Last week I went to newly opened big bazaar store close to our home and was pleasantly surprised with a neat and clean store. Big bazaar stores in general are not very tidy and clean, most of it could be attributed to large number of customers they serve, but we are not here to debate the point. What happened after that was interesting. While I was moving around the store, I was approached by the store manager for the feedback on the store and I was more than happy to share my feedback as I was seeing a largely clean and evenly spaced big bazaar store after a long time. He also mentioned that they have launched a new scheme in which you can pay INR 10,000 to get the card and use it shop for goods worth INR 12,000. The scheme looked too good to be true and I made a mental calculation that I can use this scheme to do my monthly grocery shopping one shot here and save loads of money. And as happens to all of us, when we see a too good to be true offer, I made up my mind to get the profit club card that day itself to get bulk of benefits on same day shopping list. And then while picking up items from aisles, I noticed a big banner of profit club which detailed out terms and conditions albeit in a much smaller font as compared to offer and then I realized the old adage – “Devil is in details” and here are details. Joining fee : INR 100 (I am assuming this is one time payment) Upfront payment : INR 10000 Max Monthly shopping allowed per month on this card : INR 1000 => Implies that one would need to shop every month for atleast 1000 for next one year to get full advantage of this scheme. Let us now bring in the concept of Time Value of Money (TVM) concept and see the scheme is really worth it. First let us understand the concept of time value of money – TVM simply means that 10000 today is not same as 10000 a year from now. Say, if you had 10000 in your hands now and if you placed in a FD for a year and bank gave you 10% rate of interest per annum, then you will have 11000 with you from now. What this simple exam does is to illustrate that 10000 in hand today is worth 11000 if invested, ofcourse we took simple numbers to illustrate the point, but I guess everybody would have got the message. Now, if we apply the same TVM concept to Big Bazaar, the purported saving comes down. For our illustration, let us assume that there is a monthly interest rate of 1%(we don’t want to take interest rate of credit card companies for calculation, they usually charge you 3%+ per month, a grand steal I would say) the current value of 12000 worth of goods come to 11255. If you will like to explore this on your own, do experiment with NPV formula in excel spreadsheet. Okay, so we have got down the benefits to 11255. Is there any thing else to add, ofcourse the parking charges and traveling. Let us consider parking charges only for now. They charge INR 10 for two wheeler and INR 30 for four wheelers. These charges vary with the city and the location, for our calculations let us take INR 20 as a parking charge every month, this will whittle down the total benefits to ~11000 on a expense of 10000. So, roughly a 10% benefit. You should also consider that there are forcing you to shop every month to get the benefit of INR 1000 spread over a year. Whether this is worth it is a call is your call.. Now let us shift gears and try to see what does it have it in for Big Bazaar. Here are the two things I can think of – First is Working Capital Management (WCM). For layman, Working Capital is the money companies need to run their day to day operations. Much of it is in form of credit the companies receive from its suppliers and some of it is in form of bank loans. The companies which run their businesses really well are those who work on negative working capital, funding their day to day running from suppliers, buyers etc. Big Bazaar seem to be going that way by taking advances from its buyers to fund its business. Second big reason is that they are binding the card holders to shop with them for next one year, a kind of forced customer loyalty which may pay rich dividends. My thoughts on the profit card scheme – It is not a groundbreaking profit scheme for consumer but seeks to bind consumers into shopping with big bazaar for next one year. Not sure if it will really take off – need to wait and watch.

# Decoding Big Bazaar’s Profit Club

**17**
*Wednesday*
Apr 2013

Posted General

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someone

said:If you want to understand things simpler,

Just assume you(Customer) are/is a bank,

You lend money(loan) to BB,

BB will pay you EMI,

Hope you know the calculations.

Pick Technologies

said:good stuff

Big Bazaar Profit Club

said:Every one has a different opinions. Being a member of Big Bazaar Profit Club, I have been enjoying shopping with them. Since I reside nearby a Big Bazaar store, I dont face any other problems in terms of expenses.

Niraj

said:Hi !

I am sure you enjoy shopping at Big Bazaar, infact a lot of us do and that is reason Big Bazaar is growing. The article never disputes the fact, it was more focused on discussing if the Profit Club really is a profit club for consumers, given the restrictions of Rs.1000/month purchase.

SAI NARAYANA

said:the entire monthly limit of 1000/- should be spent in a single transaction or we can split into multiple transactions in a month. And also let me know where to find the list of profit club excluded items.

amitmit

said:can be split as per your choice.

Amit Mittal

said:It is quite beneficial given the fact that normally people visit to grocery stores at least once in a month, whether you have enrolled in profit club or not your parking charges and fuel charges are fixed cost.

Further, you are not bound to visit the store every month, in case you missed out shopping on any month the credit for that month is added to the subsequent month, (worst case scenario, kept accumulating and shopped once in the 12th month for 12000.00)

Normal scenario :

Month Principal Interest lost(fd rate (9%) monthly reducing basis)

1 10000 75 0.09

2 9000 67.5 0.09

3 8000 60 0.09

4 7000 52.5 0.09

5 6000 45 0.09

6 5000 37.5 0.09

7 4000 30 0.09

8 3000 22.5 0.09

9 2000 15 0.09

10 1000 7.5 0.09

total lost in interest over 10 months 412.5 (add this to principal)

Principal 10412.5

Benefit 1587.5 (12000-10412.5)

Benefit in % 0.152460984 (15% +)

Specific Scenario :

1. Paid 10000 using Manhattan card, got 500 cash back in the same month, so principal is reduced to 9500.00

2. First month interest is free because I need to make the credit card payment only the next month.

3. Normally I dont make the FD for a small amount like 10000.00, so interest expected in yes bank at 7% rate (max achievable in saving bank a/c)

Month Principal Interest lost Interest rate

1 9500 0.07

2 8500 49.58333333 0.07

3 7500 43.75 0.07

4 6500 37.91666667 0.07

5 5500 32.08333333 0.07

6 4500 26.25 0.07

7 3500 20.41666667 0.07

8 2500 14.58333333 0.07

9 1500 8.75 0.07

10 500 2.916666667 0.07

total lost in interest over 10 months 236.25 (add this to principal)

Principal 9736.25

Benefit 2263.75

Benefit in % 0.232507382 i.e. 23% +

where else do you get this kind of discount on groceries ??

Please let me know If I have missed on anything in my calculations 🙂

Any scheme is good or bad based upon how you use it actually.

amit mittal

said:It is quite beneficial given the fact that normally people visit to grocery stores at least once in a month, whether you have enrolled in profit club or not your parking charges and fuel charges are fixed cost.

Further, you are not bound to visit the store every month, in case you missed out shopping on any month the credit for that month is added to the subsequent month, (worst case scenario, paid but shopped once on the 12th month for 12000.00)

Normal scenario :

Month Principal Interest lost(fd rate (9%) monthly reducing basis)

1 10000 75 0.09

2 9000 67.5 0.09

3 8000 60 0.09

4 7000 52.5 0.09

5 6000 45 0.09

6 5000 37.5 0.09

7 4000 30 0.09

8 3000 22.5 0.09

9 2000 15 0.09

10 1000 7.5 0.09

total lost in interest over 10 months 412.5 (add this to principal)

Principal 10412.5

Benefit 1587.5 (12000-10412.5)

Benefit in % 0.152460984 (15% +)

Specific Scenario :

1. Paid 10000 using Manhattan card, got 500 cash back in the same month, so principal is reduced to 9500.00

2. First month interest is free because I need to make the credit card payment only the next month.

3. Normally I dont make the FD for a small amount like 10000.00, so interest expected in yes bank at 7% rate (max achievable in saving bank a/c)

Month Principal Interest lost Interest rate

1 9500 0.07

2 8500 49.58333333 0.07

3 7500 43.75 0.07

4 6500 37.91666667 0.07

5 5500 32.08333333 0.07

6 4500 26.25 0.07

7 3500 20.41666667 0.07

8 2500 14.58333333 0.07

9 1500 8.75 0.07

10 500 2.916666667 0.07

total lost in interest over 10 months 236.25 (add this to principal)

Principal 9736.25

Benefit 2263.75

Benefit in % 0.232507382 i.e. 23% +

where else do you get this kind of discount on groceries ??

Please let me know If I have missed on anything in my calculations 🙂

Any scheme is good or bad based upon how you use it actually.

Niraj

said:Thanks Amit for detailed & elaborate calculation….

The one thing which is missing, is the concept of Time Value of Money, it won’t make a great deal of difference in numbers though.

Coming to shopping at Big Bazaar and this particular offer – There is no denying the fact that the offer provides value to consumer, unless it provides value, people are unlikely to buy in the concept. Having said that this article was meant only to demonstrate that the savings are not high as publicized, which unfortunately is the case with all the “offers”, be it from any provider.

The article also tried to explain how Big Bazaar benefits from this, as it solves their working capital problem. You give out a advance to Big Bazaar, they use the money to buy products, which will be sold back to you. And since you are solving their working capital problem, they are rewarding you with discounts. The exact numbers don’t matter that much 🙂

amitmit

said:I believe that I have factored in the time value of money (that is interest lost) and added that to the principal before arriving at the benefits.

As for benefits are concerned, I have learnt one thing in life – look at your personal profits and get into transaction (if it suits you), irrespective of how and to what extent the second party is gaining out of deal (but make sure that second party is honest and does not run away with your booty).

Since here I am benefiting 23% (plus all the promotions in BB) it suits my rationale, and it is good that BB is also benefiting in terms of working capital. Overall a win-win situation wherein intermediary bankers are weeded out.