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Want cheap ovens? Fly Air Deccan
Priyanka Joshi | October 19, 2005
Where do you go when you want to buy an HP printer for half its price, a Reebok grip bag at 35 per cent discount on the MRP or an LG microwave for Rs 1,000 less than the sticker price? How about on board an Air Deccan flight?
Last week, the Bangalore-based, no-frills airlines tied up with Delhi's AVA Merchandising to begin a unique in-flight shopping scheme that will sell brands at substantial discounts -- between 20 and 60 per cent -- on the MRP. Big names like LG, Reebok, Hewlett-Packard, Roche, Parker and Mattel toys will feature in the in-flight catalogues that will be distributed by the airlines' cabin crew.
The merchandising firm will distribute catalogues across all 146 Air Deccan flights daily. Customers can order up to two products on each flight. The products will be delivered to their homes within 14 days of making the full payment, either by cash or credit card.
Air Deccan's cabin crew will double up as brand ambassadors and are being trained by AVA to handle customer queries. AVA is counting on word-of-mouth publicity and repeat customers to increase its sales.
Elaborates G R Gopinath, founder and managing director, Air Deccan, "Catalogue shopping is common on most international routes. While it may be difficult to replace the conventional 'touch and feel' shopping habit with discounts and colourful catalogues, finally it is the service, the price and the bouquet of brands that matter."
On paper, at least, the scheme sounds good. Big brands are willing to be associated with schemes like this since they get a captive audience to showcase their products.
And the scheme "Brands for Less" works by doing away with the middle-men: AVA sources its products directly from manufacturers. Says Vikash Gupta, director, AVA, "There will be no distributors or third party dealers."
AVA and Air Deccan have signed an exclusive, one-year contract to promote the scheme, although Gupta admits he's hoping to extend that by at least another 12 months.
The merchandising company will pay 3 per cent of the catalogue price to Air Deccan on each product sold. "Air Deccan has always been keen to generate extra revenue in every possible manner," reasons Gopinath.
The airline at present generates almost 5 per cent of its revenues by contracting its catering services, flight entertainment and advertising space on-board. Air Deccan expects this figure to scale up to 15 per cent with more such revenue generating schemes.
But it's a tight squeeze for AVA as the logistics costs for the scheme are high. The company has tied up with warehousing major Safex and courier firm Blue Dart. At present, the company has just one warehouse in Delhi, although it plans to keep inventories in other cities, too, subsequently.
Admits Gupta, "We have to make money on volumes as we are operating on extremely lean margins." He estimates that the company needs to sell around 24,000 items every month to break even.
Air Deccan flies 8,000 passengers a day, a high conversion rate of 10 per cent. "If we manage to control our operational costs, we will break even with Rs 30-40 crore (Rs 300-400 million) in our pockets," says Gupta.
Of course, with Air Deccan expecting to fly close to 14,000 passengers daily by next year, AVA's customer base is likely to widen considerably.
Meanwhile, AVA has printed just 50,000 catalogues that are taken back at the end of each flight and re-circulated. "Our catalogues will be updated with every product addition but we will try to recycle them to keep operating cost down," says Gupta. Looks like AVA is picking up valuable, cost-cutting lessons from its no-frills partner.