Discount addiction detox (live mint)

Mains Paper 4: Ethics
Prelims level: Not much
Mains level: Emotional intelligence and consumer behavior

Context

• Wiping out market-creation losses typically involves reducing customer subsidies bit by bit and getting service partners to taken on some or all of the burden
• If you’re looking to order food home or book a table at a restaurant, you may soon find that your favourite eat-out place is missing from the app you swipe open on your phone.

Effects of discount addiction detox

• According to a news report, about 300 restaurant brands in Gurgaon are delisting themselves from aggregators and table-reservation services such as Zomato and EazyDiner, over deep discounting.
• They’ve cited adverse revenue implications as the main reason, and have come together to detox consumers from their discount addiction.
• And this is not just about Gurgaon; Eateries in Delhi, Pune, Mumbai, Kolkata and Bengaluru are likely follow suit.

Key implications of this business strategy

• The business strategy of many online services is to first offer price cuts to lure people, and then gradually raise prices to turn profitable once they have a large customer base habituated to the convenience on offer.
• The assumption is that large sums of money ploughed in to gain a bit of the world’s most prized real estate place for an app on your mobile phone can be more than made back at some point in the future.
• The success of this strategy, however, depends on whether online businesses and their partners can endure the expenses along the way.

Conclusion

• Every such user-subsidising business must face a moment of reckoning, for sure, and answer tough questions on its so-called “path to profit".
• Wiping out market-creation losses typically involves reducing customer subsidies bit by bit and getting service partners to taken on some or all of the burden. It’s not easy.
• In the food-ordering business, some restaurants have turned restive, arguing that they would be better off on their own. How food apps respond would be interesting.

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Prelims Questions:

Q.1) Consider the following statements about Active Pharmaceutical Ingredient (API):
1. The Drugs Technical Advisory Board (DTAB) has recommended recently to the Health Ministry to make it mandatory for companies to include codes to track-and-trace APIs to ensure authenticity of drugs manufactured in India.
2. It is the part of any drug that produces its effects.

Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) 1 and 2 only
d) All the above

Correct Answer: C
Mains Questions:
Q.1) Define the Discount addiction detox model. What are the key implications act this kind of business strategy market?