Jio Can Spend Rs 18,000 Cr For Selling JioPhone At Cheaper Price: Rs 4000 Expected Cost?
Reliance wants to offer its ‘JioPhone Next’ at a price point below Rs 5,000 and will spend Rs 18,750 Cr in subsidy to make it happen.
In order to sell 75 million units of the phone, the telco will have to subsidise consumers to the extent of Rs 15,000 Cr at Rs 2,000 subsidy apiece.
Chip Shortage Drives Costs
The subsidy figure is nearly Rs 3,750 Cr or 25% more due to increasing costs of semiconductors and other components amidst supply shortage.
The cost of components such as memory and LTE (4G) chipsets have risen nearly 20%.
The component shortage has had two adverse effects on the company.
One, it has led to increased costs.
Two, it has delayed the launch of the phone until Diwali (November 4).
The phone is developed jointly by Reliance and Google.
It was previously supposed to be unveiled on September 10.
If the chipset shortage continues for more quarters, Reliance could launch the phone in some markets initially.
Later, when component prices stabilise and supplies normalise, it could launch it full scale.
What Makes It Unique
The product marks the company’s entry into the smartphone industry and has built up hype due to its previous successes with the Jio cellular connection and online grocery platform JioMart.
The plan was announced during the 44th Reliance Industries’ annual general meeting (AGM) back in June.
Mukesh Ambani touted the JioPhone Next to be the cheapest smartphone in the world, priced at around $50 (about INR 3,600) in India.
It is also promising to make India “2G-mukt (free)” by capitalising on a chunk of Bharti Airtel and Vodafone Idea’s 300 million 2G feature phone user base.
Effective Business Strategy
For Reliance, offering subsidies has been an oft adopted business strategy.
The focus of the company is on sharing a glimpse of its offerings to the public at a low entry cost.
Once the consumer is captured, they convert them into more mature users who use high volumes of data.
Therefore, pricing is a key factor because of which Jio is willing to offer subsidies to its initial set of users.
Plans To Capture Market
In order to encourage purchase, it could also explore a ‘buy now, pay later’ scheme.
The upfront sum could be kept low to attract people who can later pay the balance in easy, multiple instalments.
Bringing on board a large number of users who upgrade to the JioPhone Next could lead to a boost in their FY23 revenue estimates by up to 10%.
This is assuming there are no changes to tariffs.