then search for things that you can buy(that is reversing the law of buying, you need something and then look for price/discount.. not the other way).. Don’t forget, that to utilize every 1000 Rs of coupons, you’ll have to shell out at least 4000 Rs from you own pocket.
Please share you own experience with this scheme of BigBazaar.