Flipkart eyes Amazon Prime-like customers with launch of VIP membership

The company is focusing on shoppers in Delhi NCR, Bengaluru, Mumbai, Kolkata and a few other select PIN codes, or the crème de la crème of shoppers.

Flipkart is now going head-to-head with Amazon in India, offering up its version of Amazon Prime titled Flipkart VIP to users. Both are fiercely competing for a larger share of the e-commerce pie and the launch comes just days before this year’s festive season sale goes live and the two giants look to woo customers with steep discounts.

Flipkart VIP is being sold at an introductory price of Rs 499 per year — similar to what Amazon had priced the Prime programme during its initial years — but is a third of what Amazon currently charges for Prime. While this may eventually increase, both are similar when it comes to other facilities like early access to sales, steeper discounts and the like.

Flipkart promises free same-day/next-day deliveries for VIP members in the areas it has selected. While it comes close to Amazon Prime’s offerings, there is still a while before the Walmart-owned company offers similar services to customers outside of these regions. Flipkart does not explicitly promise free same-day/next-day deliveries to all customers currently, which has helped Amazon get an edge over its competitor, thanks to Prime.

Flipkart VIP will also fast-track customers’ returns, which will now be picked up within 48 hours. Members who enrol themselves under the paid programme will also get a dedicated agent for their queries, something that Amazon does not currently offer.

However, Amazon Prime comes bundled with Prime Video, Music, Gaming and Reading. Flipkart VIP doesn’t have entertainment offerings as yet, but allows members to reschedule flights at nominal rates through Cleartrip.

"This will elevate our customers’ shopping journey by enabling them with this premium service and seamless access to a myriad of benefits across the Flipkart group including Cleartrip. Our unique reward ecosystem extending across our partner platforms underscores our unwavering commitment to deliver the best experience to our customers,” Prabh Singh, senior vice president for Growth (User and Ads) at Flipkart, said.

The company also added that this will bolster Flipkart's attractiveness to customers by addressing their nuanced needs, but did not shed light on the number of sign ups and how the response has been.

Behind the move

While Flipkart has been increasing its focus on Tier 2 and beyond cities, it has different plans with Flipkart VIP. The company is focusing on shoppers in Delhi NCR, Bengaluru, Mumbai, Kolkata and a few other select PIN codes, or the crème de la crème of shoppers. Buyers in the top metro cities tend to spend more while shopping online, which explains why Flipkart is not introducing the programme to all.

However, rival Amazon, with Prime, already sits pretty in several of the metro cities that Flipkart is targeting with VIP.

To be sure, Flipkart has a tiered rewards system for its customers, with VIP right at the top, with others such as Plus and Plus Premium. Unlike VIP, the other two categories are not paid memberships but instead based on the number of purchases made in the past year. Anybody who ordered more than four times qualified for Plus and they were eligible for Plus Premium if they placed over eight orders in a year, a relatively low bar for most metro and premium customers.

While Plus and Plus Premium offered similar incentives like VIP, they weren’t as widespread as the latest membership programme is. For instance, while both Plus and Plus Premium offered special incentives on over 5 million products on Flipkart, VIP offers incentives across all products on the e-commerce site. Customers in the lower-tier categories were given only a chance to earn an extra 2-4 percent Supercoins, up to a certain limit, whereas VIP offers 5 percent extra savings with no capping.

This is not the company's first attempt at subscription service. In 2014, the company had Flipkart First service for an annual fee of Rs 500 offering free next day delivery and priority customer service. However, it was discontinued a few months later and the reasons were not announced either.

Flipkart’s move to launch VIP selectively is largely because it has seen Amazon Prime work well.

Non-Prime shoppers on Amazon have an average order value (AOV) of around Rs 1,000-1,200 but Prime customers have an AOV of Rs 1,800-2,000, nearly double that of regular shoppers, according to Satish Meena, advisor to Datum Intelligence, a market research firm focused on consumer technology.

“There is Flipkart Plus but it has not been able to make a dent and attract customers away from Amazon Prime. So now Flipkart is launching something (VIP) which is more comparable to Amazon Prime and will offer additional products and services to the top 50 million customers, which is the most important base as in India for now,” Meena said.

The 5 percent game

With VIP, Flipkart is also offering a flat 5 percent off on all products. The catch is that this comes by way of Supercoins, the platform’s points-based reward that customers get for every purchase made on the e-commerce platform. This applies over and above any other existing offers.

The final discount amount is capped at Rs 1,000. In effect, the benefit will work with products that are priced up to Rs 20,000, which is good enough for most large purchases.

Non-Flipkart VIP customers get a flat 5 percent discount if they have a Flipkart Axis Bank credit card. The card doesn’t have any caps. If customers opt in for Flipkart VIP, they will not need this additional credit card to get a 5 percent discount.

The Flipkart-Axis Bank credit card competes with the Amazon ICICI credit card, one of the country’s most popular credit cards. Currently, Amazon Prime customers who pay via the Amazon ICICI credit card get 5 percent cashback as Amazon Pay Balance on all purchases made on the platform. Non-Prime users get a flat 3 percent cashback if they pay using the same card. The offers make the credit card an attractive option since the base of online shoppers is only growing.

There are over 650 million smartphone users in India and Amazon has a total of around 200 million monthly active users (MAUs) in India, of which 18-20 million are Prime users, according to Meena. “Amazon Prime customers buy more frequently and buy more categories. Prime customers are the most profitable customer for Amazon not only in India but globally,” he added.

MAUs are the ones who log on to an app at least once a month.

Flipkart too has a roughly similar MAU base. “With Flipkart VIP, the company wants to tap into the customer base that Amazon is catering to through Prime,” Meena said.

Analysts have predicted that the gross merchandise value (GMV) of e-commerce companies is poised to grow by up to 20 percent year-on-year to touch Rs 90,000 crore in 2023. Now, the launch of Flipkart VIP comes at an interesting time, as the festive season is crucial for all as it accounts for about 50 percent of total GMV for e-tailers.