Aggregator Model: How it works?

Aggregator model refers to the practice where the merchant (offline or online) does not produce, store or warehouse the goods they are selling. They collect information on goods or services and bring them on a common platform. Ola and Oyo are some of the successfully running aggregators in India

In an unorganised market, sellers often sell the same product or service at different prices.  Aggregators accumulate these products/ services from an unorganised industry and then sell these products/ services to customer under a single banner. Unlike marketplace, prices of these products/ services are decided by aggregator. In return, sellers as well as users get to benefit from the merits of this model which are discussed next

In both Aggregators and Marketplace model, a brand is built by offering incentives to both customers and service providers to use their platform. Over the last few years, aggregator model has been adopted by many startups especially in travel, logistics and hospitality domain. While marketplace model is predominately created in retail and food industry.  

One of the major levers for brand growth in aggregator model is Supply. Let’s create a user persona and analyse how it works. Let us consider an average 30 year old who works in a mid sized company drawing an average salary, is married with no kids and is planning a get away with his wife for the new year. We will call him Bhanu. Bhanu is not very good at planning ahead; so he has is planning it on the eve of Christmas.

Now Bhanu has his heart set on a new year party in Goa. Demand at this time would be high because of peak season. Bhanu may not be able to find suitable hotel as per his budget and requirement. Let’s say Bhanu somehow manages to find a place by being flexible on his budge and has now booked a flight from Mumbai to Goa at 9 pm on 30th which also happens to be Friday night. Bhanu, being Bhanu, has not realised that when he gets off at the airport, he is not going to find a single cab because everyone is reaching Goa around the same time and have already pre-booked their cabs!

Let’s try to think about what Bhanu must have thought/ done in each of these scenarios. He may not be a good planner, but he does not give in that easy! Now that his ‘default option’ has failed him, he will look for new ‘platforms’ which offer these services. He is very likely to select the very first option which pops up and is available, because he has already lost his concern for budget and now wants a room/ cab at any cost. In such scenarios whichever ‘platform’ has a greater visibility online or offline is very likely to get Bhanu to sign up and maybe become a long term customer by offering some sort of loyalty program. This is the real strength of an aggregator model.

In aggregator model whoever has greater supply or better availability; to cater to demand during peak hours or peak days is bound to gain market share by acquiring new customer and increasing frequency of existing customer. Maintaining supply is the most basic action one can take to reduce attrition of existing customers.

Now availability can either be increased by adding new supply from the market or from by increasing products or service time of existing supply. For instance, in our example, it can be done by adding additional rooms to existing hotels or by increasing working hours of cab drivers working part time.Apart from supply, quality of service/product and pricing plays a crucial role in business growth.

Pricing can be adjusted by introducing more categories across brand so that customer can select product as per their budget. For instance, if a budget hotel is not available in Goa for New Year party, Bhanu has a second option to select rooms from premium category and if Bhanu can compromise with luxury, he may opt for auto which is available on aggregator platform to reach airport on time. Introducing more categories in a brand not only gives customer a price range to select from, but also helps in growing the business with a higher degree of customer retention.

Quality of service is of course the key differentiator among aggregators, everyone wants courteous drivers, clean room and fast delivery of food. However Indian customers are very price sensitive. Many times customers are ready to compromise on quality of product or service than paying more. Hence in an aggregator model it is vital to understand your target segment and also keep a close watch on who is actually buying from you.

With growing e-commerce business in India, there is a lot of scope for on demand services. Over the last few years,  aggregators have grown very fast as they were aggressively offering customer discounts and partner incentives. These offering were of course bound to fade with time. Now that these aggregators are making a cut in their offerings it will be interesting to see what kind of effects we get to see. It is safe the say that most of these aggregators have already become too big to fail and hence we will soon get to see some well planned and efficient models being brought in to practice by these players.