Pssst, You Wanna Rent a Lamp?
Why sell if you can rent them?
Some time ago I was on a project where I had to go to warehouses to count the amount of light bulbs there and see if tallies with the amount in the system. It was as glamorous as it sounds, it was hot and dusty inside. Later on, the owner of the warehouse took the team to lunch at a nearby nasi campur. Lets call him Mr. Ahong since I can’t recall his name.
Mid-way through the meal, Mr. Ahong told us that the light bulb industry is doomed and suggested his team to go and find another job in a different industry.
“Light bulbs are becoming more long-lasting, even more so with those LED bulbs”, he said.
“So if the light bulb last longer, people will not be buying replacement bulbs any time soon. But production will still go on. We will have stock, but no one will buy.”
Of course, he was speaking in a very general term. But his words has some ring to it. If bulbs last longer, it would take longer until people will need to buy replacement. Thus the better the bulb is, the more doomed is the industry.
It is though?
What constitutes a good light bulb? We believe there are two main points by which a good light bulb is assessed aside from pricing:
- Lifetime value, like Ahong said, the longer it last, the better. Of course people would like to spend less time replacing their bulbs and making trips to buy one.
- Energy efficiency, meaning for a certain level of brightness the bulb should consume less power (relative to its peers). This is meant to keep electricity cost to the minimum.
And we have several categories of light bulbs we can choose from:
- Incandescent/Halogen light bulb. This is the traditional house-worthy light bulb created by the famed Thomas Alva Edison. Actually, about 90% of the energy spent by the halogen bulb is converted into heat. The light produced is just some kind of byproduct.
- CFL light bulb. This is the standard bulb for some time. It’s more energy efficient than Halogen bulbs, but the bulb itself costs more.
- LED light bulb. The most energy efficient bulb currently, and of course the most expensive.
According to Ahong, the industry is doomed because LED light bulb lasts very long making it longer for people to buy replacement. We will try to pick apart this statement slowly.
There are two kind of moments in a human life where they will buy a light bulb. Replacing the old ones, and buying new ones when you have a new building in need of lighting. In other words, if what Ahong said is true, light bulb seller would have to rely on the growth of new homes or apartments. Which currently I have no data of (if you have pls share).
While we do not have basis to decide if the growth of new homes would be sufficient to cover for production and selling costs, we still can look at which bulbs people are most likely to buy.
Ahong’s assertion is that, the industry is doomed because everybody will be buying long lasting bulbs, that is, LED bulbs. I initially hypothesized that it will not happen quite just yet. Mainly because LED bulbs is expensive, and majority of Indonesians wouldn’t fork so much money for LED bulbs.
Assuming everyone is rational, the train of thought would be “to achieve a certain level of brightness from the bulb, which wattage for each type of bulb would be needed?” Thus assuming the wanted level of luminosity is 1450 lumens, a 14 watt LED bulb would be more or less be the same with a 24 watt Fluorescent bulb (remember, given the same wattage, LED is more power-efficient thus could generate better luminosity).
Hence, by the calculations above, it would be way more economical to purchase an LED bulb, since the initial price is lower and the electricity cost in the long run is way much cheaper.
But some people (if not, a vast majority of them) is irrational.
The more likely train of thought would be, people would not consider the luminosity calculations and instead would assume the same wattage will give the same luminosity. By that calculation also (refer to the far-right LED column) while the initial price is higher, in the long run, it’s still somewhat cheaper.
But again, people are irrational and are not wired to think in the long-term, and most likely to be deterred by the higher initial cost of buying an LED bulb (the 24 watt one, that is)….
…is what I’d like to say.
I’d really like to continue this part by talking about how people avoids the pain of forking a large sum of money over the initial cost of the LED bulbs and instead prefer to opt to the less painful choice, thus saying the LED bulbs has not yet threatened the industry, but I just came by some data that debunked my hypothesis.
Just take a look at the electric lamps consumption data, which just by a skim you can see that LED bulbs are gaining foothold and are going to overtake CFL/Fluorescent bulbs very soon, albeit the alarming slowing growth. But the trend is clear that people are ditching older model bulbs in favor of LED bulbs.
So there, my hypothesis that people will still buy CFL/Fluorescent bulbs has just been debunked. But why? It might have something to do with the customer segment itself.
Households with lower SES (Socioeconomic Status) might outnumber the number of households with higher SES by a large margin. And these households with lower SES are much more likely to buy CFL/Fluorescent or even Incandescent bulbs. While households with relatively higher SES are more likely to buy LED bulbs.
The problem lies within how many of the bulbs each household is going to buy.
True the number of household with lower SES is way higher than those with higher SES, but these households with lower SES they have much lower buying power also. Meaning they will buy less since their house would be smaller in size and wouldn’t require numerous bulbs. While those with relatively higher SES, will require much more bulbs per household.
And for those with relatively higher SES, their train of thought would be “I don’t mind paying a little more if it means less effort to replace the bulbs”.
With the trend shifting (or…has shifted) into longer lasting LED lamps, the industry will have to rely on ‘customer acquisition’ as replacement bulbs might become less frequent. The industry will have to rely on new buildings and new homes to keep buying more LED bulbs.
Which brings me to my next point. Recall my table from before:
If I were a light bulb seller, my share of income would be when customers buy new bulbs, which is just under the ‘bulbs expense’ category. It is obvious that the longer the bulb last, the worse it would be for me as a seller because you’ll do less replacement bulbs. For a product that is assessed on its energy efficiency and longetivity, the better the product is, the worse off the industry would be. Ahong’s word rings somewhat true after all.
Thus it would make sense if I were to set up, let’s say, a cartel between light bulb manufacturers. The cartel would require manufacturers to not make the bulbs so long lasting. We can make the bulb somewhat more energy efficient, but the lifetime of the bulb itself should be shortened to keep people buying replacements. The problem is of course this is not exactly legal.
Hence, if I were a light bulb seller, I’d be much happier if LED bulbs didn’t come into existence and you can only choose CFL (or even worse halogen bulbs) so you keep buying replacements from me.
So what is going to happen next? As the bulb-selling practice becomes more unsustainable, the industry needs to shift. We take a look at the possibility of switching to a “x as a service” type of business.
The core of the problem is that longer lasting bulbs making sales from replacement bulbs less frequent. This is because in the retail business, the seller’s interest in the value of the product disappears as the focus shifted into how to get people to buy even more. Revenue is generated in each instance of product purchase by costumers. Hence in retail we need to have repeat customers to buy the product yet again and again.
Consider a rental type of business. After customer entered in a rental contract, the seller’s interest becomes how to maintain the longevity of the product with minimum cost while maintaining a certain level of satisfaction. A rental contract would provide the seller with a steady flow of income over an agreed upon period of time.
Who’s to say we can’t rent bulbs? Or rather, lighting solutions?
By turning the business model into “lighting as a service”, the longevity of the LED bulb becomes in our (seller’s) favor. When we are selling bulbs, we want them to be less durable so we can have repeat purchases for replacements. But if the competitor offers a more durable bulb, consumer might switch to a brand with better durability. When we are renting bulbs, we want them to be as durable as humanly possible, which is what’s happening right now.
And because a light bulb is not something we buy because we particularly want them (we just need some lighting), renting works since it takes the load of having to choose and replace your own bulbs off from customers.
For this to happen, lighting companies need to co-operate with providers of other kind, for example, co-operation with a housing development company to provide lighting for a cluster for a given period of time. This can be combined with other newer offerings from the lighting companies, like let’s say, Philips’ IoT Lighting services.
This model is most likely to face competition with Building Management Services companies and Facility Management companies. But I haven’t heard of anyone bringing this model to the private housing industry.
But this still does not bode well for light bulb distributors.
If you have already heard about lighting-as-a-service, or another idea on what to do with the lighting industry, please inform us and initiate discussion!
