Yesterday I had an interesting chat with a startup which is selling its product at a very nominal rate. Via their website.
Like any other company, we (i.e. startups) tend to believe that a lower pricing can break all the barriers and will bring in customers.
Maybe. Maybe not.
The ‘Channel’ Value of Money
Money on the web is much more costlier than the money in the offline world.
Here is why.
If you are a ‘normal’ user, you are comfortable transacting on branded websites, i.e. irctc, makemytrip, cleartrip, rediff, indiatimes, redbus etc, i.e. websites ads you have probably seen on TV or were referred by friends/colleagues.
Show me the money
For an unknown company (especially early stage startup), the customer literally has no trust (we are talking about a typical user who doesn’t understand what a verisign certificate means) on your product and swiping credit card detail is probably the last thing customers will do.
But..I am selling at such a cheap price (on the web)
In real world, it’s just about taking out the cash and betting the same minimal amount on the product. You probably have the same question ‘Will this product work or not? I haven’t even heard about this company’, but the risk is so minimal that you do not care so much.
Come online and you have so many questions –
How will the checkout process work? How will the product be delivered? What about my credit card security? Is the product original or duplicate? When/How will I get the delivery?
Trust. Faith is missing when your brand is not known and add to this, a lot of cheap stuff done by e-tailing companies in India have added to mistrust that an average Internet user has on online transactions [read this analysis: ecommerce in India – The Misunderstood Indian Internet User].
Expecting customers to carry the same behaviour in online world as well as offline world is too much to ask for. In the online world, customer is way too wary of money and is concerned about different aspects of transactions, as compared to offline world.
And if you are a startup, it’s a sin to equate yourself with the offline world, especially when enabling transactions are concerned.
Hence, the channel value, as I said earlier is quite higher as there is a general distrust with ecommerce and early stage companies need to work more on bringing a sense of confidence in their product, before they reach customer’s wallet.
What’s your opinion?
Also see:
Ashish,
These are very valid points that you make. I have come across so many people who fear their credit card details will be “hacked” in any online transaction.
..and yet we have success stories like flipkart and redbus.
Remember that all these went through the typical trust building exercise(by advertisement, blogs etc.) before becoming a success. So my advise to a startup would be to hang in there and focus on building trust by way of consumer mind share. The longer you are there in the game, the more the chance of your success..
Exactly. Focus on user experience, trust and not on transactions from the day 1.
Thats right. One needs to focus on building trust and creating great user experience.
But, I don’t agree on the fact that the trust factor comes down or goes up by lowering prices. It has no impact on trust.
Just like in offline transactions, lower prices will definitely increase the chances of getting greater number of customers.
I just did a quick poll of 18 people(my friends, colleagues and family) and found out that 14 of them did a e-commerce transaction on a new website because of heavy discounts.The other 4 said that they tried that new website because of great product/service.
I know this sample size is very small to come to any conclusion. But, I believe it gives some sense.
+1 Srini In fact one my friends mentioned that having a password kind of protection on his credit card has made him use his card with more on the websites he uses it.
I did not quite understand the explanation, but probably this is how RBI-Concumer-Business ecosystem builds upon itself!
@Ashish
I partly agree with you, especially being an ecommerce startup. We have launched recently, and that too with great deals on branded products. I for one was aware of this pit and tried to handle it by implementing a good UI, images, Verisign etc
What I observed was that, there are a few front runners who gave it a shot, and now a lot of referrals are coming in. Similarly, initially we had a few calls from customers prior to placing their orders.
I guess it is a learning curve for us
@srini
Can u connect me to that 14
So dose off line and media adds mean trust?
Adarsh
Adars on May 12, 2010 at 7:34 pm
So dose off line and media adds mean trust?
Adarsh
Very true as far as online payment and purchasing habits are concerned. May be in case of offline ads, the trust is missing, but i know this just for once.. but in case of online transaction people use to assume that exposing their cards information may cost a lot to them.. that usual behavior.