In the world of telecom, tariffs keep falling. Whether you’re paying for 100 minutes of voice calls or 10 GB of data, tariffs keep falling.
Unless you’re Reliance Jio. Because then, like a telecom operator version of Benjamin Button (the fictional character from F Scott Fitzgerald’s short story who ages in reverse), you’d spend between $20-25 billion to build a modern network, give it away free of cost to 100 million subscribers and then figure out how to charge them for it.
(An aside: it’s unprecedented in the global telecom world to see a new entrant enter a mature market and acquire 100 million subscribers in just over five months. It’s even more unprecedented to see a new entrant giving away its services free of cost in a sector as heavily regulated as telecom.)
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.
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.