As we mentioned in our blog post on Zomato Infrastructure Services, there are three key strengths of Zomato as a business –

• User penetration and market share
• Rich data about our users
• Supplier relationships

Keeping this in mind, less than six months ago, we started our table reservations business by switching on our “concierge” based table reservation service in Delhi NCR. We started with the top 1000 most visited restaurants in Delhi, on Zomato.

In 30 days, we clocked ~16,500 reservations for restaurants in Delhi, and by our estimates, overtook the largest reservations player in India with zero marketing spends. Gradually, we switched the feature on in a lot more cities, and also started integrating the restaurant’s inventory systems with our reservation systems to provide a more real time experience to our users.

A couple of months later, we launched our reservations service in Dubai. It took us about half a day to become the largest player in the country by number of reservations in a day. This also prompted Deepinder to send an email to the entire team (#facepalm) –

I can go on and on about how cool the sheer amount of traffic that Zomato gets is, and what we can do with it. But for now I am focusing on growing the table reservations business, and will talk about just that.

While all this is great, the biggest challenge in growing the table reservations business is that even though we are already the market leaders in both India and UAE, people don’t generally reserve tables in these two countries. And we needed to find ways to grow the business faster. One obvious thought we say no to, time and again is discount led growth. Which means that you offer steep discounts to users to get them to try out your product, and over time hope that these users will become full price customers.

This blog post is to educate all of us on the downsides of discounting led strategy. Fortunately, we didn’t have to learn this on our own.

One week before the week of Valentine’s day, one of our competitors had launched a multi-million dollar deep discounting marketing campaign (up to a crazy 90% off) to get users to try their product, with hope that the users will stick to the platform. All along the way, we resisted the temptation to follow suit and resort to unsustainable tactics in order to grow and compete. In fact, we got down to the basics and kept chugging along to ensure great user experiences through the Zomato app.

Now, we also regularly talk to a majority of our restaurant partners to keep track of competitor’s metrics. Here’s what we discovered about our competitor’s booking volume vs ours during the week of deep discounts, and the week after.

Faith in humanity restored.

The writing on the wall is clear – there’s more to growth than discounts. All that matters is getting the right users/customers to try out your product and keep using it. Not all users/customers are right for your business – some of them hurt the business. People who prefer deep discounting always need a bait to switch (we have been saying this since the Groupon days, and nobody ever learns).

In the meanwhile, we do get an occasional email from a user or two complaining about the lack of deep discounts on Zomato. We only reply with “it’s a feature, not a bug”.

Footnote – discounting does work in some cases. For example, when you want to run your competitors out of money. According to us, it just doesn’t work for customer acquisition.