Business Model Community

Case 1

October 2012

 

"Low cost Parisian funerals"

 

by Benoît Demil

Case 2

October 2012

 

"When prisoners pay a rent "

 

 by Benoît Demil

Case 1

 

Low cost Parisian funerals (22/10/2012) by Benoît Demil

 

French funeral market seems to have been protected from competition for a long time. Information on prices and services were not very clear and detailed. Taking advantage of the customers’ distress as they suffer bereavement, companies were able to take advantage of the situation by providing little information and rarely an estimate, making any price comparison difficult. Consequently, on the French market, prices were spread over a range from 1300 to 6000 € for funerals with an average price of 3098 €. Of course, behind this range, there were some huge differences between the value propositions but it also reflects huge information asymmetries. Indeed, the French customer association (UFC – Que choisir: http://www.quechoisir.org/) was pointing in 2008 that for the same service the prices ranged from 1176 to 3891€.

 

In this context, the new offer from Paris’s funeral service since July 2012 appears as a little revolution with a basic price of 789 € for Parisian inhabitants (see the Website: http://revolution-obseques.fr/obseques). To this price, customers will have to add the price for the cremation or for the burial, doubling potentially the price of the service. But even with these additional charges, the final price displays a 50% rebate compared to the average price on the market.

 

The new business model is inspired by the general low cost business model and then, rests on two pillars: the possibility for customers to gain access to a minimal service and, jointly, the reconfiguration of the traditional value chain and value network. Indeed, this revolution implies an active participation of the customer himself and is based only on online subscriptions, dispelling any contact with a funeral shop. The members of the families are invited to make the administrative tasks themselves and to participate in the portage of the coffin. But, above all, with this new value proposition, customers have a potential access to a minimal service: coffin, transportation and planning of the different stakeholders. This does not exclude the availability of a large range of options on the website of the Parisian provider but the value proposition can be restricted to the strict respect of legal obligations. The value proposition reduces the choices in coffins and excludes any departure from home (but in 80% of the cases, the death occurs in a hospital). It implies also to exclude some busy days in the week for the ceremonies, such as Friday.

 

Several lessons can be drawn from this case. First, it demonstrates the diffusion of the low cost model in most of the markets today. French market seems to make up for the lost time compared with other countries such as Germany in which low cost offers exist since a long time and have a large share. Secondly, as usual, new revolutionary business models in a market generate opposition. Because its claims for a price of 789 €, the new service provider is accused of dishonest advertisement by the established professionals. The point is that they do not claim that all funerals will cost 789 € -and with several basic options the price doubles finally -, but that this minimal price can be targeted. It’s not very different on this point from low cost air companies (who has ever paid 1 € for transportation by Ryan Air?). The last interesting point concerns the conditions making possible this new business model. Indeed, in this case institutional and cultural context is clearly important. The French public authorities try to make the market more open to competition since several years. In particular, several recent regulations in 1998 and 2011 have tended to make the diffusion of information mandatory. Moreover, to be able to discuss and compare the prices of funerals in a distress situation requires an evolution in the mentality of the customers. “In 1992, only 3% of the families asked for an estimate before selecting their service provider. Today, 60% of the families are asking for at least two estimates”, declared Michel Kawnik, president of the French Association for Funeral Information. Similarly, more and more people are anticipating their funerals by subscribing funeral insurance (20% in 2009 against 7% in 2004). By this, they plan themselves the ceremonies and avoid being a charge for their family. These evolutions display the diffusion of an economical logic in what was traditionally a private and personal transaction that opened up the door for the funeral revolution.

Case 2

 

When prisoners pay a rent (23/10/2012) by Benoît Demil

 

Most of the time, public services are presented at a cost for the community. In these challenging times where drastic cuts have occurred in many public budgets, public decision makers have to be creative for reducing costs and finding new sources of revenues. At the end of 2011, the original idea of the Riverside County (at the east of Los Angeles) was that, for the time spent in the jail, inmates have to pay the county back, which is eventually the taxpayers’ money. However, not every prisoner will be forced to pay up, in the five jails of the county. The county will review each prisoner's case individually to determine if they can afford the fee and 25% of the prisoners could be elicited. Supervisor Jeff Stone details his “prison hotels” as a place where inmates are charged $142 for each day in jail, corresponding to the average costs of their staying. By this, he hopes a global return of 3 to 5 million a year. He adds that "If the parolee does not have liquid funds to pay, the County will put a lien against the property to receive payment when the property is sold. The County will do the same on the parolee's parents' property if that's the only way to get the money."

 

Elsewhere in the United States, other answers have been found by prisons of other states. Some programs have considered leaving former prisoners on parole to be unsupervised. Some jails reduced the number of daily meals to two. Others are using prisoners as firefighters. But the great idea behind this new business model is to transform a cost into revenue. Some companies even manage to do this. For instance, Ryan Air succeeds in transforming traditional airport taxes into recurrent revenues by targeting secondary airports. But this new business model for a jail raises numerous questions. First, the measure may have a final limited financial impact. Indeed, jail reimbursement comes after other payments, like victim restitution, fines, penalties, and assessments. Also, the inmates do not come from particularly rich backgrounds and have limited funds. Moreover, when inmates are released, having no more financial resources may incite them to commit a second offence.

 

But above all, an interesting ideological debate exists behind this new business model. In a libertarian view –probably difficult to accept for a European mind- this model promotes fairness as there are no reasons that criminals have free meals and rooms. In this view, inmates are accountable for their actions and society pays twice. Firstly, due to the prejudices for which criminals are arrested and secondly because of the costs endured by taxpayers. But the reverse position can also be hold. People may consider that criminals may not have to pay twice for their crimes. First, for the freedom privation and second by taxing them for the time they spend in prison. Thus as usual with business model, the general question is “who pays for what?”