Problem Statement

Jabong needs to come with a proper response with respect to Puma’s product portfolio with itself
after the “no discount policy” on 25% of Puma’s product lines w.e.f. October 1, 2014.

Jabong’s Value Proposition to customers

● Broad selection of products with competitive prices and option for cash-on-delivery
● Superior buying experience with good customer support and timely delivery

Jabong-Puma Partnership:

Jabong – Puma accounted for more than 20% sales in Jabong’s footwear segment in 2014. Due to
Puma’s brand equity it was easy for Jabong to acquire more customers and convert them into
buyers. This retention also increased cross-selling by the customers.

However, customer acquisition costs were huge accounting for large operating expenses and also
Puma being a bigger brand had a huge supplier power

Puma- It was new in the growing Indian market and hence partnered with online e-retailers to sell
its product line. With Jabong and its inventory model, not only Puma achieved better visibility for
its product in the market but also gained new customers at a minimal cost

However, due to regular discounting on the online platform for its products attracted two main
challenges. First, there was channel conflict arising between offline and online retailers due to the
pressure of regular discounting online. And second, the discounting was diluting the brand value
which Puma had. These were the main reasons why Puma was coming up with a new
discounting policy w.e.f 1st October 2014.

Impact of new proposal

JABONG PUMA

Advantages: Advantages:
● Slight increase in gross margin ● Reinvigoration of Puma’s aspirational
Disadvantages: brand image
● Lesser New customers, and loss in ● Higher gross margin for premium
revenues. products of puma
● Duplication of the model by ● Channel conflict resolution between
competitors offline retailers and e-retailers
● Value proposition will be diluted Disadvantages:
● Lesser sales volume on online
platforms
 ● Increase in Customer acquisition costs

Evaluating the alternatives

Option-1: Sell only “core articles”, same as before the new guidelines came into effect
● PROS: 25% gross margin and profitable
● CONS: Lower Sales, customer traffic and cross-selling

Option-2: Sell “core-articles” along with select SMUs as per customers’ choices
 PROS: Average gross margin - 17%
Final units sold would remain unaffected
New customer acquisition would also be unchanged
● CONS: Strong competition from other retailers selling same SMUs
Cannibalization of sales of “core-articles”
High Net Landed Cost and Customer Acquisition Cost

Option-3: Sell “core-articles” along with exclusive SMUs from Puma

● PROS: 19% average gross margin
Increase in total unit sales (by 20%)
New customer acquisition would be unaffected
● CONS: Increased inventory cost
Indirect competition for SMUs
Aggressive pricing for exclusive SMUs
Cannibalization of “core articles”

Option-4: Move from inventory model to marketplace model

● PROS: 15% gross margin
Low inventory carrying cost, customer acquisition cost and operating overheads
Increased cross-selling
● CONS: Puma could not be interested in such a model
Same model could be duplicated by its competitors
Lesser bargaining power for Jabong
Recommendation
As per our analysis, we suggest Jabong to go with our 4th option( as mentioned in the Excel sheet).
It gives a gross margin of 15% and at the same time, it results into lesser customer acquisition cost,
negligible inventory cost and lesser operating overhead. Jabong would also be able to give its own
promotional offers which will result in persuading customers to buy more from Jabong.
Considering all these, the overall profitability of Jabong will be more in this case.