THE JIO EFFECT How the Newcomer made an impact in India Abstract
Prepared by: Vinothkumar G Rubaiyat Khan Aman Sandhu Kalaivani Ashwin Sundar
Disruptive Newcomer...................................... ......................................................... ....................................... ....................................... ...................................... ....................................... ................................... ............... 2 ......................................................... ....................................... ................................... ............... 3 Reliance Jio’s Launch Strategies and Growth Potential ...................................... Cross Price Elasticity of Demand ............................................... .................................................................. ...................................... ....................................... ....................................... ......................... ...... 4 Jio spoils the party for others others ...................................... ......................................................... ....................................... ....................................... ...................................... ....................................... ........................ 5 ASTRAL Pipes..................................... ........................................................ ...................................... ...................................... ....................................... ....................................... ...................................... .............................. ...........11 Conclusion..................................... ........................................................ ...................................... ...................................... ................................... ................ Error! Bookmark not defined. The Reference Shelf ....................................... .......................................................... ...................................... ....................................... ....................................... ....................................... .................................... ................12
Disruptive Newcomer
Home to the world’s second largest population of 1.2 billion, India is a young nation with 63% of its population under the age of 35 years. It has a fast growing digital audience with 800 million mobile connections and over 200 million internet users. Reliance thoroughly believes in India’s potential to lead the world with its capabilities in innovation. Towards that end, Reliance envisages creation of a d igital revolution in India.
Reliance Jio aims to enable this transformation by creating not just a cutting-edge voice and broadband network, but also a powerful ecosystem on which a range of rich d igital services will be enabled – a a unique green-field opportunity. And the impact of the launch of Reliance Jio is for everyone to see. The three-pronged focus on broadband networks, affordable smartphones and the availability of rich content and applications has enabled Jio to create an integrated business, and today, Jio is capable of offering a unique combination of telecom, high speed data, digital commerce, media and payment services.
Indian market is the world’s market lucrative where every MNC wishes to come and make its presence, along with the biggest opportunity of business. It is a very price sensitive market. It has been again proven by the introduction of Reliance JIO earlier with yearlong “freebies” and 4G data communication. Now there is a new feath er in the cap a “feature mobile” again “FREE” effectively for the Indian market. With this market penetration strategy Reliance Jio is trying to cover the untapped “feature phone” market with 4G data communication with effectively free JIO’s feature smartp hone. As the usage of data has been increased tremendously after “JIO” (ref. appendix 3) came in the market other competitors in the market are bound to take corrective actions and they have opted different marketing strategy to cope up with the situation by offering different data packages and mergers. Let’s analyze the current market scenario of telecom sector, strategic mergers and market penetration strategy of Jio.
Reliance Jio’s Launch Strategies and Growth Potential There are various factors on which the market demand and individual demand for a product depends. These factors are known as determinants of demand. The knowledge of the determinants of market demand for a product and the nature of relationship between the demand and its det erminants proves very helpful in analyzing and estimating demand for the product. Reliance Jio has focused on some of the demand determinants as well. Price of the product
Jio has set off a fierce mobile mobile tariff war in the country. country. Change in price price of a good or service service leads to Change in quantity demanded. Before the entry of Reliance Jio, data was rather expensive and consumers had to shell out up to Rs. 450 (on some networks) for 1GB of data. The highlight of Jio’s launch offer was the f ree data it was offering to consumers, with 4GB of high-speed of 4G data per day, followed by continued data at 128kbps speed. Eventually the company had to launch chargeable plans after incumbent operators protested, but even then the tariff was so low that consumers paid roughly Rs. 10 per GB of 4G data Price of Related goods
Jio has worked with all the leading device manufacturers manufacturers of the world world to ensure availability availability of 4G LTE smartphones across all price points – from from ultra-premium models on one hand, to entry level models on the other. The demand for Voice over LTE (VoLTE) phones in the country had surged since Jio was launched in September. VoLTE technology allows voice calls to be transmitted as data, while a 4G network is being used. This effectively means that going forward, VoLTE will become the default basic minimum smartphone technology in the country. Reliance Jio has launched over 24 smartphones ranging from USD 50 to USD 300, under its own “LYF” brand. This has triggered the demand, create a ma rket for such devices and motivate the open market brands to launch their devices operating in Reliance Jio’s spectrum bands. Percentage of 4G devices shipped in smartphones moves up from 66% to 95% in 2017. Income of the Consumer
Income is the basic determinant of quantity of product demanded since it determines the purchasing power of the consumer. The most important approach to the Reliance Jio Master Plan was to undercut the market price by giving attractive discounts and Let everyone switch to Jio for internet use at cheap rates. To garner large subscriber base, the company needs to focus on servicing semi-urban and rural subscribers as well. T he Indian mass-market consumer is now motivated adequately to allocate a dedicated share of wallet for data services provided by Jio. Consumer’s taste and preferences
The demand for any goods and service depends on individual’s taste and preferences. They include fashion, habit, custom etc.
As mentioned above, there was a tremendous rise in the demand for VoLTE enabled handsets. It was also found out that besides 4G VoLTE capability, consumers’ preferred better memory, and storage or battery capacity as their motivation to upgrade to new smartphones. Data services in India, at the mass- mar ket level were still in the “Nice to Have” category and had not yet evolved into the “Must Have” category. Data has become affordable right since the launch of Reliance Industries’ Jio. Aggressive 4G offerings from free -trials to one of world’s lowest priced 4G data plans bundled with bouquet of applications and content services, Jio had driven the purchase intention strongly in its favor in just six months. Cheap and fast data means only one thing: people will gorge on more and more audio-visual content online. Jio had launched at a time when video streaming service Netflix was struggling to get a foothold into the price conscious Indian market, where rivals like Hotstar were already jostling for space. The Jio suite offers more than 300 live streaming TV c hannels and hundreds of music albums and movies. Consumer’s Expectations of future Income and Price
Consumers do not make purchases only on the basis of current price structure. Especially in case of durables, when demand can be postponed, consumers decide their purchase on the basis of future price and income. Consumers are expecting much more from Jio. People are expecting that Jio will provide more packages in future and merge with some other big companies. From improved coverage to a big launch into IPTV the fixed broadband and fixed broadband, Jio’s relentless rise is not over yet. Jio has plans to enter the sector in the country. It is expected to unleash the kind of plans it brought in the wireless space to the wired broadband space as well. Consumers are expecting to seamlessly upgrade to 5G and beyond at afford able prices. They want to acquire next generation legacy-free digital services. With 72 million subscribers and growing, Reliance Jio’s internet speeds speeds speaks for itself. No matter how much instability or insecurity does the industry face, one aim is bound to be accomplished, one aim which all of them have in common. The aim is to digitalize India with increased customer satisfaction and demand which we as Indians can see happening!
Cross Price Elasticity of Demand
Jio spoils the party for others Before jumping on to how Jio has pushed it’s incumbents in any of the stages of production lets first take a look upon the 3 stages of production in brief:
Stages of Production Below figure represents the 3 stages of production:
Short run by a firm typically encounters three distinct stages as a larger amount of variable input (especially labor) are added to fix input (such as capital). The first stage results from increasing average product. The second stage is at the peak of average product, experiencing a wide range of decreasing marginal returns and the law of diminishing marginal returns. The third stage is then characterized by negative marginal returns.
Stage I Stage one is the period of most growth in a company's production. In this period, each additional variable input will produce more products. This signifies an increasing marginal return; the investment on the variable input outweighs the cost of producing an additional product at an increasing rate. This is illustrated with the product curves below:
Observations on shapes and slopes of the product curves in st age 1: 1- The total product curve has a positive slope. 2- Marginal product is greater than average product. Marginal product initially increases, then decreases until it is equal to the average product at the end of stage 1. 3- Average product is positive and the average product curve has a positive slope.
Stage II Stage two is the period where marginal returns start to decrease. Each additional variable input will still produce additional units but at a decreasing rate. This is because of the law of diminishing returns: Output steadily decreases on each additional unit of variable input, holding all other inputs fixed. Figure illustrates the product curves in stage 2:
Observations on shapes and slopes of the product curves in stage 2: 1- Total Product curve has a decreasing positive slope in other words the slope becomes flatter with each additional unit of variable input. 2- Marginal Product is positive and the marginal curve has a negative slope. The curve intersects the horizontal quantity axis at the end of stage II. 3- Average product is positive and the average product curve has a negative slope. The average product curve is at its peak at the onset of stage II. At this peak, average product is equal to marginal product.
Stage III In stage three, marginal returns start to become negative. Adding more variable inputs becomes counterproductive; an additional source of labor will lessen overall production. This may be due to factors such as labor capacity and efficiency limitations. In this stage, the total product curve starts to trend down, the average product curve continues its descent and the marginal curve becomes negative. Figure illustrates the product curves in stage 3:
Observations on shapes and slopes of the product curves in stage 3: 1- Total Product Curve has a negative slope. It has passed its peak and his heading down. 2- Marginal Product is negative and marginal product curve has a negative slope. The marginal product curve has intersected the horizontal axis and is moving down. 3- Average Product remains positive but the average product curve has a negative slope.
Can we say that Reliance Jio has pushed the incumbents (airtel, idea etc.,) in the first stage of production? Yes, definitely Reliance has pushed it’s incumbents into the first stage of production since:
1- Jio has announced so much cheap data and voice packages, that to counter the strategy of Jio telecom other companies are hiring new skillful employees, investing in new inputs (technology) and merging with other other firms. 2- These companies are finding ways to come back in the market by increasing or changing the combination of their inputs to get good production and high profits at low cost. 3- For an example they are investing more capital, purchasing better appliance to enhance the quality of voice calls and data speed.
So, all these steps will definitely increase the total production of other firms’ in the meantime marginal product will rise for some time which will help to increase the average product.
The incumbents have historically aimed to build relationships with corporate clients and have focused on high spend customers. This makes sense since that is where you might expect margins to be. In serving such segments, companies tend to work on continually improving their offerings, something termed as ‘sustained innovation’. ormance In the world of ‘disruptive innovation’ this has a likelihood of leading to ‘perf ormance overshoot’. Essentially, customers are provided more than what a large section really wants and in the process a significant mass of customers cease to be truly satisfied. The stage is then set for a disrupter who can enter with a low priced offering with some potential performance drawbacks as well. Nevertheless, underserved customers might find this attractive and to the extent incumbents are less interested in that segment, the new entrant can ‘fly under the radar’. The graph above below is subscriber data for the month of November, 17 which shows that Airtel, Idea Cellular and Vodafone India had their best month since Reliance Jio launched operations.
1- While one swallow does not a summer make, some analysts say the market share gains of the incumbents could have prompted Reliance Jio to cut tariffs earlier this year. As the accompanying chart shows, Airtel’s market share is now h igher than levels prior to Reliance Jio’s launch, and in the case of the Vodafone -Idea combine, the market share is now only slightly lower than pre-Jio levels. 2- Large incumbents also gained the most when Reliance Communications Ltd shut down its 2G networks last year. They reported an increase of 14.3 million in their total subscriber count in November, much higher than the 3.7 million increase in Reliance Jio’s active subscriber count.
The latest telecom revenue market share in the year 2018 looks something like this:
In the December-ended quarter, Bharti Airtel Ltd., the country's largest telecom operator, lost some market share to Reliance Jio among the top telcos. Vodafone India Ltd. and Idea Cellular Ltd. did see some marginal improvement in their market share.
But at the same time we can also say that Jio has pushed other players into the 3rd stage of production
Jio has offered many promotional offers that it has pushed pushed the competitors into the 3 rd stage of production in which their production curve is declining, marginal curve is negative and average production is decreasing. As Jio offers low price packages people stopped using Airtel, Idea recharges and balances. Companies stopped/ reduced making new sim cards which reduced the production of Airtel, Vodafone and reduced its average and marginal cost. The Indian Telecom Industry, which was already facing intense competition saw further disruption when Mukesh Ambani’ s- led Reliance Jio Info communication ltd entered the segment with its free services and promotional offers. While the company has started charging for data, its launch in September last to last year spurred consolidation in the sector. Jio’s some of the latest offerings - an effectively free intelligent handset- is another blow to the already disrupted telecom industry.
ASTRAL Pipes Astral Poly Technic has a strong client base across all sectors of industry like retail, residential, commercial, hospitals and industrial. This is the first time that Astral has roped in a high-profile brand ambassador. Appointing Salman Khan as their brand ambassador will help them to communicate what highlights the strength of the product. There is a huge potential in agricultural piping business which is more than Rs 7000 crore Market wherein it is new entrant and getting very good response. FY17 agriculture pipe business had revenue of just Rs150 crore. The company already has a strong distribution network and a wide spread geographical presence because of strong distribution network and widespread geographical presence, the company is set to increase market share. The already flourishing company that has more than 750 distributors and thousands of dealers in India penetrating the plumbing market form metro cities to smaller towns. ASTRAL products are now also available in more than 22 countries. Their association with Salman Khan as the brand ambassador will further strengthen our brand image and take it to the next level. The marketing for these kinds of goods have to be specific and target a new segment which has not been targeted before. Being a low involvement category, the homemaker does not take keen interest in deciding on the quality and make of pipes for their homes. With leakage being the most common problem, it is the plumber who decides on what to purchase without even consulting with the homemaker. Utility is inherently subjective and thus difficult to measure, but it is important in determining how much supply of a product the market can handle without diminishing demand.
Cardinal Approach The cardinal utility theory says that utility is measurable and by placing a number of alternatives so that the utility can be added. . Hence H ence advertising the product benefits to the consumer who has direct impact on the benefits of the product. To become the first choice of the homemaker and offer adequate leakageproof solutions one must realize that biggest influencer was the plumber and therefore, to celebrate him they have used Salman's character as a plumber who's also the face of brand. Ordinal Approach
One cannot directly measure benefit, satisfaction or happiness from a good or service. Utility is not measurable but it can be compared. Ordinal approach uses the ranking of alternatives as first, second, third and so on, Astral has the latest technology in pipes which is a game changer technology in the current market and using Salman? Khan will increase the demand of their products. (The total satisfaction that a person gets from the consumption of goods and service. The additional to total utility because of consuming one more units of the same good or services additional benefit which a person derives from a given increase of a stock of a thing diminishes, other things being equal, with every increase in the stock that he already has. As consumption increases more and more, marginal utility will be less and less.)
What Conclusions Can We Draw? To tap the one of the world’s biggest market the market penetration strategy was successful with Jio and there is a new offer with Jio phone a smart feature phone to tap the untapped market of feature phone users with 4G data and free voice communication. This strategy has made many big changes in the balance sheets of the other telecom operators, all of them had taken t aken the corrective measure to cope up with the situation, mergers and acquisitions, joining hands for existence not only this the handset manufacturers are also bound to launch new range of 4G enable feature phone to compete in the market. This will intensify the pressure on newcomer Jio as it seeks to ensure that its early success was not a flash in the pan.
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A PPENDIX 1: F INANCIAL PARAMETERS OF JIO & COMPETITORS
A PPENDIX 2: D RASTIC INCREASE IN INTERNET USERS AFTER THE J IO EFFECT
A PPENDIX 3: BY 2021
With a total investment of more than Rs 2 lakh crore, Reliance Jio is expected to have a market share of 25 percent by March 2021. Its newly launched Jio Phone will allow the operator to service 50 crore feature-phone subscribers in India and drive adoption of 4G data, Deutsche Bank said. It expects that 10 crore subscribers could find the Jio Phone proposition attractive. The impact on rivals would be limited because of Rs 1 53 a month price of the p lan, a three-year lock-in and availability of handsets at Rs 2,000-2,500 in the market
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