RM Pepperfry Group 3

RETAIL MANAGEMENT
CASE STUDY PEPPERFRY
GROUP 3
Abhishek 126 | Mayank 159 | Meghana 160 | Soubhick 181 | Riya 357
1. What were the challenges in creating a new online vertical in furniture?

A1.
The furniture and furnishings sector in India is a big market of $ 20 billion (the furniture
market alone is worth $ 10 billion) and is listed as the world's fifth largest. However, in
comparison to more established markets, the sector is still under-penetrated on a per
capita basis.
● The need for touch and feel - The need for touch and feel is high in the
furniture market. Driving this need further, is the relatively high investment that
needs to be put in for the product.
● Unorganized, Fragmented and non-standardized Indian furniture retail
industry
● Low trust with the website – Unlike early online companies such as Flipkart
and Amazon, online furniture players such as Pepperfry, Urban Ladder, and
FabFurnish are relatively new to the online industry and will need to gain and
create trust and confidence.
● Long Delivery times – Online furniture retailers' delivery times are much longer
than those of physical locations. This is due to the fact that most online retailers
have yet to localise their manufacturing facilities, and shipments are made across
India from furniture hubs such as Jodhpur.
● Advance payment – Furniture is generally a large-ticket item that necessitates
an online deposit. For smaller items, cash on delivery is permitted. Customers
are hesitant to purchase furniture online because they cannot feel the product
and must pay in advance.
● Poor infrastructure and supply chain - Due to missing linkages in supply chain
infrastructure, poor ‘last mile connectivity' is limiting access to places where a
major part of online customers dwell.
● There is no prototype in the online industry for a vertical like furniture that
could be imitated by Pepperfry - They overcame this by building their “Large
Item Distribution model” which is a first of its kind.
● Standardization of the customer experience
● Packaging
● Customer base too small - The target customer base was too small. Most
people in India do not use the internet. Out of the ones who do only 25 to 30
million consumers would live in areas such as metros and mini metros that can
be reached without increased cost of shipping.
● Supplier marketplace not available - The suppliers of furniture were not
interested in joining the curated marketplace of Pepperfry.
● Nature of product - Value of the products are high and hence it is a high-cost
business
● High cost of creating furniture - The products require skilled workers to make
it. Most of the products are complex and cannot be made using a standardized
process.
2. How did Pepperfry create a platform to connect supply and demand?

A2.
The creation of a Platform required the following:
● Supplier network – The furniture was created by SMEs who were mostly
unorganized. They were not very tech savvy and hence were sceptical of doing
business with Pepperfry. Pepperfry had to place their employees in the premises
of the SMEs. These employees improved the operations of the SMEs by creating
forecasting processes, creating a tech-based business, help in getting financing
and by making investments in the right machines.
● Platform Architecture – Pepperfry needed to be a curated marketplace to create
positive cross side network effects. The platform showed 3 dimensional pictures
of furniture and showed proper details and prices. For this they created a strong
forecasting process that could predict the right number of items to be ordered
and accordingly place the order at the SMEs. Pepperfry also ordered specific
items from specific parts of India such as brassware from Faridabad. They also
offered décor items so that customers can try out the platform first by buying low
priced products. The décor items were also brought with less involvement and
hence created the major volume of sales for the platform.
● Buyer network – The target customer segment of tech savvy young metro
professionals was attracted using digital marketing. They used inorganic
methods such as content-based ads.
● Monetization – Pepperfry did not obtain any revenue from advertisers. Instead,
they made margins of 45 to 55% from product sales if Pepperfry did the shipping.
For suppliers who shipped to customers the margin was lower at 15 to 20%.
3. In a market where customers were not comfortable with buying online, how did
Pepperfry drive the conversion?
A3.
● Creation of a Curated marketplace
They built their entire value proposition around “variety” because the furniture
business is run on a “long tail” and the only way to succeed was to democratize
choice for customers. They employed 2 levels of curation to achieve this.
● Customer purchase behaviour analytics and insights

Customer behaviour drove curation, as the products which did not sell were
discarded. They kept iterating to reach the accurate number of listings given to
the customers.
● Pepperfry leveraged decor and utilities to ensure that the brand stayed relevant
for consumers between purchases and to develop gradual consumer trust.
Hence, they allocated one-third of annual costs to building these categories,
including plans to create house brands for products such as lamps, carpets,
bedsheets, etc.
● Experience Centers
Pepperfry created these studios for customers who were hesitant about buying
big furniture items online. They allowed them to touch and feel Pepperfry’s
differentiated portfolio. The studios were set up for design inspiration. The
customers were also able to close deals online in the studio itself.
4. Discuss the strategic bets made by Pepperfry in the following areas:

A4.
a. Omnichannel
● Order totals were 80-100 percent greater than those received over the internet.
● To increase its reach through the offline channel, Pepperfry launched 34 studios
and a franchisee model with seven locations.
● Pepperfry spent between 0.8 and 1 billion dollars on marketing each year, split
50-50 between digital and traditional TV.
● Pepperfry was debating whether or not to go out onto non-metro lines to capture
the next wave of clients.
● In 2018, the studios were able to supply roughly 20% of the total market. As a
consequence, Pepperfry expects to double its existing franchisee count to 70 by
2019. The goal was to increase studio sales by roughly 35-40%.
b. House brands
● Pepperfry launched ten specialty housing brands in the furniture, modular, and
mattress markets.
● Home brands had a margin of about 50% of total GMV, which was 10% greater
than consumer brands.
c. Furniture rental
● As economic sharing grew, renting furniture services in immigrant-heavy areas
became increasingly common.
● In 2018, Pepperfry discreetly started a furniture rental service. It gathered data
on the requested items, as well as the delivery timeframe and payment methods.
Based on the data, it began creating distinct rental lines.
● Despite the fact that this was not one of their most significant clients, they wanted
to begin communicating with them through this rental service as soon as possible
so that they might eventually migrate to the major section.
5. How can Pepperfry respond to competitive threats from international entrants

like IKEA and domestic platforms like Flipkart? Or will the disruptor be
disrupted?
A5.
Pepperfry has various avenues where it can better position itself to protect from any
threats:
• Offline experience: By increasing their offline stores, Pepperfry can make sure of
increased footfall and the increase in traffic will raise awareness. Offline stores
give order value that is almost double of online mode. The touch and feel would
give customers a better experience as compared to just ordering online.
• Leverage Social Media: A creative that connects all the elements of the
experience provided by Pepperfry will create more engagement on social media
platform. Social media can be used to entice tech savvy metro and mini metro
population. A well-crafted creative can also increase top of the mind recall.
• Rental Furniture Space: Rental space is estimated to be worth $3 Billion. Rental
space has next to no presence of big players like Ikea, Amazon, Flipkart, taking
advantage of this can give Pepperfry an advantage that these players might find
difficult to overcome.
• Home Décor: Leveraging the partnership with interior designers and architects,
Pepperfry can create enticing products/design ideas that will give them edge over
competitors.
The cofounders understood that the furniture business ran on a long tail and the way
to success would be by democratizing choice for customers. They provided
costumers with a curated variety so as to not overburden or under burden them.
Pepperfry have changed their business model as per the trends they noticed, from
the initial ecommerce to physical stores as well. So Pepperfry is well equipped to
face whatever disruption new entrants might bring.
6. What strategic drivers do you recommend for Pepperfry to achieve
profitability?
A6.
The following are the strategic driver recommendations:
● Enter B2B logistics space: Leverage the competency of Pepcart that is the
logistics arm of Pepperfry to provide services to other companies for shipping
large electrical goods like TV's and washing machines.
● Rental Market: Give prominence to the rental market as the customers of this
segment (age 22-29 year olds) will grow into pepperfry’s core segment (30 years
and above).
● Offline Studios/Franchises: Increase the offline presence since the order value
is close to double as compared to online mode.
● House Brands: Leverage the house brands to increase the GMV since the
average margin on house brands was 10% higher than marketplace products
and contribution of about 50% of GMV.
● Decor as gateway: Since decor transactions are still majority in terms of volume,
start using the decor segment to drive furniture sales by suggesting creative
interior design inputs.
● Pepperfry Privilege: Use the partnership with interior designers and architects
to create a new design section where designers can post their ideas and get
commissions on sales.
● Warehouse Utilization: Since the Pepperfry used the marketplace model its
warehouse utilization is low. Pepperfry can think about leasing the space to other
retailers or its suppliers.

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RETAIL MANAGEMENT

CASE STUDY PEPPERFRY

1. What were the challenges in creating a new online vertical in furniture?

2. How did Pepperfry create a platform to connect supply and demand?

● Customer purchase behaviour analytics and insights

4. Discuss the strategic bets made by Pepperfry in the following areas:

5. How can Pepperfry respond to competitive threats from international entrants

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