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0 pointsfirasd6y ago0 comments

I think the word 'subsidy' is kinda questionable here. (This writer's previous article used the same word to discover many companies[1])

If a company is not losing money on gross margins--if they are losing money in total 'unit economics' because the customer acquisition cost is high--does it really mean they are subsidizing usage?

An example is Casper, the mattress company. They are still selling mattresses to consumers for more than the mattresses cost to them. They are losing money on ads. If I see/hear a Casper ad, is that ad really a subsidy to me?

PS. Saw an interesting Twitter thread from Tren Griffin: "Whenever you read or hear the phrase 'losing money' you should ask yourself: what does this person mean?"[2]

1) https://www.theatlantic.com/ideas/archive/2019/10/say-goodby...

2) https://threadreaderapp.com/thread/1184981449172144128.html

0 comments

mdorazio6y ago

In my opinion, customer acquisition cost should be baked into your effective margin calculations. If you're selling things "for a profit", but it costs you more than the entire profit on the sale to make the sale, your business model still sucks and is being subsidized by something, debt or otherwise. This is a common trap online sellers fall into - gross margins are kind of useless if your selling costs are through the roof.

ghaff6y ago

See also Blue Apron et al. If you're selling something to a customer base that is almost certainly going to have a lot of churn, that acquisition cost has to be built into your business model. Maybe if churn is low and the main cost is initial acquisition you can sustain losses for a time but not if it's ongoing.

ADDED: And a mattress is an example of a product that people buy very rarely so the marketing/advertising to acquire a customer is mostly a cost of a unit sale. Yes, maybe they get some residual word of mouth but it's mostly effectively part of the product cost.

oarsinsync6y ago

If the money is going on tangental customer acquisition costs (ie marketing), it's probably not a subsidy.

If the money is going directly either to the supplier or the customer (subsidizing the customer's costs directly or indirectly), then it's probably a subsidy.

daveFNbuck6y ago

They're losing money so that you can get a cheaper mattress. You can call that a subsidy or not, but the important thing is that the transaction involves them ending up with less money and you with more money than if you had bought elsewhere.

jschwartzi6y ago

Casper is an interesting example to me because I've learned not to buy durable goods from companies that aren't solvent. If Casper went belly up next year, there's nobody providing any warranty for your mattress. And if it's discovered that the mattress is dangerous to sleep on because of contamination during the cheap manufacturing process, good luck getting anyone to recall it and replace it with something safe.

ghaff6y ago

I'd worry less about a product like Casper's than a lot of other products that you expect will need repair/supplies/etc. at some point. Sure it's possible that some gross defect will be discovered in Casper mattresses in a couple years. But it's not like there isn't lots of other furniture that turns out to not be well made. And good luck getting refunds on that after 2 or 3 years in many/most cases.

wolco6y ago

In all cases its a subsidy. Because without it the price would be different.

A brand subsidy is when your brand is enhanced by a third party either by direct or indirect but it doesn't have to include money.

Think taking a photo with a star at your dinner and putting it on the wall.

j / k navigate · click thread line to collapse

0 pointsfirasd6y ago0 comments

I think the word 'subsidy' is kinda questionable here. (This writer's previous article used the same word to discover many companies[1])

If a company is not losing money on gross margins--if they are losing money in total 'unit economics' because the customer acquisition cost is high--does it really mean they are subsidizing usage?

PS. Saw an interesting Twitter thread from Tren Griffin: "Whenever you read or hear the phrase 'losing money' you should ask yourself: what does this person mean?"[2]

1) https://www.theatlantic.com/ideas/archive/2019/10/say-goodby...

2) https://threadreaderapp.com/thread/1184981449172144128.html

0 comments

mdorazio6y ago

ghaff6y ago

oarsinsync6y ago

If the money is going on tangental customer acquisition costs (ie marketing), it's probably not a subsidy.

If the money is going directly either to the supplier or the customer (subsidizing the customer's costs directly or indirectly), then it's probably a subsidy.

daveFNbuck6y ago

jschwartzi6y ago

ghaff6y ago

wolco6y ago

In all cases its a subsidy. Because without it the price would be different.

A brand subsidy is when your brand is enhanced by a third party either by direct or indirect but it doesn't have to include money.

Think taking a photo with a star at your dinner and putting it on the wall.

j / k navigate · click thread line to collapse