Case Study: How can AKASH DTH monopolize the market?

King Camp Gillette, the Inventor of disposable safety razors & the Founder of Gillette Company, pioneered the famous pricing tactic-"The Razor & Blade Model." Mr. Gillette felt that if he gave away the razors for free, customers would make repeat purchases of the replaceable razor blades. The razor blades would be sold at a higher profit margin over the customers' lifetime, effectively taking advantage of this repeat customer base. And you know what? It Worked!!

                                              

I believe AKASH DTH could be the dominant player in the DTH pay-tv market if it were to incorporate "The Razor & Blade" pricing model into its sales strategy. Let us dive in for further analysis.  

BEXIMCO Communications LTD or AKASH DTH sells two things:

a) The DTH Set-Up Box, a product priced at BDT 3999

b) Monthly Subscription, a service priced at BDT 249 (Lite) & BDT 399 (Basic)

You first have to buy the DTH set-up box to make use of the subscription service. Now ask yourself, doesn't the price tag of BDT 3999 creates an entry barrier for customers? Yes, yes, it is. But, how are we going to fix this?

-Simple. BEXIMCO Communications LTD. should give away the DTH Set-Up Box for free & raise the price of both the subscription packages by BDT 50 (BDT 299-Lite pack & BDT 449-Basic pack). 

Here's how the math works. 

Suppose the average customer lifetime is 05 years. 

Scenario 01: Customers are to buy the Set-Up Box. 

Lifetime Revenue/ subscriber Formula= Price of DTH BOX + Usual Subscription cost x 12 months x 5 years.

Lifetime revenue/ Lite subscribers= BDT (3999+ 249 x 12 x 5)= BDT 18,939

Lifetime revenue/ Basic subscribers= BDT (3999+ 399 x 12 x 5) = BDT 27,939

Scenario 02: Customers get the Set-Up Box for free. 

Lifetime Revenue/subscriber Formula= New Subscription cost x 12 months x 5 years.

Lifetime revenue/ Lite subscribers= BDT ( 299 x 12 x 5)= BDT 17,940.

Lifetime revenue/ Basic subscribers= BDT (449 x 12 x 5) = BDT 26,940.

Adapting to the proposed pricing model, AKASH DTH will be off by BDT 999/ subscriber. But that amount is negligible compared to the cashback on recharge the brand offers per subscriber. Apart from that, AKASH DTH will gain:

1. 5X Subscriber Base
2. Just in Time Inventory Advantages; a pre-order system will reduce inventory holding costs & retail distribution costs.
3. Cost per acquisition will come down

Including a DTH Box returns policy is smart, just in case any subscribers are willing to cancel. Either way, I see this as an absolute WIN-WIN. Do you think AKASH DTH should switch to the "Razor & Blade" pricing model? Feel free to share your thoughts.

Yasir Arafat

Email- yasirarafatbusiness@gmail.com

Contact- 01821954321