Nykaa Business Model

How does Nykaa work?

Nykaa is a brand that has been around for a while now. They are among the few e-commerce brands to follow an inventory-based business model.

The inventory-based model is effective because it allows for high-profit margins, with company liability for product damage.

Using the inventory model, businesses can also ensure product authenticity while maintaining competitive pricing. Here is how it operates:

·   Nykaa purchases products from manufacturers directly and stores them in warehouses in New Delhi, Mumbai, and Bangalore.

·   Nykaa sells its products through its website and three offline store formats: Nykaa Luxe, Nykaa On Trend, and Nykaa Kiosks.

The inventory business model allows for high profit margins due to company liability for product damage.

Businesses can also ensure product authenticity and maintain competitive pricing using the inventory model.

Nykaa’s Market Overview

Nykaa is a cosmetics e-commerce portal founded in 2012 by Falguni Nayar and Sanjay Nayar.

The company has grown from a small e-commerce platform to an offline shopping experience that has expanded across 20 cities in India.

In 2019, Nykaa raised USD 14.4 million in a fresh round of funding from US-based private equity firm TPG Growth.

It began as an online retailer that curated beauty and wellness products from numerous global brands.

Afterward, Nykaa opened its first offline store in New Delhi, and it now has over 68 offline stores in 20 cities throughout India.

Nykaa launched its line of beauty products in 2015 and expanded into the bath and body care market in 2016.

Initial customer acquisition costs were approximately INR 1,000 (USD 15), but it has since been reduced to INR 200-250.
(USD 3-USD 4).

The brand gained global recognition following highly publicized collaborations with supermodel Gigi Hadid and a few leading Indian actresses, as well as its girl-next-door marketing campaigns launched on various social media platforms such as Instagram and YouTube.

Types of Revenue Models of Nykaa

The Nykaa business model relies on various revenue streams. They can produce their line of products, market it with the help of their partner brands and facilitate purchase by providing a platform that is easy to use and reliable.

 This makes it a one-stop shop for beauty and wellness needs while being a marketplace at the same time!

1. Nykaa produces TV ads for the products of their business partners

Nykaa makes TV ads for the products of their business partners. The company partners with Bollywood celebrities and many other famous personalities from India.

Because of these partnerships, Nykaa managed to become so popular among Indian women so quickly.

The revenue model for this type of advertising is that brands pay Nykaa a certain amount per ad campaign (usually between USD 250 - USD500).

The brand, on its part, has to ensure that they promote the product being advertised on social media channels like Twitter or Facebook and through traditional media channels like print advertising or billboards in cities across India.

2. Nykaa runs a loyalty program called “Nykaa Rewards.”

Nykaa Rewards is a loyalty program offered by Nykaa. Customers will earn one reward point for every INR 1 spent on Nykaa.

Points can be redeemed for products and services from Nykaa and vouchers & gift cards from other brands.

Moreover, reward points can be earned by writing reviews, asking and answering questions, and referring friends.

3. Nykaa hosts Sale Events

Nykaa also hosts sale events. These events are held frequently to attract customers and allow them to buy products they want at reduced prices.

The company also offers free shipping on all orders under the specific limit to entice more customers during ongoing sale events.

The company also offers a range of discounts, both on individual items and entire product categories, to encourage its customers to shop for cosmetics at Nykaa.

In addition, the company also runs various loyalty programs for its customers, which allow them to earn points every time they purchase from the store or place an order through Nykaa’s website or app.

The company regularly hosts flash sales and discounts at different times throughout the year to attract more customers and encourage them to buy cosmetics online.

It also has seasonal sales, where it sells its products at discounted rates during specific periods.

Nykaa’s marketing strategies

Nykaa brand of cosmetics is sold exclusively through their website. Women ranging in age from 18 to 35, students, and working professionals make up the bulk of their primary target demographic.

Therefore, branding and advertising are essential aspects of marketing. These days, it is possible to communicate with many people all at once by using social media platforms such as Facebook, Instagram, and other similar sites, which are more popular than they have ever been.

Affiliate marketing is another method utilized by Nykaa, in which the company pays bloggers and other social media influencers to promote its products through the various platforms it offers.

Considering the circumstances, utilizing digital platforms to market a product is the most effective strategy.

It is essential to keep it in perfect condition even when you are marketing it digitally to be able to attract more audiences.

Interaction with users via social media is necessary for maintaining proper and accurate records of customers.

They were aware of the best approach to ingrain themselves in the target audience's consciousness and keep the customers.

Their primary audience consisted of people like students and professionals who did not have the time to go to a traditional store and purchase the necessary cosmetic.

Aspects of the Business Model that make Nykaa unique from its peers

Nykaa is an online retailer of beauty products. Nykaa is unique from its peers due to the large number of SKUs it offers in the beauty category.

The company provides a wide range of products in 20 categories, including cosmetics, health, wellness, fashion, etc. Nykaa has gained popularity among its customers due to its unique business model, which combines e-commerce with offline stores.

Though the number of SKUs offered by Nykaa is lower compared to other competing platforms, the pricing is competitive.

The average discount offered by Nykaa on the basket below is marginally higher than peers. Nykaa had lower prices for Saregama Carvaan and JBL wireless in-ear headphones in electronics.

Nykaa also sells a few Amazon products at comparable prices, including the fire TV stick, echo dot, and kindle.

Consumers may choose Nykaa over competitors because of its wide range of products, guaranteed product authenticity, and other benefits, but affordability will not be one of them.

Its Present and Future Prospects

Nykaa, which has been in India's cosmetics and fashion retail business for the past few years, intends to triple its physical store count to 300.

The company has already opened many retail outlets, but it is looking to expand its offline presence by opening retail stores in India.

The new stores will be spread across tier I and II cities in India and will be located near malls or main roads to attract maximum footfall. This move will increase Nykaa's reach and help it identify new markets.

The company targets 100 cities, adding to the 84 retail outlets it already operates in 40 cities. Though Nykaa primarily functions as an online retail platform selling everything from global cosmetic brands to wellness and fashion products.

 The physical stores, which catered to Indian consumers who desired to purchase touch-and-feel products, were essential to the business.

Advantages of Nykaa’s Business Model

Nykaa's business model has several advantages and disadvantages. Some of the advantages include:

· They purchase directly from the brands. They do not provide discounts themselves. The discounts provided by the brands do not reduce their commission.

· Women prefer online stores over offline stores, so fast deliveries are advantageous.

· Nykaa spends more than the average amount on research and development for its industry.

· A significant portion of the company is rented rather than purchased, resulting in increased costs.

Disadvantages of Nykaa’s Business Model

The company is less able than average to meet its short-term financial obligations.
However, there are also some disadvantages:

· High research and development costs. Nykaa spends more than the average amount on research and development within this industry—which means that they're not always able to keep up with competitors who spend less on R&D.

· Leased property rather than owned property. A large portion of Nykaa's assets are leased rather than owned—which means that they have less flexibility when it comes time for expansion or downsizing to meet changes in consumer demand (e.g., if many people stop buying makeup).

Nykaa has many strengths that should help it grow over time, but some weaknesses may prevent it from becoming one of India's largest e-commerce companies over time unless they're addressed soon.

Conclusion

Nykaa has managed to be a familiar, friendly brand in the online cosmetics market in India. Nykaa caters to several men and women of all ages.

The generation that embraces modernity is the one that uses Nykaa most actively. Nykaa has positioned itself as a trustworthy brand, especially for people just beginning to buy products from these brands.

Frequently Asked Questions (FAQs)

1. What is Nykaa's business model?

Nykaa is one of the few e-commerce brands to follow an inventory-based business model. Nykaa buys products directly from manufacturers and stores them in warehouses in major cities.

Products are available for purchase on Nykaa's website or in one of three offline store formats: Nykaa Kiosks, Nykaa Luxe and Nykaa On Trend.

2. What is the strategy of Nykaa?

The strategy of Nykaa is to be a direct-to-consumer e-commerce brand that operates on an inventory-based business strategy.

The business keeps the stock of products purchased directly from producers and stores them in their warehouses.

Third-party vendors list products on the website, and the company does not sell any goods directly to customers.

3. Is Nykaa B2B or B2C?

Nykaa is a business-to-consumer (B2C) e-commerce platform that offers a variety of products, including beauty and personal care items.

Nykaa purchases its products directly from the key market players and stores them in its New Delhi, Mumbai, and Bangalore warehouses.

In other words, Nykaa is a B2B (business-to-business) company that sells to consumers via an online platform.