Jio’s Bottom of Pyramid Strategy

Recently I was reading “The Fortune at The Bottom of The Pyramid” by CK Prahlad, and I couldn’t help but think about the big success of Jio in implementing this strategy. To be fair, this book doesn’t focus much on the best practices or rules for building product for Bottom of the pyramid, but rather makes a case for looking at a product for BOP with a clean slate. Often, MNCs just tweak their product or pricing to cater to this segment. 

Why is Jio’s success remarkable?

Jio was successful in capturing a fortune in the crowded Indian telecom industry, which had one of the lowest ARPU even before Jio was launched. Jio, now the largest telecom player in India by subscriber base, on Friday, posted a 62% yearly rise in profit at Rs 1,350 crore for the December quarter.

As per Marc Anderson, co-founder and general partner of Silicon Valley venture capital firm Andreessen Horowitz, Jio’s story is one of the biggest disruptions in the past decade and would have a significant impact on the future of tech. It’s changed the digital life of 500mn Indians directly or indirectly (forcing competitors to change). 

When I was researching why Jio succeeded most of the media articles I found just focused on the pricing as if low-income Indians customers just care about the price of the product. It’s worth remembering that just in the recent past Tata Nano – world’s cheapest car and a technology masterpiece, was a big flop in India. Even in telecom, BSNL, which offered one of the lowest rates in many circles, had struggled in even retaining customers over the years. 

It’s true that Jio has a lower marginal cost of serving a customer, and with lower marginal cost and deep pockets, Jio would have loved going in the price war anytime. However, the story doesn’t end there. The real deal was the product strategy built around this short-term cost advantage, which led to success. 

Challenges for Jio

Before diving into the strategy, let’s think about the challenges for Jio that its strategy aimed to overcome. 

The biggest challenge for Jio was time. 

Jio’s marginal cost advantage was the result of its focus on a single nation-wide network – 4G. The incumbents have to bear a higher operating cost in supporting a mix of 2G, 3G, and 4G. However, with incumbents slowly focusing on 4G and 5G being just around the corner, the cost advantage of Jio might not have lasted long. Further, given the high fixed cost investment of RIL in the industry with low ARPU, operating at a huge scale was the only way to make money. 

Hence, Jio had limited time to get as bigger dent as possible in the Indian market to get the most benefit out of its marginal cost advantage. Chairman of RIl, Mukesh Ambani said in one conference, “when we started Jio, we set a target for ourselves that we will acquire 100 million customers in the shortest time.

I could think of 3 key barriers in acquiring customer at such a pace:

  1. Getting a new SIM activated used to take 3-5 days. In addition, there is a lot of friction in getting your SIM connection closed. Telcos often offer good deals to leaving customers, further increasing the switching cost in the industry
  2. India had a crowded telecom market with one of the lowest telecom prices, and hence a minimal difference in pricing wouldn’t have had much impact. In order to make a dent, pricing had to simple and novel.   
  3. There was a real threat of being labeled as a cheap product trying to trick the people. It would have restricted Jio’s entry incorporates and launching premium offerings later. 

I think the second one was the toughest challenges, as pricing had to be low, different, sustainable, and at the some without getting the product labeled as cheap. 

Jio’s Product Strategy

Post diagnosis of the real challenges, let’s talk of the three key components of Jio’s product strategy: 

Pricing: Before Jio, incumbent telcos used to focus on call rates as a lever for pricing and increasing ARPU (average revenue per user). Jio came with a radical plan to make the call rates free and just charge for data. This move was aligned with their strategy of focussing on the digital life of Indians. It was a classic case of blue ocean strategy focusing on the unchartered territory of selling and charging for data. This strategy helped Jio maintain the highest ARPU (~2$ per month) in the telecom sector during the price war. 

Positioning Jio as an experience: From the very start, Jio brand positioning was about delivering an experience – a digital lifestyle. Look at one of the first Jio TV ads. 

In fact, it wasn’t just an advertisement strategy but rather a product strategy. Reliance launched multiple apps including JioMusic, JioTV, JioChat, JioWallet and the other to help support the digital lifestyles. All these apps were the most trending app on App Store and Play Store for a while. 

The positioning was never about cheap prices, but a new digital way of life. Reliance partnered with Pokemon Go creators with Jio retail shops being Pokestops. Even the brand name “Jio” was in line with the trend in the tech industry to keep short, memorable names – Ola, Oyo, or Uber, to name a few. Jio was always a new cool thing in India, and not some cheap products trying to trick people.  

Reducing the switching cost: Jio reduced the time it takes to activate a new SIM from 3-4 to days to 15 minutes using Aadhaar. It offered free usage for 3 months. I believe it was one of the largest free trial campaigns in recent history. The last such famous trial in India was when Uber launched. Everybody was going crazy to get a free Uber ride! 

I believe this unique pricing strategy, a huge reduction in the switching cost, and a clear value proposition around digital life made Jio a success! The firm crossed 50M users mark within 83 days of the launch. 

CK Prahlad would have been happy to finally see the end of the poverty penalty in India where telcos used to charge lower prices per call for a postpaid plan for corporates that what a low-income user had to pay for lower usage plans.

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