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How do you win in a grudge purchase market?

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Ever seen someone going to an insurance agent with a smile on their face? Or getting excited about buying a new tyre to fix their flat? Welcome to the unique world of grudge purchases, goods people have to buy but don't really enjoy buying.

In today's piece, we look at the goods and services that fall into this category, the unique challenges these sectors face with their growth, and how firms in these segments can get the upper hand.

What's a grudge purchase

Think of all the goods and services you use in your everyday life. Now think about the things that you would only purchase if you absolutely have to. If you wear glasses, your spectacles are a good place to start. Customers generally change these only when the spectacles are damaged or they feel they have a change in their 'number'. The mattress you woke up from is another example. Generally changed around just once a decade, the humble mattress gets replaced primarily if you're facing a back issue, or if the mattress is severely worn out or damaged. On a larger scale, tyres and insurance have a similar fate. All of these purchases bring low or very little joy to the customer, have little social prestige associated with the purchase, and hence have little to intrinsically motivate the customer to buy.

The unique challenges

One unifying challenge that firms in this space face is heavy competition on pricing. Mattress firns will rely heavily on instore promotions and discounting, sometimes accounting for as much as 10% of their topline. A certain online spectacle filling your virtual wallet with thousands of rupees had become the butt of many a joke on social media, but those promotions get customers through the door the next time a person wants to buy a pair. Insurance firms find themselves competing sharply on prices with numerous comparison websites.

So how do you as a player in this space make good money instead of going into a downward spiral of competing on prices? It helps to understand the customer expectation from these products. While the customer derives little joy from these purchases, they realize that they are important. They, therefore, work towards minimizing regret. If you're an insurance player, having a high claim settlement ratio offers the customer the #1 thing they are looking for - an assurance that they will indeed get paid when things go bad. If you're a mattress company, offering the customer lenient return terms allows them to purchase from you with a limited downside. (Surprisingly the return number with DTC mattresses is between 3%-6%, extremely low, given the close to ~30% return with traditional e-commerce).

How do you win in the space

If you find yourself playing in this market, here are a few ways you can drive purchase.

Guilt/Fear - Campaigns around the importance of insurance, not only for you, but also your family is a good way to get people thinking about the thing they know they need buy have been hesitant to buy. Ditto for gym memberships, anti-glare glasses, and other similar industries.

Reassurance - Building a strong brand that evokes trust backed by steady metrics (people would generally be willing to pay a slightly higher premium for a strong parent brand with a high settlement ratio. They are likely to buy your product if it comes with a warranty. While these factors are true for other purchases as well, they become especially important for grudge purchases, where the #1 motivation is to avoid further problems.

Lastly, when you're aware that the customer is not going to be too loose with their purse strings when making the purchase, maintain a razor-sharp focus on cost. You can still choose to not compete on price if the market environment is favourable, but you should be in a position to win, if it comes to a price war - and the only way to do that is being the lowest cost producer.

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