Free and superior service: New rules of competition

Recently I wanted to upgrade my Internet connection at home, fed up with the slow speeds that I got after my kids used up the bandwidth supposedly doing their homework. I checked with my current vendor whose bills I had been paying regularly over the past five years without bothering much. To my surprise, I found that they had been offering a 40 Mbps package at a 70% discount as compared to the legacy 2 Mbps connection I had.

I recalled that they had called on two occasions previously, and had suggested that I could have saved money by upgrading to a slightly higher plan which I did, not bothering to evaluate much. I tried to look out for numbers to call, and was always directed to the call centre.

I talked to the call centre operators about how I felt cheated, and found that all of them went deaf or could not hear me, as apparently their lines stopped working so they disconnected. (I did write to the CEO suggesting that maybe they seriously consider switching over to the competitor for the lines to the call centre).

Anyways, after a lot of calling, and then tweeting (on the suggestion of my kids) I got a reply where they offered to switch me over to the lower paying plan, as a special case. I got calls from three different departments, all from the same company, asking me what the issue was, and stating that they would look into the issue and revert. I seemed to find that I was just absorbing myself into these calls, trying to figure out what was happening. After about 12 days of calling, I was tired and just did not care.

The linesman came after another 10 days; since he operated only from 11 am to 4 pm on weekdays only but as a special case offered to come at 5.30 pm on a Tuesday to upgrade my set-up.

I was also told that they were only able to offer me 16 mbps speed, and not even the 40 or 100 mbps speed which they advertised, since they had not yet laid the cable to my building. But they had already laid the cable to the adjoining building, in the same compound, and they were working on this, and they should expect to finish this off by the end of this year. I had developed new respect for our government telecom utility after hearing this from a private telecom major. The linesman finally came one fine evening and the service started about 24 hours later; a small upgrade from the earlier one, as the best that I could get, and I reconciled to it.

With this experience, I realised that I would prefer to get a root canal extraction than ask for installing a broadband line. So, it was with these emotions, when my parents asked for my suggestions for a broadband line in their house. Fed up with my service provider, I took up a friend’s suggestion for a new telecom player who had just entered by a huge launch into this space. My fear of going back to the regular provider compelled me to try the new one, since I really did not have the time nor the inclination to go through the trauma again.

I called up the number, (an actual human answered and not a call centre automated voice with an accent!). This was a Saturday about 11 am. I was pleasantly surprised, when the voice on the other end said that he could come over in an hour's time to do the formalities. I was in shock. Anyways, I am always interested in such events which I pass off as academic research to my friends and family and so I drove down from the other side of town, to my parents' home. Just to see what would happen. And I was amazed.

The man came, in a short while. He took my Aadhaar card number, authenticated with my fingerprint, asked me to fill up my mobile number and email ID on a digital form on his phone. Next he attached a credit card reader to his phone and swiped my card for a `4,500 deposit. The whole process was done in 10 minutes.

He said that the location already had a few neighbours who had taken the same service and so I was lucky. I asked by when would I get the service, knowing what the industry average was. He thought for a moment and said, “ By today evening”. I could have hugged him, but my mother was watching. Long story short, his guys came in the next two hours and by about 3 pm, my mother was updating her Facebook status on a 100 Mbps connection. And we were a new customer. I think the way my parents are consuming bandwidth, they'll be loyal for a long time.

I related this story, a little long, to bring out the nature of competition in today’s environment which incumbents face today. Our rules have changed and not many companies are adapting or are even aware of these changes. I try to list them below:

This is a world of monopolies and the fight is for customers

I know that Peter Thiel had first stated this in his book, but I could not agree more. We are increasingly seeing the race to acquire more customers, and newer markets. This is probably the reason that you see well entrenched companies buying over digital upstarts, even though they are not yet profit making, because they have managed to carve out a significant dent in the markets where the bigger firms have not been able to. Whether it is Walmart buying out Flipkart or Facebook buying out WhatsApp, these acquisitions do seem to have a common trend.

And the most important factor is, that these monopolies are being built with high levels of customer service and usually with free services.

High levels of customer service

Don’t get me wrong. Earlier, it was assumed that the customers would not be very demanding if the incumbents could reduce their service levels or worse still, not pay for superior service. This has changed completely, as today we see that customers are becoming more service conscious, demanding higher levels of service, and they are also communicating their dissatisfaction on social media, much more rapidly. And that there are competitors who are willing to meet these customers' needs, sometimes even free!

I recall an instance when my wife was amazed when I told her that the books that I had ordered would be shipped in a week’s time. She ordered a nail polish online which was shipped less than two hours later! This is an increasing occurrence with various sites, and the e-commerce players are finding themselves running faster on a treadmill just to keep up with the customer’s expectations.

Free is the new normal

I find it very surprising that one can make money by giving stuff away for free. It runs contrary to everything that traditional commerce talked about but this is the new normal today. Google can be credited for first blowing this business model up, by charging advertisers for pitching to those who came for its free search. We are still seeing these models play out in different services, where the services are offered free and the money is made in other ways, using the customer as a product. There are going to be increased concerns about privacy and protection of the customers' data, but most customers, especially the millennials, seem to be quite happy to share their data in return for free services. And these companies are working very hard on their services in order to retain these customers. This explains the move by the bigger players to integrate communication, entertainment, chat and e-commerce, all in one platform. And any move away to a competing site will cause considerable heartburn and sleepless nights on the incumbent to retain these customers.

Hence there is a lot of emphasis on building capabilities to ensure that the existing players are able to retain their customers.

What are the lessons for Indian companies?

I have been asked this question in our 'strategy' courses, that is this disruptive? And how can existing companies face this competition. A few suggestions:

Recognition of change

This is the most important step. Jim Collins had stated that success is the enemy of the great, as good performance blinds us from becoming greater. Not wanting to rock the boat or change an already successful business model and being blind to the changed environment is the most important barrier to overcome. Companies who prefer to remain oblivious to this will find themselves suddenly out of business.

Legal remedy is not the answer

I was talking to an industry major on this issue who assured me that they had a legal strategy in place, seeking to break the monopoly status of the newcomer. But the question to which he did not have a reply to, was how could you call someone a monopoly if they are giving away their products for free? And that there is no pressure on any customer to use this company’s products.

Come to think of it, the new entrant had invested huge capital in building up capabilities, which made its products/services so compelling that it attracted scores of customers. And, the only thing which kept its customers from walking away was its superior performance! And, there were no assurances that the customers would be loyal or locked in. The e-commerce business models have always based on the long-term value of the customer, and sought ways to make the customers stay with them. And, this devotion to superior customer service is an extension of this.

Incumbents will have to change their business model

I know many companies who chose to carry on with their business model, in the hope that they can try to beat the competition playing the same game. But they should realise that the best way they can compete is to find ways to re-purpose their existing capabilities to compete in the new environment.

We are increasingly not selling products. We are moving to services and maybe even experiences

This may be an often quoted statement, but it is appropriate in today’s environment. We may be selling products, but we are often judged by the experience the customer has had. One needs to be careful that past performance is not a reliable indication of future success as it takes very little time for the customers to shift over, especially when there are hungrier competitors available at every corner.

Those companies who do not seek to upgrade their products to offering seamless and painless experiences, will find customers migrating, usually without even telling them. Or if they do choose to tell, then this could be on public media, which becomes another battle to overcome.

Increased investments in ecosystems, competitors and newer competitors

This is a big challenge, when private equity funded companies buy out the competitors or new startups to enter newer markets and acquire customers or even talent. Faced with this, incumbents will have to move aggressively to match these offerings or even leapfrog on to the next new challenge, instead of just trying to catch up. This requires imagination, and nimbleness, which is often missing in the legacy companies.

Old rules are no longer valid

I find many business owners confused with the realities today. The trend of having losses, and getting huge valuations, which are more valued, future profits are more sought after than current profits, small size experiments with constant changes are preferred, and failures are celebrated, everyone wants to raise funds in return for equity, usage and access models make asset ownership redundant are some of the newer norms on which businesses are now being run.

Capabilities to be acquired

Coupled with the above, one needs to acquire capabilities, if one is not able build these in-house. Walmart acquired Jet.com, and Amazon acquired Whole Foods, as examples of strong players buying their way into newer markets. The speed to execute becomes a lot faster, a pace which the existing players may not be used to.

We are in the midst of a challenging new environment where the fundamental rules have changed, and the companies have to keep these in mind when choosing to compete in the new era. Else they will find themselves struggling to compete and they will be left wondering what happened. I know at least one company would probably be, if they cared, as today evening, I plan to disconnect my existing internet connection and replace it with a newcomer's connection.

The author is professor of family business and strategy at SPJIMR and a family business advisor.

(Views are personal)