Travel blog by a global nomad

20 Feb

Doing yourself out of a good thing?!

It seems to be an aussie corporate tradition to charge as much as possible as early as possible in the delivery of any new product to the market to ensure, I presume, research and development costs are recovered as quickly as possible. Then, one imagines that in the event the market actually liked the product at that price, then they can make zillions of dolllars charging at hyperinflated prices.

Tragically for the greedy corporate world, Australians are a nation of bargain hunters. We love technology and take to it like a duck to water. But buggered if we are going to pay top dollar for it! Worse, if you are technology savvy, then the odds are you have computer access and guess what? We already know its cheaper overseas, so we’ll wait for it to be cheaper here as well…

Take for example the penetration of broadband. Americans were switching over to broadband in droves while the average Australian gazed hungriy at our overseas competitors. Its not that we didn’t want it – we did, badly! But while Americans and Europeans were able to get unlimited downloads and the like for $10/month more than dialup connections, we were being held hostage with 500Mb limits/month (“so people wouldn’t download movies”) and prices 3 to 5 times dial up costs. Now, I don’ t know about you, but if I was to get broadband for personal use, then I would want it so I could stream BBC Radio 1 or play games online – innocent things – but a 500Mb cap meant I would only be listening to international radio for less than a week before I exceeded my cap… So, with it cheaper to buy movies from Amazon than to download in Australia, we were quite happy to leave broadband in the realm of work access only until it became affordable for our homes. Four years after broadband cropt into the cosmic consciousness, the prices are finally coming down – and look at that, the ‘cap’ has been removed!

Similar story with mobile phones. We love them. Recent figures imply there will be more mobile phones in the country than people in the next year or two! But for years and years, we were held hostage by crippling 2 year payment plans just to own a mobile phone that was LOCKED to a network – you weren’t allowed to buy a phone outright! Heaven forbid you wanted to jump networks halfway through – you usually had to pay 3 times the cost of the actual phone to get it out of the contract AND pay $300 to unlock it from the network.

And then there was the indiginity that a call to someone in the next building or down the road cost 3 times as much as calling customer service in the US or UK – where is the logic when it is cheaper to make an international call over a domestic call??? Gradually with the advent of companies like Virgin allowing us to buy our phones up front, and some other shifts, air time costs are coming down and now we can buy a phone outright and actually make domestic calls for, well, the same rate as calling internationally from our mobiles…

The examples are endless in Australian corporate culture. Again and again we are left chomping at the bit, perfectly willing to seize new technology and run with it – but can’t afford to until it descends from a stratosphere usually inhabited by overpaid CEO’s (who are not the most notororious examples of technology take up artists, so we have to wait a LONG time before they have paid the R and D costs for developing the product…)

It leaves me wondering when will someone come into Australia and offer rock bottom prices to get our attention – and our business – before gradually easing up the prices to something sustainable. True, its a fine line – charge too low and you will never recover costs. But what if instead of calculating your initial market price to be “OK, we need charge this to recover costs in 12 months,” companies think about “OK, we need to obtain 60% market penetration. We can do that and recover costs if we charge this (lower) price.”

Oh yeah… I believe Richard Branson did it when he came in with his Virgin Blue airline. Suddenly airlines in Australia find is economically viable to charge less than $1000 to fly from one coast to the other. Ditto for phone costs. It only takes one company to come in, charging an affordable rate not an astronomical, ‘recover costs quickly’ rate and ‘suddenly’ the market finds it can charge a lower rate afterall!

Reminds me all of internet penetration in Korea – it went from nothing to almost universal (something even western countries are still trying to achieve) almost overnight, simply because they charged a low entry price to users. What a difference it must make to recovering your development costs if you have nearly 90% of the population using your product in a year instead of waiting 3-4 years for <1% of high high income owners all converting slowly to your product?!

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