RETAIL MANAGEMENT – Term V

Case Assignment
Group 4
PEPPERFRY.COM: TURNING THE TABLES ON DISRUPTION

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

Ans. Challenges in creating a new online vertical in furniture was the complex and high-
value nature of the category, combined with Indian consumers' preference for offline retail
purchases and logistical problems in the country. Also, the Indian furniture retail industry was
90% unorganized, highly fragmented, non-standardized, and largely non-branded, with less
than 1% of the organized segment being online. This made it challenging for Pepperfry.com
to gain consumer trust and convince them to abandon their trusted local furniture makers.
Skepticism about quality, delivery, and assembly were also major hurdles in moving
customers online.

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

Ans. Pepperfry made a marketplace for unorganized providers, which were usually small and
medium-sized businesses (SMEs), and helped them take their business online by helping
them with every step of the process. Pepperfry got small furniture stores to sell on their
platform by telling them they could put their products on Pepperfry, but when something
sold, they would have to make that item for Pepperfry. It also helped the SMEs get bank
loans, showed them where and how to buy quality raw materials, how to make the right
investments in tools, how to set up their first computers, how to set up processes for forecasts
and stock updates, and how to hire the right people. Pepperfry was very involved, and they
worked directly with more than 250 SMEs. By combining supplies, Pepperfry was able to
offer a wide range of products at great prices, which a single offline store could not do.

3. In a market where customers were not comfortable with buying online, how did
Pepperfry drive the conversion?

Ans. Pepperfry got more customers to buy by building a brand that customers could interact
with at all points of contact and by making a complete map of the consumer purchase cycle
across web, app, and real stores. The category teams made follow-up calls to find out how the
users felt, and the company made sure that all transactions on the site were profitable and that
no item was sold at a loss. The category management team at Pepperfry was in charge of
getting vendors on board, deciding which goods to list, setting prices, deciding how to sell
them, and so on. They were in charge of how well the category did, and one of the most
important measures was the conversion rate. Pepperfry set itself apart from other companies
in the industry by giving a 10-day return policy with no questions asked, free delivery, and
assembly services. Kashyap Vadapalli, Pepperfry's chief marketing officer, also agreed that
the brand communication should be done through digital, which is their preferred method.
Pepperfry invested between INR 800 million and INR 1 billion a year on marketing. This
money was split evenly between digital and non-digital (television) marketing.

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

i. Omnichannel

Ans. Pepperfry made several strategic bets in the omnichannel area to strengthen its position
as an omnichannel powerhouse. One of the key bets was to establish a strong physical
presence by opening 34 stores across India. These stores served as experience centers where
customers could touch and feel the products before making a purchase. Pepperfry also offered
free delivery and assembly services, which helped to build trust with customers who were
skeptical about buying furniture online. Another strategic bet was to build and better utilize
new revenue channels to pave the way to profitability and, eventually, an initial public
offering (IPO). Pepperfry also responded to competition from international entrants like Ikea
and domestic platforms like Flipkart by innovating and continuously improving its offerings.
Finally, Pepperfry mapped the consumer purchase cycle end-to-end (across web, app, and
physical stores), and the category teams made follow-up calls to understand the user
experience. By doing so, Pepperfry was able to cater to the target customer segment and build
a brand to engage with them at all touchpoints.

ii. House brands

Ans. Pepperfry made several strategic bets in house brands to increase overall gross
merchandise value (GMV) over seven-fold, from INR 6,500 million in 2017 to INR 50,000
million in 2020. One of the key bets was to allocate one-third of annual costs to building
these categories, including plans to create house brands for products such as lamps, carpets,
bedsheets, and the like. By creating house brands, Pepperfry was able to differentiate itself
from competitors and offer unique products that were not available elsewhere. Pepperfry also
aimed to democratize choice for customers by building a value proposition around "variety,"
which was only possible through a marketplace model. However, Pepperfry sought to change
the game by building a "curated" marketplace - not mindless listings of a million items, but
80,000 carefully selected products from specialist merchants. By aggregating supply,
Pepperfry achieved variety at great prices, which a standalone offline retailer could not
match. Additionally, Pepperfry's category management team was responsible for getting
vendors on board, choosing products to list, deciding the price, merchandising, etc. They
were responsible for the category's performance, and one of the key metrics was conversion
rate. By making strategic bets in house brands, Pepperfry was able to increase its overall
gross merchandise value and differentiate itself from competitors.
 iii. Furniture rental

Ans. Pepperfry's strategic bet in furniture rental was not so much about revenue share but
about talking to younger people. Pepperfry figured that its core audience was above 30 years
of age, whereas rental was aimed at 22- to 29-year-olds. By offering furniture rental,
Pepperfry was able to start talking early to people who would eventually move into its core
segment. This was a strategic move to expand its customer base and build brand loyalty
among younger customers.

5. How can Pepperfry respond to competitive threats from international entrants like
IKEA and domestic platforms like Flipkart? Or will the disruptor be disrupted?

Ans. Pepperfry's co-founders grappled with the question of how to respond to competition
from international entrants like IKEA and domestic platforms like Flipkart. One of the ways
Pepperfry responded was by making strategic bets in house brands to differentiate itself from
competitors and offer unique products that were not available elsewhere. Pepperfry also
aimed to democratize choice for customers by building a value proposition around "variety,"
which was only possible through a marketplace model. However, Pepperfry sought to change
the game by building a "curated" marketplace - not mindless listings of a million items, but
80,000 carefully selected products from specialist merchants. By aggregating supply,
Pepperfry achieved variety at great prices, which a standalone offline retailer could not
match. Additionally, Pepperfry's category management team was responsible for getting
vendors on board, choosing products to list, deciding the price, merchandising, etc. They
were responsible for the category's performance, and one of the key metrics was conversion
rate. By making strategic bets in house brands, Pepperfry was able to increase its overall
gross merchandise value and differentiate itself from competitors. Pepperfry also established
a strong physical presence by opening 34 stores across India. This omnichannel approach
allowed Pepperfry to offer customers a seamless shopping experience across online and
offline channels. Additionally, Pepperfry's studios served as a touchpoint for customers to
experience the products before making a purchase. It remains to be seen how Pepperfry will
respond to competitive threats from international entrants like IKEA and domestic platforms
like Flipkart in the future. However, by making strategic bets in house brands, building a
curated marketplace, and establishing a strong physical presence, Pepperfry has positioned
itself as a leader in the online furniture market in India.

PGP/26/105 SHAKSHAM RAJ