Blue Ocean Strategy for FM Channels

The launch of FM channels has put radio entertainment back on the map. So much so that phone makers were forced to bundle FM radio with the instrument and the move has helped broaden the reach and appeal of FM. In a city like Mumbai, where the average commute time is more than an hour (one way), FM has become the staple form of entertainment for commuters.

It is, but natural, that FM players are vying to attract the most number of listeners during rush hours so they can jack up advertising rates. Which is why they have their marquee RJs hosting shows, and extensive brand building to raise their profile. But such differentiation ceases to matter when everyone follows the same strategy. Trying to get better RJs or changing the tone of these shows can hardly be termed innovation. This is a typical example of trying to compete with what’s called “Red Ocean Strategy”.

When markets get competitive, one should step back and assess the situation afresh. What pulls listeners to an FM station? In my mind, the top three factors are: good music, more music/fewer ads, and interesting/funny RJs. The first and third are pretty much standard so the way to break out is the second option. (Am not saying all RJs are good, just that they are equally bad.)

The solution is simple. Eliminate RJs. That will allow more time for ads because time that was earlier split three-ways (music, RJ and ads) is now split two-ways. You may choose to slip in an occasional interview to keep listeners curious. Otherwise, listening to one star or the other everyday has become a boring thing. This is “Blue Ocean Strategy”. The only potential hiccup here is if FMs have to pay royalties based on the number of times a song is played, in which case the expense will shoot up. Can that be offset by the savings in RJs’ pay is something that needs to be worked out.

I must confess this is not my original thought. Jack FM in Los Angeles plays rock 24x7, has no RJs, doesn’t take any requests, but has some self-deprecating and condescending recorded messages that play between songs. (“Broadcasting from a dumpy little building in beautiful downtown Culver City”), and is a popular station out there.

Per-second Pricing

Continuing on the topic of pricing ploys...

Tata has managed to steal the thunder from Airtel and Reliance by adding more subscribers for the second month in a row – and by a wide margin too. It introduced pay-per-call on Indicom to let users talk as much as they want by paying a fixed price. Then, of course, DoCoMo let users pay per-second for calls and per-character for SMS. Has it paid a price in the process? TRAI is making noises about having all players move to per-second billing, and expectedly, the operators are upset. I think they should celebrate.

The data on the left is from Bharti’s Quarterly report. The average tariff is almost 1p/sec, which is what the new scheme offers too. The right side shows my calculations to determine revenue loss by offering per-second billing.

I am assuming the average call duration is 120 sec and that 30 secs are wasted every call – the call is terminated at 1 min 30 sec, but we get charged for 2 min. In this scenario, ARPU lost is about 23%, and that is a big drop.

However, I think people who opt for this scheme, or even subscribers to whom the scheme is made available (should other operators follow suit), will make additional calls. For two reasons. First, of course, is the genuine need to make those short calls to let someone know you are late etc. Right now, one might hesitate because the 5 second call will end up costing you 60p.

Second, and more interesting, is the need to make short calls so you can “realize” the savings. At least initially, when one has per-second billing and everyone else is on per-minute tariff. The temptation to “demonstrate” savings should not be undermined. In a group, if one has to make a call, it is the per-second guy that will go first to show everyone that he pays only for what he uses. I mean there is no point in going for per-second billing and then not reaping its benefits. So you make a 30-sec call, show everyone that only 30p has been deducted, and feel happy that you saved 30p.

Assuming these additional calls last an average of 15 seconds, calculating the # of new calls to make up for lost ARPU comes to about 14 calls per day. Should such a call last 30 sec, it only requires an addition 7 calls a day. I think that’s a small enough number. Also, notice that the difference in the ARPUs without considering additional usage is about Rs. 60, so I doubt if people are desperate to save that amount. Rather, most consumers would like to make sure the Rs. 300 they spend every month goes the extra mile. So my take is that usage will drastically increase with ARPUs increasingly slightly or staying constant.

Is that hard to believe? Why do we spend Re. 1 sending an SMS when a call is only 60p?

Pricing Ploys

My dilemma in the previous post is not as far fetched as it seems. We are victims to such mind games everyday. For starters, we have come to subconsciously relate price with quality. I remember reading somewhere that in Japan, it is cool to show off the price tags on clothes even as you are wearing them.

The price-quality association is the least malign of the tricks. There are much more subtle ones out there. If you are looking to subscribe for the WSJ, you get three options: online only, print only and online + print. The pricing is such that the price for online + print and print are virtually the same. One would think its a really dumb move that would kill its print subscriptions, but apparently, this has increased the total number of subscriptions - of course, with most people going for the online + print deal.

One also routinely seen in magazine offers at almost 50% less than the cover price if you subscribe for a year. They are essentially hoping that the temptation to save so much money almost always overpowers any questions on the utility of such a subscription. And it does work in certain segments.

And, of course, if you are part of middle-class India, you know how our system of haggling works. The vendor almost always quotes a price that is three times what he is expecting. As a buyer, you are sort of aware that he is overcharging, but you dont know by how much. So you start with a price that is 1/2 what you are really willing to pay. Often the deal will conclude with you paying a little less that your max price and you will walk away satisfied. The vendor would have made a neat margin and is happy too. But as buyers, we will never know exactly how much we overpaid.

In some cases, pricing is simply gaming buyers, but in others, it is directly related to the value perceived by the buyer. Couple of days back, a bridge collapsed on the railway line in Mumbai thus disrupting and delaying all long-distance rail traffic. Airlines promptly jacked up their fares with a one-way Chennai-Mumbai ticket starting at 12K!! Clearly, anyone desperate enough to reach Mumbai will pay that.

P.S: Having got a return trip for half that fare, I think I should stop complaining now:))

Mental Accounting

I spent the Diwali weekend in Chennai. I decided to make the trip only a week in advance, and was frantically searching every damn website for the cheapest fare, but found nothing below 10K return. Out of sheer luck, I stumbled upon Indian Airlines, which was offering a return trip for 5K. I couldn’t believe my eyes and booked my tickets without a second thought. In the rush to save money, I booked my return for Sunday night despite Monday being a holiday. By the time I realized this and wanted to make the change, the fares had gone up by 3K so I let it be.

inThe magnitude of the fare sunk in only when I saw the credit card statement. 5K is not a small amount. Of course, it's hard to deny that the deal was a sweet one "under the circumstances”. So I set about analyzing what the circumstances were. First, how badly did I want to be in Chennai? My mom had gone there a week ago and would be there during Diwali. Most of my extended family lives there, and I had not visited them for more than a year. Neither did I have any alternate plans of celebrating Diwali in Mumbai. So, yes, I wanted to go badly. But I think there is another factor that tipped my decision in favor of going.

I came across the expensive fares first. I saw 10K, thought the airlines were crazy, and decided it was best to spend some money on beer and the weekend in bed. But when I saw a fare half that number, the temptation to save 5K was overpowering. Would I have made the trip had the fare been 5K uniformly across airlines? Or even if the going fare was, say 7K, and I was getting it for 5K. Maybe not. The incentive to save 2K is not as irresistible. To give you an example, I shopped at Pantaloons this weekend. At checkout, the sales guy asked me to enrol into their rewards program. I had to pay Rs. 100 to get into the club, and would be immediately rewarded with a gift voucher for Rs. 200. Without hesitation, I declined the offer.

What's my point? I am trying to analyze the trip financially. Did I spend 5K - a loss, save 5K - profit, or spent 5K to save 5K – net net? (In the second case, I think I definitely saved Rs. 100 by not going for the card.)

The business of business...

Continuing with thoughts on business models...

To exist, businesses must deliver value to its customers - this is different from the debate on creating value for shareholders vs stakeholders. Preferably, value must be tangible, but in some cases, it is notional. The industry that best demonstrates value creation is IT. Just imagine the time and effort wasted on mundane tasks everyday if we didn't have Windows and Microsoft Office.

Of course, value creation is not as obvious in all cases. Entertainment and television, for example. Some people would argue that television is turning us into morons and is actually value destroying. Yet, the industry is exploding. This is a case of notional value, where people are ready to lap up any and every form of entertainment. It can be risky to bet on such models because they fundamentally rely on exploiting consumer preferences. Very similar to what the fashion industry does. The value created is not by clothing people but rather by making people feel that their clothes are better than others. This is also the business model of our local quack, palmist and other fortune tellers – they all make the consumer feel better.

The ability to deliver notional value on top of real value is the holy grail of a successful business. Which means, not only is the product good, but you also take pride in ownership. The ipod and iphone are perfect examples. World-class products enhanced by the “Apple” brand. Even here, the relative magnitude of the tangible and notional values matter. So long as the tangible value is much larger than the notional one, the business is stable. Microsoft, for example, probably has a negative notional value, but is yet a profitable business because it offers unmatched tangible value. On the other hand, FMCG products do have some tangible value, but rely heavy on notional value. I doubt if any of us can differentiate between two shampoos in a blind test.

The simplest way to check whether a business adds value is to ask if it helps people do stuff “faster, better and cheaper”. Ideally, all three aspects must be addressed but sometimes addressing even two is okay.

I mint?

Great ideas sound exactly like foolish ones - until they work that is. That's my favorite Scott Adams' quote.

The thought occurred to me when I saw the ad for imint on the back of a bus. It is a rewards system where you earn points every time you spend, which can be later redeemed for gifts or vouchers. Nothing radical about the concept itself. Credit cards have been doing this for a long time now. But here's what puzzled me. Is there an opportunity for a third-party to make a business out of it?

I dont know for a fact how imint works, but my guess is they have consolidated the rewards system of some retailers and cards so that the customer is able to get points for all transactions in a single "currency". So no more 100 points with ICICI, 250 points with HP, 50 points with Jet with none of them sufficient by themselves to do anything. Now, we get 450 imint points that is good enough to get a mug or something.

I guess imint adds some value thru the economies of scale it gets by consolidating the rewards system. So that explains why ICICI, HP and Air India have hopped on. Their points now make some sense to customers. But how would imint get new customers? For instance, why would HDFC or Jet sign on? Its destructive to both HDFC and ICICI because their customers wont see any difference in using either card, thus resulting in mutual cannibalization. In fact, I wont be surprised if ICICI has an deal that prevents imint from signing on competing financial institutions.

So how can imint grow? Well, by encouraging customers to spend more. That I think, personally, is a friggin stupid model to run a business.

Front Page

There was a time when the front page of a newspaper was a precious piece of real estate. Only the most important of the important news would find mention, and even then, the story would be cut short and continued elsewhere for it was unwise to waste so much space on a single story. (The exception being the Hindu, which always has complete stories.)

Although I dont have first-hand experience, I think there was a time when the front page determined newspaper sales. Especially during high profile murder trials or controversies, people would buy the paper after glancing at the headlines. Also shown in innumerable movies where paperboys at busy signals are carrying tabloids screaming with the latest headlines.

Well, all that would be history soon. Our newspapers have realized how precious these front pages are - literally. The front page has dumped news in favor of ads. I believe every single major newspaper now comes a "wrapper" with ads on both the front and back. The trend started with tabloids such as Mid day and Mumbai mirror but even TOI and HT have adopted this. I wonder how long before our dailies go the magazine way where ads dominate and content has a token presence.

Power Landing

Mythili Bhusnurmath recently wrote a piece on our inability to wait until the plane comes to a complete halt before turning on our mobiles. But its not just the mobile phones we are after. Barely a second after the plane touches down, and before it has even started to taxi, seat belts are popped open, mobile phones turned on, overhead compartments opened, and a beeline is made for the exit. Were it not for the locked doors, the adventurous might not even wait for the stairs and consider making the 10-foot jump. Such abject disregard for rules and safety is unheard of in any other country and makes one wonder why someone spending a couple of hours twiddling thumbs in the air would suddenly get so excited and active to save a few minutes at most. After all, our flights are usually off by more than a few minutes.

Here's the point: It's not those few minutes that people are after. It is the resultant delay that could be in hours if those few minutes are not well utilized.

Let me explain. We live in India where power laws surface even in the most mundane of instances.“Power laws” is a term used to indicate a non-linear, usually exponential, relationship between two variables. Let’s say it takes you an hour to drive from home to work. If you start at 7, you reach at 8, start at 8, you reach at 9 and so on. If you plot your start time on X axis and arrival time on Y axis, you will see a diagonal straight line that indicates a linear relationship. But let’s say, if you start at 7, it takes you an hour, but if you leave at 8, it takes an hour and 30 minutes. At 9, it takes two hours and so on. Now, if you plot these, you will get an exponential curve. The point being, if you are 5 minutes late in getting off the plane, it might take you an hour longer to reach your home or workplace.

What does a typical domestic traveler do on arrival? Pick up the baggage and head for the exit. Now, in the US and other countries, there is a clearly marked lane with several cabs waiting. One simply gets into a cab and zips off. Here, though, we have the prepaid taxi counter - a monopoly that cares a damn for travelers. They are in no hurry to get people out fast and are often seen engaged in shouting contests with cab drivers. So if you are late by even a minute, you see 10 people ahead of you in the line at the counter. That also means 10 opportunities for things to go wrong. Someone does not know the exact name of the locality so the guy at the counter denies a cab and an argument ensues. Someone isnt carrying change - another argument. The 2 minute delay in getting off the aircraft has already snowballed into a 20 minute delay in getting out of the airport.

There's more. The roads leading out of the airport arent broad enough so the traffic is typically crawling. During peak hours, traffic starts piling up and a smart cabbie tries to save 30 seconds by cutting across a lane and creates a mess that takes 30 minutes to clear. Your misery just keeps compounding...

Am not saying that the precious headstart of a minute or two will ensure you will reach your destination in time. There will be several other traps along the way that are impossible to avoid. Just that getting out of the airport quickly is the only aspect under your control and it would seem foolish not to use it. I am willing to bet that the moment our airport facilities and services ensure that we can get out of the airport without hassles, people will be much more relaxed. In fact, I think we are much more relaxed when arriving at new Blr or Hyd airports that are much less congested.

Gandhi Jayanti

Why is Gandhi Jayanti a public holiday? Shashi Tharoor thinks the Mahatma would have wanted us to work this day, for he advocated work to be worship. But Mr. Tharoor, we are so busy worshipping work the rest of the year that Mahatma's birthday provides the perfect opportunity to step back and reflect on whether our work is worth worshipping at all. Of course, most of us end up spending the day in the bed, in front of a TV, or in a movie theater, but it is not our fault entirely. The essential ingredient for such reflections has been denied to us on the day when we need it the most. Not everyone has the option to stock up liquor ahead of time or consume it in their homes. In any case, given the levels of corruption in our government offices, the holiday at least minimizes underhand dealings on Mahatma's birthday.

I am not quite sure why Gandhi is revered today. Whether his ideals still hold is questionable (and will need a separate post), but why cling on to something that happened 70 years ago? He gave us freedom, you say? Sure, thank you Mr. Gandhi. But it is time to move on. Why do I have to thank this man every time I breathe?

Granted that it is in the human nature to hold on to events and people because it gives us identity. But it is also what prevents us from breaking the shackles of the past. Drawing an analogy from the business world, organizations routinely shake up the top management when growth stalls. In fact, leaders are chosen based on whether their management style fits the need of the hour - aggressive managers for growth and conservative ones during bad times . Why then are we singing paeans of non-violence and truth when our neighbors are needling our buttocks with nuclear missiles?