Maximizing profits through differential pricing: Zomato and Swiggy are implementing differential pricing strategies

Zomato and Swiggy are implementing differential pricing strategies for their food delivery subscriptions, aiming to boost profitability. Find out how they plan to monetize their subscribing customers and the potential impact on their contribution margins.

Jun 13, 2023 - 18:44
Jun 13, 2023 - 18:44
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Maximizing profits through differential pricing: Zomato and Swiggy are implementing differential pricing strategies

Swiggy and Zomato are implementing a differential pricing strategy for their food delivery subscription packages, aiming to increase profits from subscribing customers. According to Kotak's research, Zomato Gold's three-month subscription currently ranges from INR 199 to INR 299, with limited-time offers of INR 1 and INR 49 for one month. Similarly, Swiggy One subscription prices vary from INR 249 to INR 749 for three months. Zomato and Swiggy are implementing differential pricing models for their subscription packages, which Kotak Institutional Equities believes will enhance monetization. The brokerage noted that both food delivery giants have introduced this pricing strategy to improve the contribution margin from their subscribing customers. Implementing differential pricing for the subscription packages will contribute to higher contribution margins (CM), particularly by charging higher prices to customers who order frequently. It is worth noting that Zomato relaunched its customer loyalty program, Zomato Gold, earlier this year, replacing the previous Pro Plus membership. The discontinuation of Zomato's Pro Plus and Pro loyalty programs in the previous year had raised concerns among investors, as loyalty programs provide a stable customer base, while Swiggy was already reaping the benefits of Swiggy One.

Also Read: Zomato Ventures into Generative AI Following Blinkit's Lead

Initially introduced at an introductory price of INR 149 for three months, Zomato Gold experienced a subsequent price increase to INR 299 for three months for the majority of users. According to Kotak's research report, Zomato Gold's three-month subscription currently ranges from INR 199 to INR 299, with limited-time offers of INR 1 and INR 49 for one month available to select users. Swiggy One's subscription price has seen a significant change from INR 399 for three months earlier this year to INR 749 for many users, albeit at a discounted rate. The research report indicates that Swiggy One still offers subscription options ranging from INR 249 to INR 749 for three months. Additionally, a few users have the choice of 12-month subscriptions priced at INR 899 and INR 1,199. Kotak Institutional Equities highlighted that Zomato has shown substantial improvement in contribution margin (CM) during FY23, and they anticipate continued benefits from strategies such as enhancing take-rates and leveraging operations in FY24-25. Furthermore, considering the funding challenges in the market and increasing investor emphasis on profitability, both Swiggy and Zomato, along with other loss-making tech companies, have intensified their efforts towards achieving profitability. Zomato announced last month that, apart from its quick commerce vertical, its overall business achieved adjusted EBITDA positivity in Q4 FY23, following the operational profitability of its food delivery segment in Q1 FY23. Similarly, Swiggy's CEO, Sriharsha Majety, recently stated that their food delivery business became profitable as of March 2023. Regarding Zomato's overall business, Kotak Institutional Equities mentioned that Blinkit, a subsidiary, has made significant progress in reducing losses, and the diminishing competitive intensity is expected to contribute to achieving contribution margin breakeven in FY24. Blinkit's contribution margin improved from -4.5% in Q3 FY24 to -2.7% in Q4 FY23. Kotak Institutional Equities has raised its fair value on Zomato's stock from INR 82 to INR 95, indicating a potential upside of 22.5% based on the stock's previous closing price. The brokerage has also revised its EBITDA estimates for FY25-26 by 14-65% due to anticipated improvements in near-term contribution margin. Zomato shares, which have experienced significant gains in the past six sessions, closed the market slightly higher at INR 77.79 on the BSE. write meta descriptions, tagline, keywords and social media captions

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Grishma Bhatia Food news junkie and social media enthusiast. I write about all things food, from the latest trends and recipes to industry news and events. With a passion for all things delicious, I strive to bring you the most interesting and informative food content around. Follow along for mouth-watering recipes, restaurant reviews, and breaking food news