Sanjeev Bikhchandani, co-founder and CEO of InfoEdge India Ltd (the parent company of job site, Naukri.com) thinks free customers are pivotal to his business. He says, “If non-paying customers didn’t exist in our businesses, then the paying customer wouldn’t pay.”
And to attract the non-paying customers, he is investing in improving infrastructure, services and brand value. “We spent (on this) around Rs18 crore in 2005-06,” says Bikhchandani. According to an executive at a leading advertising agency, the ad budget of Naukri is likely to increase by 50% over last year’s allocation.
Curiously, all these marketing efforts are for those customers who check out stuff, laid out neatly in shelves and shop windows, and walk off without buying. Few retailers care about them. After all, they are anything but valuable. Business is about driving sales. True, but what is not right is the hypothesis that non-buying customers have no value. Savvy marketers will tell you that free customers can impact a company’s revenue, though in varying degrees, and are critical to marketing strategies.
Non-paying customers are of great significance to networked firms such as eBay, or Monster.com or Naukri.com that need to attract both buyers and sellers or job seekers and employers. Naukri.com, for instance, earns its money from employers, who pay the company a fee whenever they recruit a candidate from the job website.
The job seekers don’t have to pay when they register. “We do not receive any direct revenues from the buyers. For us, there would be no sellers without buyers and, hence, no business. Our non-paying customers are the foundation on which we make money,” says Bikhchandani.
eBay India’s chief marketing officer Rathin Lahiri adds in the same vein, “The value proposition is that you can’t grow a business until you have free customers. Getting free customers is the first point of buying interface in our business.” And for any company setting up its shop in the virtual or physical marketplace, footfalls are important, especially in a nascent stage.
“Acquisition is the key to growth in a market where pentration levels are low. And for most Indian companies, eyeing non-paying customers, driving greater traffic at low cost is one of their key marketing strategies,” adds Lahiri.
The whole theory behind free walk-ins is that at some stage, they will get converted into customers. And with this objective, companies and advertisers invest resources to attract non-paying customers. In an online marketplace, a visitor is seen as a future buyer or seller and applies to the physical marketplace, too.
Conversion rates are something that no retailer can overlook. However, conversion or value of a visitor varies. “Earlier, there was this aberration in tracking footfalls, which were calculated in terms of clicks and eyeballs. Value comes from quality (the potential target audience) and not quantity. It’s the targeted customer who brings value to the company or the advertiser,” says Arvind Singhal, chairman, Technopak, a retail-consulting firm. So, a browser is of no value to an online firm, but a visitor who has entered the site and gone to specific pages has a value as he has the intention to transact.
Likewise, a customer who walks into the store on a high -street is more valuable than, say, a shopper browsing stuff in a store at a mall because the chances of conversion is higher in case of the former. “Most of our exclusive stores have conversion rate of around 50%. We found that most non-buyers on high-street shops walk in with an intention to buy and come back to buy in three-15 days’ time. They haven’t bought because of reasons varying from unavailability of size, colour, pattern or they want to come back with a friend for an opinion on the purchase,” says Sumeet Yadav, retail head, VF Arvind.
Experts say the key reason to study such customers is to identify growth opportunities for the company. “It helps to understand if the company is currently not providing or falling short of a product or service because of which the customer does not buy; to profile non- buyers—to understand customers who do not buy, and to find out what, if any, the non-buyers of a company’s brand finally end up buying,” says Ajit Rao, vice-president and country manager, IMRB International, a research firm.
Interestingly, online firms seem to have an edge over companies operating in physical marketplaces in tracking free customers. “A virtual shop can track customers better because the system automatically records the clicks. Also, we get an idea of what the visitors have been looking for from the web pages they visit,” says Lahiri, adding, “but it doesn’t in the least mean the physical marketplaces can’t track consumers well. It’s just that it is slightly easier for us, owing to technology”.
Retail consultants feel companies need to focus more on this group. They say companies need to look further at the section which doesn’t convert into customers even at a later stage. “Most retailers have conversion rates of 20% and few try to crack the other 80% who have not converted. And I think this is not what retailers can do in the face of growing competition. Shouldn’t we be looking at the majority for insights into the consumer’s mind?” says Singhal.