Market lessons from drug dealers

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Christina Marie
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Market lessons from drug dealers

Unread post by Christina Marie » October 29th, 2005, 12:08 pm

Market lessons from drug dealers

October 29, 2005

Cocaine is an expensive drug. The white powder is psychologically addictive. But only rock stars, designers, and soccer legends can afford to inhale "lines" at $300,000/kg.

In the 1980s, an unsung genius discovered that, if cocaine is "cooked" with baking soda, it turns into tiny, smoke-able lumps. The mixture cooks with a crackling sound, which is why it's called "crack".

Crack is far cheaper and faster-acting. Sudhir Venkatesh and Steven Leavitt ("An Economic Analysis of a drug selling gang's finances") say crack is the drug of choice in black urban USA. Black gangs annually supply $35 billion of crack to 6 million-plus customers.

The key to creating a mass market is lower price plus higher supply. This should work just as well for broadband telephony. Broadband is almost as psychologically addictive as crack. Surf, listen to music, watch streaming video, play multiplayer games, talk at the same time -- once you've used broadband, you're an addict.

Indian broadband pricing has dropped. Most tariffs start at Rs 300-odd per month. MTNL's new plans at Rs 199-odd are much the same as a normal phone and DSL lines carry voice as well as data.

In urban India, most fixed-line service providers offer broadband. Copper networks can deliver DSL broadband with off-the-shelf equipment. About 40 million wirelines could be tweaked for 256-kbps-plus connectivity. Of course, home PC penetration is much lower -- but broadband can offer triple-play including the killer app of channel TV.

And yet, India will miss its broadband targets by a mile. The December 2005 target was 3 million subscribers and the actual user-base is, at best, going to be 1 million. In September 2005, the Internet Service Providers of India reckoned there were about 610,000 broadband connections.

The reason for underperformance is simple; India's service providers have a strange notion of "service". The Indian broadband experience consists of days of disconnection interspersed by occasional periods of surfing. The ground reality is that broadband supply is dismal.

Here are a few war stories. These are culled from Delhi residents; broadband rollouts occurred here many moons ago. Any teething trouble should have long been sorted out.

Bharti disconnects its broadband customers for an average of one-two days every week for "non-payment of bills". Customer care offers no apologies, no redressal, no explanations.

Bharti is marginally better than MTNL. MTNL's broadband helplines are permanently engaged. The PSU doesn't respond to emails to helpdesk and it takes weeks to reconnect if service goes down. If you do reach helpdesk, you are told to call 197, which in turn, is supposed provide a complaint number for the local exchange. 197 then produces local exchange numbers that don't exist!

VSNL maintains a dignified silence about its broadband services. If you fill in response forms on the website, there's silence. If you call the enquiry number, your details are noted and then, silence. VSNL has also been known to accept advance payments for connections and then silently spend months refusing to install them.

It's amazing to think that these are the customer-care standards at large companies, deploying B-School skills and high-tech know-how in competitive markets. They all use entire dictionaries of jargon to define their corporate vision; none of them appears to understand the definition of "service".

Contrast this with the semi-literate crack gangs described by Venkatesh-Leavitt. The "reps" wait for custom on street corners. All you need do is "stare into the vacuum of their eyes and make a deal". The rep from a rival gang on the next corner provides competition. The customer may be arrested since the product is illegal. But product quality and supply is guaranteed.

These gangs created and service a market some 70 times as large as Indian broadband (approx $130 million in Q2, 2005-06) with ten times the user-base. That's despite abysmal HR and "regulatory difficulties" far greater than those Indian telcos constantly moan about. Perhaps there's a lesson Indian telecom can learn from drug dealers.

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