Wednesday, September 15, 2010

When Upgrading Can Break Your Business Model

At a government department where I work, the drinks machine, known affectionately as R2 (it is quite the most wonderfully complicated drinks dispenser ever invented), has received an upgrade, of sorts. The old R2 charged £1 for a bottle of diet coke (or any other soft drink). In a dozen simple steps it found the right bottle, took it from the shelf, arrives back at the dispensing slot and lets go.

If you put a £2 coin into R2, you'd have thought it would dispense a single £1 coin as change. No, it returned: 50p, 20p, 20p, 10p. With everything priced at a pound and most people paying £1 (I imagine, R2 rarely ran out of change.

Presumably as part of the cost saves, or as part of a revenue driving initiative, the price has now gone up to £1.10. Now what happens with change? Few people will likely carry the extra 10p so I can imagine routine payments being £1.20, £1.50 or £2. R2 will have to dispense more change and so will run out of change - and thus cease to function at all more often than it has to date. Only Dan could work out the likely frequency of this so I will leave to him.

That would all be fine, to some degree at least, but all the fiddling around to change the prices on each drink seems to have disturbed R2. Since the price upgrade, R2 has been in all of a dither. You put your money in, he goes to the right drink slot, grabs the drink with his robot arm, levers the drink out of the slot ... and then drops it. He's no fool so he knows he's dropped it ... or maybe he's not sure that he ever had it, so he asks you again what you want. This goes on - fetch, drop, fetch drop - until you get bored and ask for your money back.

For the sake of 10p a drink, the daily average revenue from R2 has dropped to zero.

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