Over the past decade, the business world has had a real attraction to making everything a service. And rightly so. Would you rather struggle to repeatedly sell your product to the same customer? Or would it be better to offer it on a subscription model where you can keep improving it over time, and charge users a regular fee for using it? From furniture and tech products to cars, web hosting and food apps. I’m all for the services model.
However, you can’t help compare the process of buying good ol’ products whenever you would need them, to subscription based services. Let me know what you think..
In FMCG products, larger SKUs are more expensive, but (almost) always cheaper per unit than smaller quantity SKUs.
Increased manufacturing, distribution costs, and profit margins affect the price of a product. But that price applies to all customers, new or loyal ones. As does any promotion, that does not differentiate between old and new customers.
Compare that with technology and web service companies. You pay a monthly, quarterly or annual fee for services they offer. Technology companies, like any other business, have costs that tend to grow over time. And their discounts to convert free-, or non-users to paid users are far more tempting than consumer product discounts. Rightly so.
But these discounts strain the operations of many of these tech companies, forcing them to create lean models of operations. That’s the upside! Is anything more fascinating than Uber needing only a 3-member team to manage every new location it expands to?
But once that discount period is over, fees of many tech services companies goes up, year after year. And similar to consumer product customers, there is no growing advantage of staying loyal (apart from a superior offering itself) to a brand. While customers of consumer products still benefit from any benefits offered to new/ non-paying customers, that often does not happen with tech services companies.
And therein lies the anomaly. Alert consumers of a tech service would find themselves reviewing the service and its benefits, comparing with competitors, or even just weighing the pros and cons of retaining any such service, each time it is up for renewal.
I’ve been using the MS Office 365 service for almost 8 years, and the older MS Office software before that. And while my subscription was on auto-renewal for many years, at one point I realized how the fee had steadily risen. While new users were still getting it at a price almost 40% lower (and as a friend mentioned, even lower on Amazon on festival days). It seemed unfair, and there was nothing stopping me from simply registering as a new user with a new email id, and simply moving files from one cloud to another.
Similarly, hosting is a ruthless market for service providers. All service providers offer heavy discounts on new subscriptions, but those fees skyrocket once that initial period is over. And in many cases, you don’t want to avail the heavy discount and commit to many years subscription without knowing the quality of the service and support.
I wonder if this anomaly seems more in price-sensitive markets like India, or it is a pattern across the world.
And I wonder if there is a better model that might help fix this apparent anomaly (for customers) and challenge that service companies face. One that is adequately fair to the service companies that work hard to bring incredible services our way, and to stand apart from the competition. And that is also fair to the average user of those services who is not thrilled about being fleeced for a service he or she has been using loyally for sometime, and then finding out that it is being offered to newcomers at a fraction of the cost they pay – with no extra benefits to show for the loyalty.
The ideal model would be one that adequately compensates tech service companies, while also avoiding the highly skewed pricing between newbies and loyalists. And tech companies need to lose any fat.
I am always reminded of Uber and Ola. It is popularly known that Uber just needs a 3-member team to expand to a new city. And in 2012, I remember forgetting an empty gym bag in an Ola cab, and ended up being sent to two of their sprawling offices in Mumbai!
The business model that extends from the founders’ vision and extends to become part of the culture of the organization, will determine how soon and how much profits your business can and will make.