Friday, 2 July 2010

EMIs- How and when to you use a monthly payment plan

We are very sure about this so any views to the contrary will be appreciated.

A leading mobile phone company launched a campaign today allowing consumers to purchase its phones in 3 equal monthly installments.

This is a leading company under attack in India from low cost phones in the mass market as well as the 'smart phone' segments.

This campaign surprised Ritu and me immensely.

Installments plans , particularly in an emerging economy, should only be used to develop a product category. And when they are used, the installments should be such that they at least equal the current alternative.

We explain:

Eg: House-ownership: It is expensive and house ownership in urban India is very low. So an EMI from banks (over 10 or 20 years) allows people to enter this category and the size of the (monthly payment) EMI usually is equal to the monthly rent paid out anyway. So the offer of home ownership is very attractive.

For mobile phones, this does not work. India has 600 mn mobile phones (estimated). So the category exists.

For a premium brand to use 3 monthly installments to bring the cost (per month) to that of the full cost of a low price competitor - this is not logical. A premium player approaching its target audience on price is a sure sign of panic.

If i cannot afford a premium product in a single payment, very very unlikely i will be able to afford it in 3 payment plans....or very unlikely i will still not be distracted by a competitor model at one third the price- with mostly all comparable features.

The campaign needs to be re-looked asap.

Ritu and Venkat

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