Money for nothing - II
Continued from part 1 ...
5. Pay me even if you don't use:
Companies are interested in sustained cash flow. They have hence come to prefer getting 5 bucks a month for what they offer rather than a one shot fee of a 100 bucks. This also has the advantage of enticing customers - 10 bucks sounds an affordable amount every month, whereas 100 bucks may be a lot to spend upfront. Hence, the arrival of subscription services and the wave of more and more subscription based services. I sign up for this cool service, say a local gym. I pay 50 bucks a month for my membership. I use the gym regularly for three months. Then, life catches up and I slip up for a couple of months. Now, I am a bit annoyed by having to pay fifty bucks for the two months that I didnt use the gym at all. I consider cancelling my membership. But, as always, there is a catch - a closing cost, or at least there is some cost to reenrolling two months from now, when I want to restart. Same thing with subscription based web services. I would much prefer to make micropayments as I go for services that I use intermittently, but the option is rarely available. Most online video rental services charge a monthly fee, irrespective of whether I use the service. IIn a busy month, when I dont want to watch movies, I have two choices - pay money for nothing, or use the service even when I dont want it. I have seen a new model emerge on an Indian movie dvd rental site that charges a reasonable amount per use, subject to a maximum monthly cap. Much more customer friendly.
6. Get hooked:
The other great model to ensure sustained revenue is the two year agreement from cell phone companies. I cannot see any justification for that, barring the lack of confidence of my phone company to continue providing value. In other words, what the agreement really means is: I dont think I can keep you interested in using my service for the next few years, but I need your money nevertheless, so just sign the money for the next two years over. Of course, you have the choice to pay ten times as much for your phone. You also have the flexibility to cancel the service, pay me the hefty penalty and buy another phone or switch companies, but the only thing I am sure of is that I cannot keep you interested and committed for the next two years. There is definitely something wrong with the service or the phone that will annoy you and you will wish to switch, and I cannot afford losing you.
7. How much?
Remember the time when hawkers used to ask the customer this question? It still happens. In flea markets, probably in some obscure markets somewhere else, but in general, it is history. In most cases today, it is almost always the customer who asks the question how much, and then decides whether to buy the good or not based on the price. The only model that at least halfway resembles this in the mainstream today, and is for that reason widely popular, is on online auction sites. Here the customer is still at the mercy of the market, but at least the buyers determine the value of the product, and not the seller. An important limitation here is that customers are still stuck with the product, or have to take the pains to return the product if it doesnt match their needs.
Next up: the concluding part 3 of this series.
5. Pay me even if you don't use:
Companies are interested in sustained cash flow. They have hence come to prefer getting 5 bucks a month for what they offer rather than a one shot fee of a 100 bucks. This also has the advantage of enticing customers - 10 bucks sounds an affordable amount every month, whereas 100 bucks may be a lot to spend upfront. Hence, the arrival of subscription services and the wave of more and more subscription based services. I sign up for this cool service, say a local gym. I pay 50 bucks a month for my membership. I use the gym regularly for three months. Then, life catches up and I slip up for a couple of months. Now, I am a bit annoyed by having to pay fifty bucks for the two months that I didnt use the gym at all. I consider cancelling my membership. But, as always, there is a catch - a closing cost, or at least there is some cost to reenrolling two months from now, when I want to restart. Same thing with subscription based web services. I would much prefer to make micropayments as I go for services that I use intermittently, but the option is rarely available. Most online video rental services charge a monthly fee, irrespective of whether I use the service. IIn a busy month, when I dont want to watch movies, I have two choices - pay money for nothing, or use the service even when I dont want it. I have seen a new model emerge on an Indian movie dvd rental site that charges a reasonable amount per use, subject to a maximum monthly cap. Much more customer friendly.
6. Get hooked:
The other great model to ensure sustained revenue is the two year agreement from cell phone companies. I cannot see any justification for that, barring the lack of confidence of my phone company to continue providing value. In other words, what the agreement really means is: I dont think I can keep you interested in using my service for the next few years, but I need your money nevertheless, so just sign the money for the next two years over. Of course, you have the choice to pay ten times as much for your phone. You also have the flexibility to cancel the service, pay me the hefty penalty and buy another phone or switch companies, but the only thing I am sure of is that I cannot keep you interested and committed for the next two years. There is definitely something wrong with the service or the phone that will annoy you and you will wish to switch, and I cannot afford losing you.
7. How much?
Remember the time when hawkers used to ask the customer this question? It still happens. In flea markets, probably in some obscure markets somewhere else, but in general, it is history. In most cases today, it is almost always the customer who asks the question how much, and then decides whether to buy the good or not based on the price. The only model that at least halfway resembles this in the mainstream today, and is for that reason widely popular, is on online auction sites. Here the customer is still at the mercy of the market, but at least the buyers determine the value of the product, and not the seller. An important limitation here is that customers are still stuck with the product, or have to take the pains to return the product if it doesnt match their needs.
Next up: the concluding part 3 of this series.
posted by An at 4:02 PM
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