On Affordability

Market evaluations of certain startups, for the most part, seem like total bullshit; but at times these evaluations make perfect sense if we focus on the type of goods/services that the company sells in the market and if we understand that "selling a utility" is different from "selling an experience".

If you are selling basic utilities (such as electricity, steel, or even mobile data or talk-time), as a business owner you'd know in your heart that everyone in the market is providing (more or less) the same electricity, steel, data, and voice. In such businesses, for the most part, you price a product based on the costs incurred to produce it. Then, you gain market/profitability by reducing the cost of production, thereby the price of the utility to the end-customers (in a way, raising affordability). 

On the other hand, if you are selling an experience (gourmet or designer clothing or even an iPhone), you price your product based on consumer demand, perception, & customer purchasing power; and not rely on the cost-of-production. Gaining market & profitability is a function of your creative offering, and your ability to offer different flavours of your products/services to the various customer segments (in a way, raising affordability). 

That's why "Selling an experience" can be a ~20-200% margins business, whereas "selling a utility" is usually a single-digit margin business. That said, let us just focus one of the key themes here: affordability. Note, for many of us who build & run online businesses, "availability of credit" with the customer-base (or a cohort) can be a measure of affordability, but here we aren't looking for the "measure of affordability" but more so about the "solve for affordability" via process, design, & partnerships.

Affordability is the inexpensiveness of something; the cost or price of something, bluntly put. Price is what the consumer pays (selling price), the cost is what the seller incurs (making charges), and the value is the total throughput (satisfaction/experience). When selling products or services:

• Retailers/Sellers worry about the costs: We can't afford such high shipping charges, we can't afford such lengthy manual processes, we can't afford such a high maintenance fee on our equipment.
• Consumers worry about the price: I can't afford more than $70 for a phone, and I can't afford to buy a razor cartridge for more than $2 regularly, and I can't afford two shoes, so I need a $20 sports shoe that doubles as an office shoe
• Everyone worries about the value: Can I afford to replace my razor with this shaver, can I afford to wear a smartwatch when I have my mobile phone on me at all times, can this face cream clear freckles & make consumers feel more confident about themselves

Making something affordable is fairly well understood if we follow the usage of the word "affordability": 

• The organic fruits & veggies aren't that unaffordable! This usually means, I value organic farming but such a practice is a damn costly affair for the farmer/producer, which is why organic fruits cost ~3X times its inorganic variants. 
• An iPhone X Pro is just not affordable! This usually means, I know the product is top-notch (very valuable) and I'd buy if it were priced lower. I am just not buying it coz I don't make that kinda money and (figuratively) it is priced as much as my kidney.
• I just can't afford leaves till the end of the tournament! This simply means I can take leaves but my performance is directly proportional to the amount of effort I put it in; so, I prefer not to take leaves as the cost of a drop in my performance.

All in all, it will be great if we understand and fix affordability use cases in our businesses and reiterate in our org/teams that affordability isn't just about increasing the "credit" with the customer; it is much more. Some great examples of affordability-thinking: Marketing Schemes: Buy Now Pay later constructs such as EMIs, No Cost EMIs, or partner exclusive deals - Pay using HFDC DinersClub and "get 10X rewards points" for travel tickets booked on HDFC site; Or, buy a Volkswagen car in 2018, pay in 2020. Process: GE introducing six-sigma practices to reduce wastage, thereby, the total cost of the product. Product Design: IKEA furniture brings the assembly costs of furniture to (near) zero coz they outsource that work to the customers themselves and customers love it coz IKEA also markets the DIY culture.

By the way, all personal opinions here; absolutely nothing is or should be associated with my current/previous employers or any other business associations.