Starbucks economics. Why Starbucks has a better, cheaper coffee that it keeps a secret. Comments Dhar 11 Jan 2006 10:28 am: This was so damn interesting! ritzkini 12 Jan 2006 6:14 am: “The more market power firms have, the less attractive they make the cheaper products.” I can think of N Marketeers in India doing this ! Madhu 13 Jan 2006 11:10 am: Interesting to compare this with the Bottom of the Pyramid concept of CKP.
Reliance Infocomm, after launching their prepaid business in India, introduced an new scheme. Pay Rs 4,300, and get a mobile phone PLUS prepaid vouchers worth Rs 4,300. Effectively, you’re getting a mobile phone for free. The scheme made good financial sense for Reliance. With a million subscribers to this scheme, they could recover Rs 430 cr of their upfront capital investment and retire their debt. Besides, the Rs 4,300 would have normally been bought over a period of around three years by prepaid subscribers, making its present value around Rs 3,600, at an interest rate of 12%. Add to that the reduction in distribution cost due to bulk selling, and possibility of non-usage, etc… the economics might work out. ...
Joel on why companies try to sell free products. (To sell more complementary products, to spare you the suspense.)