Monday Comment: toothbrushes, razors and wind turbines

Freebie marketing is a term that is synonomous with razors and inkjet printers, although there are numerous other examples at the lower end of the market for fast moving consumer goods.

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The strategy is simple. Let's take a product that will require supplementary additions over time - for example an electric toothbrush. Sell the toothbrush at a low price, knowing that if the consumer wants to avoid gingevitis they will need to splash out on (proportionately more expensive) replacement brush heads.

If you own any of these products you don't need to do the maths to work out how the primary product pays for itself over time. You also probably know where I'm going with this.

While a closely guarded secret, turbine prices appear to be coming down continually. All the while, servicing contracts on those deals seem to be fairly constant. A quick look at this year's turbine deals shows the majority of additional servicing contracts are in the 15-year range.

What is open knowledge is the pledge by the big manufacturers to maximise revenue from O&M. Vestas CEO Anders Runevad has taken a personal interest in overseeing Vestas servicing operations while last year Siemens spent big and built a global O&M centre.

For a brief example of how the importance of servicing is growing, take a look at some of Siemens' latest figures for 2014. Despite a 42% fall in revenue from turbine sales, a strong performance in servicing brought a 21% rise in profit.

Then there is Vestas. Onshore revenue from services went up 7% in 2014, while the value of its servicing pipeline rose from €0.36 billion to €7 billion over the same period.

But in an industry that has long sought to emulate the automotive sector as a means of achieving greater efficiencies, this seems a little at odds. Imagine buying a BMW and only being able to service/ fix it at a BMW garage? Is it protectionism or freebie marketing?

Yes, you can find third party servicing. The US is a fairly good example of this. But in the majority of cases it is a closed shop. Hypothetically, is it a good thing to pay less for a turbine and spread the extra cost on the maintenance cost over the majority lifespan of the machine?

It is an interesting model but freebie marketing is a short-term solution, for the customer at least.Wind  turbines aren't razor blades — they last a long time and the question is whether it will be the supplier who pays as the machines reach the end of their days.

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