Reliance Jio versus conventional wisdom

People hate paying more for the same product they’re using. It’s human psychology. So how do you convince people to start paying you for something they’ve been using for free the last seven months? What happens when you’re stuck between their devil of a habit of consuming hundreds of MB of data every day and deep sea-like unwillingness to even remotely consider paying you Rs 999-4999 for such plans?

You create an aura around a new product, which packages your harsh business compulsions as glossy virtue. So instead of having to admit that few among your 100 million free users would pay upwards of Rs 1,000 for high bandwidth plans, or worse, suffering the ignominy of dropping the prices of your plans, you create a new plan: Jio Prime.

Jio Prime is a subscription-based loyalty plan for which users pay Rs 99 a year, which in turn gives them access to virtually unlimited Jio services for Rs 303 a month.

Reliance’s stock went up over 11% on Wednesday, 22 February 2017, the day after this announcement was made.

A detailed questionnaire was sent to Reliance yesterday, but we did not get a reply as of the time this article was published.

Prime Bait

Let’s look at Jio as a well-funded e-commerce company. It has money, it wants market share and it will burn cash. It started with a free option to get customers hooked, now it gradually wants its users to start parting with cash. But it is still really cheap. Everyone likes cheap. It is not as good as free but cheap will do.

And let’s assume this well-funded e-commerce company is Amazon. A June 2016 report said that almost 96% of Amazon Prime’s subscribers who bought a two-year subscription, renewed for a third. And 73% of those with a free 30-day trial converted to a paid subscription. Apart from the deals, the membership makes customers feel that they are part of an elite club. Most shipping becomes free. There is a reason to shop. Once customers get used to Prime, they don’t go away. Amazon has used a similar strategy in India.

“The deal hunters think the annual subscription gives them great value on delivery and content. The typically flaky audience now becomes loyal. Amazon bought their loyalty,” says the former chief marketing officer of a popular e-commerce company in India.

Jio follows that same playbook. And the term Prime seems to have been chosen for a reason. It creates an elite club illusion among people who are not exposed to Amazon. And for those who do know, it is a good reference point.

If Jio can convert 75% of its existing 100, it will clock a revenue of around Rs 28,000 crore off the bat. Even with that, it will still take Jio a long time though to recoup the Rs 1.5 lakh crore it has spent in acquiring and setting up its extensive 4G network. Let’s come back to this later.

It is, however, fanciful to assume that 75% will stick around. India, after all, is not the US, and Jio is not Amazon. There are a few challenges.

Huge Market

“India is a sachet market. The majority of the customers don’t top off more than Rs 25 at a time. Expecting them to pay Rs 300 at one go will be difficult,” says a senior executive of a competing telecom company. He did not want to be identified as he was not authorised to speak to the media.

Even if Jio manages to change behaviour, it boils down to paying for content. What Jio is essentially asking its customers is to pay Rs 99 to access its massive library, which was available for free earlier. Together with other Jio-branded apps (security, messenger, cloud storage, etc.), Reliance thinks its library is worth Rs 1,250 a month or Rs 15,000 a year.

Once again, Jio is trying to charge a price, even though a vastly discounted one (Rs 99 a year instead of Rs 15,000), for something it has been giving away for free. It’s going to be next to impossible for it to ever charge Rs 1,250 a month for this.

Airtel offers Wynk’s audio content for free, Hotstar has free content as well. But there is a paid plan for Netflix and Amazon Prime, right?

 

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