This is called ‘The Loss Leading Strategy’. Not only is this a tried and tested method which is simply based on the idea of making your initial product available to the market by incurring a loss, but also provides a secondary service or product to support or complement your initial product. This secondary service or product becomes the source of profit. This strategy seems to be modern or new but it has been widely used over time. To name a few, Gillette, which distributed its razor units for free and made up for the loss incurred by selling the razor blades.
As bizarre as it sounds, a loss does manage to get the company a decent amount of profit! After reading this, something very similar and recent must have come to mind, JIO. This company had set the market on fire with its entry, clearly differentiating themselves from their competitors in a way which that the Indian consumer understood the best-the tariff . JIO’s entry was at a time when the consumers wanted a relief from the heavy tariffs imposed by the eminent telecom-players. This did support the rapid growth and ascent of the company. With their strategy of providing introductory offers, user had an access to unlimited LTE data and national voice, video and messaging services along with the full bouquet of JIO applications and content, free of cost, for over a year, which enabled healthy and effective market penetration.
Their subscription plan was a total game changer which provided data at less than Rs5 per GB while their competitors charged nothing less than Rs 250 per GB. Within its first month, the company had acquired 16 million subscribers which grew to 50 million in the next 83 days. This amazing run with the customers resulted them in acquiring 7 customers every second and thus, JIO has a massive customer base of 306.7 million as of 31st March,2019.
JIO did not limit itself to telecom business but also came out with a line of mobile phones initially in partnership with Intex. Later, started its own line of mobile phones with ‘LYF’. LYF provided a free JIO SIM which supported the ‘VOLTE’ feature of the phone. The phones were budget devices which didn’t fare well with the customers, but did help in promoting the JIO telecom service. They have also come out with their own applications exclusively for their subscribers that are providing content which is otherwise exclusive on other platforms.
On a whole, JIO has executed the loss leader strategy in an extraordinary way. They first focused on acquiring a good customer base by providing a very good alternative to the existing plans and were better than their competitors in every way possible. Now, they are reaping the fruits of their previously incurred ‘losses’.
JIO has a staggering standalone profit of Rs 840 crore ranking the third largest mobile network in India and ninth largest operator in the world as of 28th February, 2019 controlling an impressive 25.11% market share . They have forced their competition to bring down their tariffs and has brought about massive changes in the world of business .
JIO has basically shaken up the telecom industry as a whole. I have never witnessed such bold and shrewd moves by any of the companies! Well, it did manage to pay off pretty well. Now, if you look around, it would be wrong to even say every second person uses the JIO telecom services. Almost everyone has the JIO sim along with their other one. Some have even entirely shifted to JIO looking at its amazing offers. It would be now safe to say Ambani strikes back!