Great article and logic. I couldn’t agree more. Kind of back to the ‘spend it to make it’ logic. Good lesson and reminder for those of us running small businesses that depend on repeat traffic.

Thanks –
Alice Errett

I don’t have a problem with this. Let’s say you go for an iPhone. Obviously you have a choice of paying £419 – £599 for one you can use freely with any carrier. Or £25-£45 a month (or thereabouts) for a 2-year contract. For a lot of people £25-45 a month is preferable (i.e. more palatable and less painful) to buying the handset outright, because they simply can’t justify the cash outlay.

When offered a phone on such terms, people broadly know the score, and it’s a choice that millions happily make. They know that they are probably paying over the odds for the phone. But they accept it as they can’t justify the alternative.

However, what do you think about the businesses who do half of this, but not the other half? I’m thinking of situations where a product is provided at an initial price which is less than its cost and profit is made over the longer term, however the business sets conditions to guarantee its profit from each customer, thereby wiping out a significant proportion of the perceived advantage.

This is common in mobile phone contracts where the phone is worth a lot more than it is being sold for, and in many case is offered “free”, provided a long term contract is signed. Is this not a symptom of the phone company not trusting themselves to be keep the customer through continued provision of a valuable product?

I’ve been pondering a similar business model for my industrial design and product development company.