Competing Against Free - An Indian Perspective
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Based on a Harvard Business Review article "Competing Against Free" by David Bryce.
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Competing Against Free - An Indian Perspective
- 1. Competing Against Free An Indian Perspective
- 2. Based on a Article of the same name Analysed By: Anurag Kar B.Tech. Student Department of E and ECE IIT Kharagpur
- 3. Situation: A new competitor has entered your market and is offering a product which is very similar to yours…
- 5. It is FREE!
- 6. How do you tackle the situation?
- 7. Do you… • Ignore it, hoping the free product won’t last? • Rapidly introduce your own free product? • Or recognize that the two products can peacefully coexist in the market?
- 8. The appropriate response can be determined on the basis of the “threat level” of the competition.
- 9. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year Here, the competitor is not growing fast but your customers are still defecting at a fast rate. A free product should be launched immediately.
- 10. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year When both the rates are high, it is a business model threat. In such cases the company must not only respond with a free offering but also radically change their business model to survive.
- 11. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year When the entrant’s users are multiplying rapidly but the established firm’s customers are defecting slowly, it is a delayed threat. In such cases your offering can coexist with the free one at least for a few years.
- 12. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year When both the rates are low, the threat is a minor threat. In such a scenario, the company should just continue to monitor the situation carefully but no immediate action is required.
- 13. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year
- 14. What to do after you have established that the free product is indeed a threat to your business?
- 15. There are 4 Tried and True Strategies
- 16. Up-Sell Cross-Sell Charge Third Parties Bundle Introduce a free basic offering to gain widespread use and then charge for a premium version.
- 17. Almost all IPhone Apps follow this strategy.
- 18. Up-Sell Cross-SellBundle Sell other products that are not directly tied to the free product. Charge Third Parties
- 19. Ryanair is a brilliant example of a company which follows this strategy.
- 20. Up-Sell Cross-SellBundle Provide a free product to users and then charge a third party for access to them. Charge Third Parties
- 21. Google is the poster child for this strategy.
- 22. Up-Sell Cross-SellBundle Offer a free product or service with a paid offering. Charge Third Parties
- 23. Hewlett Packard (HP) bundles its PCs and Printers together.
- 24. Up-Sell Cross-SellBundle Charge Third Parties 4 Tried and True Strategies
- 25. Indians in general love free products and freebies.
- 26. Major chips manufacturer Frito Lay pushed its Cheetos brand of chips in India by offering free “tazos” which were hugely popular amongst the children who mainly consumed these chips. As a result their sales skyrocketed. Sales of Frito Lay’s chips went up by 50% because of catering to the demand for fun from their primary consumers, school going children.
- 27. Bundling is again a hugely popular technique used by electronic manufacturers in India.
- 28. Bundling products and offering Buy 1 Get 1 free offers are very common in India.
- 29. During the festival season, electronic companies often bundle their products with secondary accessories to lure customers. Eg. In this advertisement, free earphones are being offered with the purchase of Nokia Lumia phones.
- 30. Commercial fast food chains such as Pizza Hut and Dominos often offer “Buy 1 Get 1” offers. These offers tempt customers into buying more and they get the feeling that they’re getting a good deal.
- 31. Another major market in India is the instant messaging market.
- 32. The target consumers here are college going men and women and young professionals.
- 33. The IM market is dominated by internet messenger app WhatsApp. WhatsApp is the most used messaging app in India (Source: Economic Times)
- 34. What are the reasons because of which WhatsApp has become so popular?
- 35. It’s free for the first year of use. Even after that it’s a nominal fee of ₹54 per year. This is extremely cheap compared to SMS services provided by mobile network providers.
- 36. With the introduction of WhatsApp Web, WhatsApp can now be accessed from any device which has an internet connection.
- 37. Almost everyone you know is active on WhatsApp. So why shouldn’t you? Its huge user base acts like a magnet and attracts even more users.
- 38. Messages on WhatsApp are not limited to text messages. Photos, Videos, Audio files and contact information can also be sent using WhatsApp. A facility which was never present with SMS providers.
- 39. Real time chatting is possible through WhatsApp. Transfer of multimedia is also quick and seamless.
- 40. So who suffered maximum losses due to the rise of WhatsApp?
- 41. Telecom Companies Of course!
- 42. SMS usage has decreased by 50% after the arrival of WhatsApp. SMS revenues accounted for 5-6 % of the total revenues of Telecom service providers. And this market was growing when WhatsApp took hold.
- 43. Also because of the ease of texting using WhatsApp, people have started calling less, hence again cutting into the revenues of Telecom service providers.
- 44. So Bharti Airtel whose annual consolidated revenue for the year 2014 was ₹85,746 crore (Airtel annual report 2014), lost around ₹2573 crore that year because of WhatsApp and other instant messaging services.
- 45. That’s a lot of money!
- 46. What can telecom providers do to tackle this situation? • Ignore the threat? • Make SMS’s free? • Pray to God for Facebook (who own WhatsApp) to go bankrupt?
- 47. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year Remember this from a few slides back?
- 48. Immediate Threat Business Model Threat Minor Threat Delayed Threat DefectionRate Growth Rate Low Less than 40% a year High More than 40% a year High More than 5% a year Low Less than 5% a year The current situation falls under this threat.
- 49. Telecom companies need to go back to the whiteboard and rethink their business model with respect to instant messaging.
- 50. Let’s propose some solutions with respect to Airtel.
- 51. Airtel should: • Immediately launch an instant messaging app on Google Play Store and iTunes store. • Either make it absolutely free or reduce the price substantially and earn revenue by selling banner ads. They can sell a premium ad free version also.
- 52. Airtel should: • Integrate it with SMS and make it so that a data connection is not required unless it is to send multimedia messages. • Bring it in a chat format, showing who is online and who is not at any particular moment.
- 53. Airtel should: • Allow sending messages to all mobiles, because essentially it is just an SMS app.
- 54. How will it be better than WhatsApp? • It will allow offline messaging which is not allowed on WhatsApp. • The recipient need not even have the app because it is essentially a cheaper version of an sms. For WhatsApp the recipient has to be a user of WhatsApp.
- 55. How will it be better than WhatsApp? • Data connection will not be required except for multimedia messages and for updating the application.
- 56. Telecom companies have ignored the threat for far too long.
- 57. They need to act before it’s too late.