How can Nykaa balance offering steep discounts to attract customers with maintaining healthy profit margins?

Introduction

Balancing steep discounts with healthy profit margins is a critical trade-off for Nykaa's business model. This scenario involves weighing short-term customer acquisition against long-term financial sustainability. I'll analyze this trade-off by examining key metrics, designing experiments, and providing a strategic recommendation.

Step 1

Clarifying Questions (3 minutes)

• Based on Nykaa's e-commerce model, I'm thinking discounts might vary across product categories. Could you provide insight into which product categories are most affected by these steep discounts?

Why it matters: Helps focus the analysis on high-impact areas Expected answer: Beauty and personal care products are most affected Impact on approach: Would prioritize these categories in the experiment design

• Considering Nykaa's market position, I'm assuming customer retention is a key priority. How does our current customer retention rate compare to industry standards?

Why it matters: Balances short-term acquisition with long-term retention Expected answer: Slightly below industry average Impact on approach: Would emphasize strategies to improve retention alongside acquisition

• Looking at user behavior, I'm curious about the correlation between discounts and repeat purchases. Do we have data on how discounts affect customer lifetime value?

Why it matters: Helps assess long-term impact of discount strategy Expected answer: Initial data shows mixed results Impact on approach: Would design experiment to specifically measure this relationship

• Considering technical feasibility, I'm wondering about our ability to implement personalized discounting. How sophisticated is our current recommendation engine?

Why it matters: Could offer a middle-ground solution Expected answer: Basic recommendation system in place, room for improvement Impact on approach: Would explore targeted discounting as a potential strategy

• Thinking about resource allocation, I'm curious about our marketing budget. What percentage is currently allocated to discounts versus other customer acquisition channels?

Why it matters: Helps evaluate opportunity cost of discount strategy Expected answer: 60% discounts, 40% other channels Impact on approach: Would consider reallocation of budget in recommendations