LCDs and DTH

Flat screen LCD TVs are probably the most sought after gadget today. But their ads are beyond my comprehension. What's the point of showing attributes of clarity, fidelity etc on regular TVs? The Samsung ad, for example, shows a football game is immaculate detail - the emotion on the players' faces, sweat trickling off their bodies, the giant-sized football. Well, if I can see all this clearly in my 21", what's the point of getting an LCD TV?

Same goes for DTH ads that purpotedly claim to have better quality. I think Airtel has Saif watching a football game - half the screen is blurred to represent regular cable and other is bright to represent Airtel signal!! I feel insulted watching these ads. The BIG TV ad is much better. A wife is talking about the husband's excitement at purchasing an LCD TV followed by his disappointment when he saw much better picture quality at his friend's place. Apparently, BIG TV makes the difference, but in doing so the message conveyed is also that you only need such a connection if you have an LCD TV. Chances are, if you have an LCD TV, you are on DTH already and the switching costs are not negligible.

Sun DTH has found the right formula in my mind - the price. When one has to switch from a Rs. 300/mo cable connection, the biggest resistance is in the cost. Yes, there is a segment that wouldnt mind paying a premium for better quality, but I doubt if there is such a perceptible difference between the providers there. Tata is even smarter. They only advertise Tata SKY+ which is the premium offering that comes with a DVR. The ads are exciting but most people would balk at the high price. Oh no problem, sir, we have a cheaper option without the DVR. Bingo!

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.)