Harvard Case - Zomato Gold: Platform Overreach
"Zomato Gold: Platform Overreach" Harvard business case study is written by R. Srinivasan, Sandeep Lakshmipathy, Pramoth Joseph. It deals with the challenges in the field of Strategy. The case study is 9 page(s) long and it was first published on : Feb 1, 2020
At Fern Fort University, we recommend that Zomato reassess its Gold program strategy to align with its core competencies and long-term growth objectives. This involves a multi-pronged approach encompassing:
- Refocusing Gold's value proposition towards a more premium, exclusive experience.
- Leveraging data and analytics to optimize pricing and program features.
- Expanding partnerships with high-quality restaurants and brands.
- Developing a clear communication strategy to highlight the unique benefits of Gold.
2. Background
Zomato, a leading online food delivery platform, launched Zomato Gold in 2016 as a loyalty program offering discounts and privileges at partner restaurants. The program quickly gained traction, attracting millions of members and boosting restaurant engagement. However, Zomato's aggressive expansion of Gold, including its shift to a 'pay-to-play' model, led to concerns about platform overreach and potential damage to its brand image.
The case study focuses on Zomato's struggles with:
- Balancing growth with profitability: The free-to-use model was unsustainable, forcing Zomato to implement a paid subscription model.
- Maintaining customer value: The shift to paid subscriptions led to customer dissatisfaction and a decline in user engagement.
- Managing restaurant relationships: The program's expansion strained relationships with restaurants, some of whom felt exploited by the platform.
The main protagonists in the case are:
- Deepinder Goyal: Zomato's founder and CEO, responsible for the company's strategic direction.
- Pankaj Chaddah: Zomato's co-founder and Chief Strategy Officer, responsible for the Gold program's development and execution.
- Restaurant owners: The stakeholders whose participation is crucial for the program's success.
3. Analysis of the Case Study
Competitive Advantage: Zomato's core competence lies in its technology and analytics capabilities, enabling it to provide a seamless user experience and gather valuable data. However, Zomato Gold's expansion strategy deviated from this core competency, focusing on discounts and promotions rather than leveraging data-driven insights to create a truly valuable experience.
Porter's Five Forces:
- Threat of New Entrants: High, as the online food delivery market is attractive and easily replicable.
- Bargaining Power of Buyers: High, as users have numerous alternatives and can easily switch platforms.
- Bargaining Power of Suppliers: Moderate, as restaurants are dependent on Zomato for customer reach but can also choose to partner with other platforms.
- Threat of Substitutes: High, as users can choose to dine in, order from other delivery platforms, or cook at home.
- Competitive Rivalry: Intense, with numerous players vying for market share.
SWOT Analysis:
Strengths:
- Strong brand recognition and user base.
- Extensive restaurant network.
- Advanced technology and data analytics capabilities.
Weaknesses:
- Overreliance on discounts and promotions.
- Limited focus on customer experience.
- Strain on restaurant relationships.
Opportunities:
- Expanding into new markets.
- Developing premium services and offerings.
- Leveraging data to personalize user experiences.
Threats:
- Increasing competition from established and emerging players.
- Regulatory changes impacting the food delivery industry.
- Potential for negative brand perception due to overreach.
Value Chain Analysis:
Zomato's value chain is disrupted by the Gold program's focus on discounts. The program's value creation lies in driving restaurant engagement and user acquisition, but it undermines Zomato's core value proposition of providing a seamless and reliable food delivery experience.
Business Model Innovation:
Zomato's initial business model, focused on providing a platform for food discovery and delivery, was successful. However, the Gold program's shift to a paid subscription model represents a business model innovation that failed to align with Zomato's core competencies and ultimately created more problems than it solved.
4. Recommendations
Refocus Gold's Value Proposition: Zomato should reposition Gold as a premium, exclusive membership program offering curated experiences, personalized recommendations, and unique benefits beyond discounts. This could include:
- Access to exclusive events and promotions.
- Priority reservations at popular restaurants.
- Personalized dining recommendations based on user preferences.
- Partnerships with premium brands and services.
Leverage Data and Analytics: Zomato should utilize its robust data analytics capabilities to optimize pricing and program features. This includes:
- Dynamic pricing based on demand and user behavior.
- Targeted promotions based on user preferences and demographics.
- Personalized recommendations and content based on user history.
Expand Partnerships: Zomato should focus on building strategic partnerships with high-quality restaurants and brands that align with Gold's premium positioning. This could involve:
- Exclusive partnerships with Michelin-starred restaurants.
- Collaborations with luxury hotels and resorts.
- Partnerships with premium food and beverage brands.
Develop a Clear Communication Strategy: Zomato should clearly communicate the unique benefits and value proposition of Gold to its target audience. This can be achieved through:
- Targeted marketing campaigns highlighting the program's exclusivity and benefits.
- Engaging social media content showcasing Gold's unique experiences.
- Dedicated customer support channels for Gold members.
5. Basis of Recommendations
These recommendations are based on the following considerations:
Core Competencies and Consistency with Mission: Refocusing Gold aligns with Zomato's core competencies in technology and analytics, enabling it to create a premium experience through data-driven insights. This also aligns with Zomato's mission to 'make food discovery and ordering easy.'
External Customers and Internal Clients: The recommendations address both customer and restaurant needs by offering a more valuable and exclusive experience for users while fostering stronger partnerships with high-quality restaurants.
Competitors: By focusing on premium offerings and leveraging data, Zomato can differentiate itself from competitors and capture a more profitable market segment.
Attractiveness: The recommendations are expected to improve user engagement, increase customer lifetime value, and enhance restaurant relationships, ultimately driving profitability.
6. Conclusion
Zomato Gold's platform overreach has led to a decline in customer satisfaction and strained relationships with restaurants. By refocusing the program's value proposition, leveraging data and analytics, expanding partnerships, and developing a clear communication strategy, Zomato can revitalize Gold and transform it into a valuable asset for its business.
7. Discussion
Alternatives:
- Abandoning the Gold program: This would eliminate the program's challenges but also miss out on the potential to create a valuable premium offering.
- Continuing with the current model: This would maintain the program's current user base but risks further alienating customers and restaurants.
Risks and Key Assumptions:
- Customer acceptance: There is a risk that users may not be receptive to a premium, paid subscription model.
- Restaurant participation: Attracting high-quality restaurants to the program may be challenging.
- Competition: Competitors may launch similar premium offerings, increasing competition.
Options Grid:
| Option | Benefits | Risks |
|---|---|---|
| Refocus Gold's Value Proposition | Increased customer satisfaction, higher user engagement, improved brand image, stronger restaurant relationships, greater profitability. | Potential for customer resistance to a premium model, difficulty attracting high-quality restaurants. |
| Abandoning the Gold program | Reduced operational costs, improved brand image, focus on core business. | Loss of revenue, potential for customer churn, missed opportunity to create a premium offering. |
| Continuing with the current model | Maintenance of existing user base, potential for continued growth. | Continued customer dissatisfaction, strained restaurant relationships, potential for negative brand perception, unsustainable financial model. |
8. Next Steps
- Conduct market research: Assess customer and restaurant preferences for a premium Gold program.
- Develop a pilot program: Test the new Gold program with a select group of users and restaurants.
- Refine program features and pricing: Adjust the program based on pilot program feedback.
- Launch the new Gold program: Promote the program to existing and potential users.
- Monitor performance and make adjustments: Continuously track user engagement, restaurant participation, and financial performance to ensure the program's success.
By taking these steps, Zomato can transform Gold from a liability into a valuable asset, driving growth and profitability while enhancing its brand image and customer loyalty.
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Case Description
This case discusses the hyperlocal food delivery business firm ZomatoTM and its business model. The case outlines how the firm went ahead and enhanced its business model to launch their new loyalty programme called Zomato Gold. It focuses on the sustainability of the hyperlocal business delivery model and the challenges faced by it to succeed and deliver against competition. This case outlines how Zomato put to disadvantage one of the platform participants and how this turned out for the platform as a whole. It also delves into an analysis of the loyalty programme to review the critical aspects of platform overreach and how it altered the network effects of this multi-sided platform business. The case can be used to teach the downsides of multi-sided platform business model - how an overreach on any one aspect of the platform sides can threaten the fine balance of the platform participants, remedial measures that need to be undertaken to restore confidence, and how platforms need to deal with the new normal that emerges after these confidence lowering incidents.
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