Why Car Ownership Is Becoming a Thing of the Past

For decades, car ownership has been an aspiration and something to enjoy, as well as a tool. Recent trends suggest this may no longer be the case for many.



As the roads of the horse-drawn carriages of the Victorian elite have now become filled with the chauffeured Rolls-Royces of today's upper class, how you travel has remained a matter of social status. Having your own personal car has long been an aspiration, a sign of social achievement: as Margaret Thatcher once said, "A man who, beyond the age of 26, finds himself on a bus can count himself a failure." This quote exemplifies the attitude of the majority, that led to the boom of car ownership in the latter decades of the 20th century.

Times have changed, though. Brits today use cars for 14% fewer trips per year than they did in 2002, travelling 10% fewer miles. While in the 1990s, 80% of 30 year olds were driving, today 80% is only reached by the age of 45. Growth in car ownership has slowed substantially, and as a result many believe that we have reached 'peak car'- and should only expect car ownership to be in decline in the near future.

Some clear trends have emerged in the 21st century that provide some reasoning for why car ownership seems set to become a thing of the past. Environmental awareness is a massive change; car drivers were happy to purchase ice cap melting gas guzzlers in the 20th century, and, to be honest, many people still are (see the wealth of unnecessarily large diesel 4x4s that patrol the streets of London), but there has been a clear shift of consumer demand away from fossil fuels. This has given rise to the phenomenon of hybrid cars, that can operate for periods without burning petrol, and is currently driving appeal of fully electric vehicles (EVs). EVs are not quite there yet- thanks to low supply and the relatively new technology, prices of electric cars remain a barrier for most, as does the young network of infrastructure to support them.

In the meantime, the fossil fuelled cars available currently are unacceptable in their environmental impact- hence why they choose to seek alternatives to car ownership, whether it be public transport, cycling or walking.

Better public transport, has also helped reduce the need to own a car. For citizens of large cities like London, public transport has come on leaps and bounds in the past decades, with metro networks like the London Underground, trams and buses becoming a part of many people's daily commutes. However, the benefit of public transport has been unevenly spread, and focused heavily in metropolitan Britain- rural access to buses has become notoriously poor, given a lack of investment, and consequently car ownership in rural Britain remains higher than in urban areas.

A simple truth is that many people simply can't afford to purchase a car. Car prices aren't just rising- but running costs too, particularly fuel, tax and insurance. Even storing your car has become harder: Properties with car parking command a premium, car parking charges are exorbitant in most places and employers are increasingly keen for their staff to find other ways to get to work (for example, Vodafone provides free of charge employee bus services to its Newbury HQ). While driving remains for many a cheaper, more reliable alternative than the train, efforts are being made to shift from personal to group transport, where emissions per traveler are substantially lower.

The youth have been instrumental to all of the above. A new generation has grown up without the innate urge to whizz around at the helm of a car they could call their own, that was so appealing to previous generations. The youth are actively aware of the climate issues the world faces, and how cars contribute to this. They are happy to commute via public transport, cycle or just walk. And today, young people are those particularly feeling the economic pinch, with disposable incomes stagnant and car insurance for young people at an all time high.

Many carmakers see a future in which customers pay
for the service of car usage, rather than a specific car-
a 'Netflix for Cars'

The phenomenon of car leasing has existed for a long time, and continues to grow, but the wealth of technology at our fingertips means that we have no shortage of ways to flexibly use cars without owning them. Turo is a service that claims to be an 'Airbnb for your car', where people cant rent cars put up on offer by owners. Companies like Zipcar own cars dotted around major cities, which users can pay to use by the hour, being able to unlock the car via their smartphone. These systems are already in place and mean that anyone needing access to a car can find one pretty quickly and easily, and they don't need to worry about insurance, road tax and so on- just pay as much as you use it.

This is just the start: car manufacturers like Tesla and Mercedes-Benz are planning to make their cars open to anyone who needs to use them. The majority of time that you own a car, it will be still- parked up at home or at work. With self-driving technology on the horizon, these firms envisage a future where your car drives you to work, before driving off during the day to act as a 'robot taxi', earning you money, before coming to pick you up at the end of the day. Or, you may come to work in one car, which someone else then takes to use, and you grab another car to go home- meaning you don't own one specific car. Rather, you have access to a wide network of cars.

Ownership in general seems to be a concept that is fading away. Home ownership has been in decline in many countries, as people seek to rent. We now subscribe to 'on demand' services like Netflix rather than buy and store our own movies. So perhaps it makes sense that cars should follow suit.

It's a shame for car enthusiasts, certainly. The days of a car being a 'pride and joy' on your driveway appear to be numbered, as self-driving cars also look set to enter the mainstream in the coming decades. But undoubtedly, for those who see a car more as a tool to get from A to B, which most people do, the future promises a more flexible and perhaps affordable prospect for car usage.

Why Burberry Destroyed £30m of its Products - An Introduction to Artificial Scarcity

How companies artificially rig markets to work in their favour- and how it gets a lot darker than just burning handbags...

Burberry has recently caused quite a stir after a controversial business practice was recently revealed. News broke that the British high-end luxury fashion brand has incinerated as much as £28m of its own cosmetics and fashion products over the past year, to protect the brand and eradicate counterfeiting.

While these latest revelations have drawn attention to Burberry, this practice of destroying one's own stock is not by any means new in the fashion industry. H&M has a deal in Sweden to burn its own unwanted stock to produce energy. Slashed shoes were found disposed outside a Nike store in NYC. And Richemont, the group whose portfolio includes luxury watchmaker Cartier, has reportedly destroyed more than £400m of luxury watches over the past 2 years.

The most significant threat of these surplus products to a company like Burberry is not the aiding of counterfeiting, rather the potential effect the sale of such items on the grey market could have on the brand. The grey market, unlike the black market, is not necessarily illegal- rather it is a market which sells goods obtained unofficially. Some argue that popular retailers such as TK Maxx are examples of the grey market- obtaining genuine branded items, some of which are from unofficial channels, and selling them for less than the brand itself.

Burberry's concern is this: if their goods found their way to a shop like TK Maxx, and were sold for a fraction of their actual price, what would be the perceived value of the bags which it sells for full price? The appeal of a luxury brand is exclusivity; the grey market offers anything but this. What's more, it is highly unlikely that the original brand gets any of the grey market revenue at all.

Considering all this, Burberry's incineration of its own goods is an investment in the company's brand, protecting its goods from reaching the grey market and helping to maintain high prices. This is artificial scarcity.

Why is this scarcity artificial?

Well, the fact that the surplus goods existed shows that Burberry can produce than it is putting onto the market. Through artificially reducing supply (burning it), Burberry can keep demand, and thus prices, high.

To provide contrast, an example of genuine scarcity could be the recent CO2 shortage confronting many beverage manufacturers. The shortage of carbon dioxide has restricted the production of fizzy beverages, which, if prolonged, may force producers to raise prices.

The spread of Burberry's brash act in the news has brought practices that ensure artificial scarcity to light, but in reality, pretty much every business enforces some type of artificial scarcity. Few companies (perhaps, except Tesla) genuinely produce at their maximum capacity, whether to protect their brand as Burberry does, or to protect costs.

Disregarding the contemptible waste of material involved in some methods of creating it (think of how much leather Burberry burned), one could argue artificial scarcity is too substantial an issue. When it comes to luxury brands, for example, few people suffer from not being able to afford a £1000 handbag.

Where artificial scarcity does come into issue is in industries whose products we depend heavily upon. The pharmaceutical sector is an example; producers with monopoly power over certain drugs can in effect hold its users at ransom by restricting production and sending prices rocketing. Investigations have found this to be happening with medical products as widely used as stents, where some US firms were found to be exporting an increasing number of stents to India, but distributing fewer, despite demand increasing.

The Organisation of Petroleum Exporting Countries (known as OPEC) also leverage artificial scarcity to their benefit. Its members, which include Saudi Arabia, Venezuela and the UAE, are able to control global oil prices through co-ordinating their output. If it is decided that a rise in oil prices would benefit members, all members reduce their output of oil, and if an oil price cut is desired, they increase output. Such organisations are known as 'cartels'- illegal in most instances due to their lack of competition, but uncontrollable in the case of an organisation as influential as OPEC.

Artificial scarcity is always working in favour of businesses, rarely (if ever) working in favour of consumers. In the consumer world, it can cause massive waste, but little other genuine threat to consumers themselves.

However, when artificial scarcity is a tactic leveraged in potentially life-changing industries, such as pharmaceuticals and natural resources, it exposes capitalism at its most vicious- wealthy producers holding consumers depending on their product at ransom, and benefiting from their desperation.

The Plastic Resolution

As we discussed in the previous piece, plastic is so engrained in our lives and in the modern global economy, that it seems impossible to imagine a modern world without it. But we can, and in fact we must, if we are to avoid some of the catastrophic damage that lays ahead due to our excessive plastic use and wastage.

So, how can we reduce our reliance on plastic- what is the Plastic Resolution?

Firstly, we can establish that change has to happen on multiple levels of society. We can broadly categorise these into three: the individual, the business, and the government.

Secondly, we must understand that plastic will not go away tomorrow. As it has taken decades and decades for plastic to find its way into mass usage, it is likely to take even longer to find substitutes for all the various plastics we use for different purposes. But every effort has to start somewhere!

To start the war against plastic, it's most important to approach and resolve the most frequent offender- single use plastics. As the name suggests, these are plastics which are simply used once and then are disposed.

Single use plastics are what comes to the minds of most when we envisage the harm caused by plastics to wildlife. We all have heard of plastic soft drink bottles piling up in our seas, animals dying after mistaking plastic bags for food, or getting trapped in plastic packaging. Single use plastics are so dangerous to the environment in large part because there is such high demand for them. Every time you get a coffee to go, every time you go shopping, every time you buy a bottle of water, another single use plastic is added to the wastepile after you finish.

The government's 5p plastic bag charge, introduced in 2015,
proved successful in reducing use of plastic bags

The British government has already begun to take on single use plastics. The 5p minimum charge for plastic bags introduced in 2015 was designed to encourage shoppers to use reusable bagging, and it saw dramatic success-with an estimated 83% reduction in plastic bags issued by the country's biggest retailers. The government will be extending this charge to include small businesses this year.

Further legislation was also put in place in January 2018, including a ban on the use of microbeads in cosmetic products.

While such actions are indeed crucial steps for the governments of the world to take, many argue further can be done by the government, specifically to influence business behaviour. Some believe the stick approach works best- for example, making businesses pay for the recycling of the plastic packaging they sell. Others argue for the carrot- a more incentives-based approach. This could mean a policy like setting targets for businesses to reduce plastic waste, and rewarding them appropriately.

However, without research and development, businesses could be left with no choice but to continue using harmful plastics. With its unique properties and versatility, there's a reason why plastic is so commonly used in products- and to find equally cost effective and versatile substitutes is no easy task.

There is a strong argument that businesses should bring back materials previously used- such as glass for soft drinks, paper for grocery bags, or steel for cups. While such materials may well see a comeback, they have their foibles- and to find a substitute for plastic that keeps all its benefits, a lot of research and development will need to be done. This will need to be supported by the government, but equally businesses are responsible for funding and supporting such activities.

So we've now moved onto business- what can business do to reduce plastic waste?

This is a complex question; specifically because for most businesses, plastic is the most cost-effective material for packaging. Thus, investing potentially considerable resources into finding an alternative will not be an appealing prospect from a strictly financial perspective.

This is when Corporate Social Responsibility (CSR for short) comes into play. As entities that both give and take to society, businesses must accept the role they have played in creating the current chaos (with relative innocence, it can be argued), but more importantly accept the role they now have to help society fix those problems- by investing in finding alternatives to plastic. This may not be a profit-driven decision (though it could well be, as we'll explore shortly), but it is one that is crucial for our society's resolution to the plastic problem.

The government, through offering financial incentives for environmentally friendly behaviour, can ease this transition for businesses. However, the primary customers of most businesses are ultimately us- the end individuals, as consumers.

Therefore it is imperative that we as individuals are careful about what we consume. We should avoid single use plastics- and the best way to do this is to reuse. Get a reusable coffee cup, get a reusable solid liquid container, get a reusable bag, and make sure you recycle whatever plastic you can't substitute. Even something as small as buying a bigger plastic tub of yoghurt rather than several small tubs can help- as buying in bulk generally reduces the packaging-to-content ratio.

And when businesses aren't conscious about minimising their plastic waste, we should be conscious not to award them our business. As consumers we often forget our power, when we act in unison. Businesses acting irresponsibly should be punished for their failure to serve the environment, and businesses doing their bit should be rewarded. This serves a similar purpose to financial services offered by the government to businesses; it makes it easier and more financially appealing for businesses to minimise plastic waste.

However, it is often easier said than done to be entirely conscious about your plastic usage as an individual. The large majority of people still use single use coffee cups, for example.

Here, businesses can help us to behave more responsible. For example, reward schemes for using a reusable coffee cups are standard across many major coffee shops in the UK, and you can get supermarket loyalty points for reusing any carrier bags. These things make it more appealing and easy for us as consumers to avoid plastic, or at least use it responsibly. At the same time, government policies such as the 5p plastic bag charge push us to be more considerate.

Single use plastics remain the primary issue the world needs to tackle; once we are able to confront this, the battle for a future less clogged with plastic bottles is half-won, and we can perhaps continue to look at phasing out plastic entirely.

The fact is that the main onus is on businesses, as the primary producers of these plastic products, to reduce plastic waste. And of these businesses, the largest and most influencial hold the most responsibility. Once a company like 'Coca-Cola' takes a clear stance against plastic waste, for example by replacing all plastic bottles with glass bottles, the industry will be sure to react. The government, and we as consuming individuals, need to do our best to foster the conditions in which such a decision might be made.

The fight against plastic waste is a classic example of how the government, businesses and individuals can, and must, all interact as members of society to incentivise each other to behave better. By each accepting their responsibilities and burdens, the unity of these three groups has the long-term potential to create our Plastic Resolution. 

How Businesses Can Make Money Out Of Your Misery

Apple recently admitted to reducing performance on older devices- leading to understandable discontent with the firm. But such practice is in fact more common than you'd first think. 





















Though Apple refused the accusations, its recent apology for the 'misunderstanding' regarding how it treats devices with older batteries only reassured what many cynics suspected- that Apple had been slowing down older devices, in order to push users of these devices to upgrade. There is no way of knowing 100% that this is was Apple's intention- but, if this suspicion were to be true, Apple would not be alone in such a practice.

This is a strategy known as 'planned obsolescence', and it dates back as far as 1932. At this time, America was in the pits of its economic depression- and Bernard London, a real-estate broker, asserted in his paper 'Ending the Depression through Planned Obsolescence' that businesses should "chart the obsolescence of capital and consumption goods at the time of their production". Essentially, he wanted businesses to plan for the goods they sell to become obsolete, and thus demand for the goods to be reinvigorated. So because goods would become obsolete, people would buy essential items more often, providing a boost to the economy.

Planned obsolescence is all around us in today's world. Some argue that shaving razor companies, for example, deliberately do not select the most durable materials for their razors, as they want users to continue to replace their razors regularly. Even something like a 'best before' date on food and drink could be argued to accommodate planned obsolescence- many people throw away milk that is perfectly fine, just because it has passed the best before date by one day. Of course, they then buy more milk to replace it.

The problem is that it is usually difficult to identify where it is happening, as it is not a practice most businesses would be happy to admit to. 'Best before' dates may be deliberately early to protect the consumer from any possibility of spoilt food (or protect the seller from legal action). Razor companies may not use the most durable material for their razors because it might not be profitable to do so. Going back to the Apple example- one cannot be certain that the company practiced planned obsolescence for revenues' sake, as we have no fully reliable insight into the company's intentions when it decided to reduce performance on older devices.

Given that the world of business, however, is not always the most ethical, it is almost certain that many businesses engage in planned obsolescence with the primary intention of squeezing more money out of the customer, with little care for the disruption caused to them.

Another practice that is closely related to, and perhaps overlapping with, planned obsolescence, and is arguably easier to detect, is what Tim Wu of The New Yorker calls 'calculated misery'. In his very insightful piece, Wu explores what he sees as calculated misery being dished out by American airline firms to its customers, to accommodate its fees system. "Basic service, without fees, must be sufficiently degraded in order to make people want to pay to escape it", Wu says- and when you think about it, this is true indeed.

Many of the airlines practicing calculated misery tactics have contributed to flying being generally known today as a miserable experience, at least for those not able to shell out on business or first class seats.

The emergence of premium economy is a classic example of this. Premium economy has recently emerged as a mid-way point between economy and business class, typically for middle-class passengers with a little more money to spend, but not enough for business class. They enjoy features like longer legroom, maybe some extra food, and other amenities.

To accommodate the extra space needed for these seats, some airlines have had to redesign their plane layouts- and of course, they would not make any changes that would come at the cost of the highest paying passengers up front. Rather, some airlines have made subtle changes to economy class- whether it is bunching together more cramped seats in a row, or more commonly, pushing together seats and reducing legroom. The phenomenon of falling legroom has been so common that investigations have been ordered into it by courts in the USA. Not only does this change allow more room for the greater profiting premium economy seats, but it also dishes out calculated misery to those in economy- squeezing them (quite literally) and incentivising them to pay the extra sum for premium economy.

Another recent example of calculated misery being dished out is evident in British Airways' recent plans to board passengers in order of how much they paid for their ticket. Even within classes- those paying the least are made to board last. Despite the fact that this is a less than optimal strategy for boarding, it again incentivises passengers to pay more for their ticket.

So, to summarise: some businesses, whether through planned obsolescence or calculated misery tactics, are squeezing more money from consumers, despite and in fact because, they are providing a worse customer experience.

But how are businesses getting away with it? The fact is, that the lack of competition between them is allowing them to do whatever they want. If one airline charges extra to jump ahead of the boarding queue, it won't suffer- if the rest of the industry does the same. As consumers, we are often held to ransom by collusion between businesses in an industry, as businesses are allowed to prioritise profits over customer experience.

There is some action that can be taken, however; it is our duty as consumers to show our discontent, both with our words and our pockets, where possible. Government must also intervene to prevent such collusion between businesses, and to ensure healthy competition in the marketplace. Only then will the relationship between business and consumers be mutually beneficial and profitable.

Why Is The iPhone X So Expensive?

The iPhone X was revealed with much fanfare in Apple's new Cupertino HQ last week- but it wasn't just the personalised poop emojis, the wireless charging or the new display that stole the headlines...

The all-new iPhone X was proudly revealed by Apple CEO Tim Cook as the "biggest leap forward since the original iPhone". The device, which marks the 10-year anniversary of the iconic smartphone, features an all-new bezel-less OLED display, 'Face ID'- the most advanced facial recognition technology on a smartphone- and other new updates such as wireless charging.

Not only was iPhone X arguably the biggest leap in technology since the original iPhone, but it was in fact the greatest leap in price- at $999 dollars, it became the most expensive mass-market smartphone ever, $230 up from the iPhone 7 Plus. This significant price increase, and the landmark of the iPhone X becoming the first ever thousand-dollar smartphone, remains a significant talking point of the new device- and most of the coverage around the price has been negative. So, why exactly have Apple made the iPhone X so expensive?

The most obvious contributor to the increase in sale price is the increase in the cost of production. According to GSM Arena, the X costs $412.75 to produce- compared to the $220 production cost of the iPhone 7. This drastic increase in cost is the result of a significantly larger, OLED display, a new glass material, and also a larger standard storage of 64GB for the base iPhone X.

Interestingly, the only place Apple could source the new OLED display was from its smartphone rivals Samsung- no doubt, the Korean firm will have exercised this monopoly power to try to reduce the margins of its competitor.

The new design and technologies of the iPhone X has also limited production capacity. This is rumoured to be one of the reasons why there have only two colours offered at launch, as well as why the actual sale date is in November, despite the announcement coming in early September. As basic economics dictates, a lower supply is likely to induce higher prices, as people clamour to not miss out on this latest iPhone.

While this price increase is rather drastic, people often forget that it's not the first time Apple have introduced devices at a high price. Apple believe that the iPhone X is a whole new device- an iPad Pro to the iPad that is the iPhone 8, or a MacBook Pro to the iPhone 8's MacBook. This is especially evident when you see that the prices of the iPhone 8 and 8 Plus have actually increased from the iPhone 7 and 7 Plus.

The first MacBook Air (top) was succeeded by a
more successful and affordable generation.
Source: Engadget

Historically, new Apple products as revolutionary as the iPhone X have provoked controversy due to their costs- the first generation MacBook Air, the 2015 MacBook and the Apple Watch are just three such devices. Experiences from these products have arguably given Apple the confidence to set a high price for the new iPhone. Where successful, Apple have been able to sell high volumes at high prices- and in slightly less successful cases, such as the launch of the first MacBook Air, Apple reduced prices over time as the new technology introduced became standardised in its line-up.

Apple knows that many people unwilling to pay $999 for the iPhone X will opt for the cheaper iPhone 8 instead- and this doesn't necessarily present a financial loss to Apple, given the lower production cost of the latter device.

And Apple also knows people will still buy the iPhone X. The massive marketing buzz around the product, and the sheer difference it represents from the usual iPhone lineup means that the device is undoubtedly going to sell in high volumes. It's likely, in fact, that the higher $999 price will be attractive to many customers. At a sub-conscious level, the round pricing of $999, essentially a thousand dollars, the idea of having a thousand dollar device will appeal to people who may want to own the device as a status symbol as well as a phone.

This type of product is known as a Veblen good- a product for which demand increases with price, in contrast to standard economics. At a sub-conscious level, the round pricing of $999, essentially a thousand dollars, the idea of having a thousand dollar device will appeal to people who may want to own the device as a status symbol as well as a phone.

A high pricing brings other potential smaller benefits for Apple. For example, when people spend as much as $999, the smaller purchases seem even smaller, and thus more appealing, to the buyer. For example, spending $100 on Apple's new AirPower wireless charging station seems less of an expense when you've spent $999 on an iPhone X than when you've spent $500 on a previous generation iPhone.

So while the increased production costs have introduced a necessity for Apple to raise the sale price of the iPhone for the new iPhone X, the decision to increase the price to as high as $999 is likely to prove a shrewd business decision for Apple, especially given the release of an updated iPhone 8 at a cheaper price. What remains to be seen, however, is whether Apple will eventually reduce the price of future generations of the iPhone X, as its technology becomes standardised in the iPhone range, or whether Apple is preparing the market for a shift to a new level of price for smartphones.

Should You Get Free Lunch In The Office?

By providing free meals, are offices providing gratuitous nourishment to their staff, or just locking them down in the office?

We've all heard (and, admit it, envied) those offices in which lies the promise of free food for all staff. Breakfast, lunch, and even dinner in some companies, is offered to employees, without a single penny leaving their pockets. These meals are not only free, but they are known generally to be higher quality than paid meals in other offices. 

But, like they say, there is no such thing as a free lunch. Free food at work has a variety of effects on a workers' life- from obvious things like their weight, their time spent at the office, to the more subtle things, like how staff interact with each other and how the food can affect worker performance.

The most obvious benefit of this particular perk is that it makes the office a more welcoming place for employees, both increasing the satisfaction of current employees and making a job at that company more appealing for potential recruits. 

Similarly, the most obvious cost of free meals at work, from an employers' perspective, is the cost of giving away food to employees. This cost has multiple layers: firstly, the employer must give up the cost of the staff, the facilities, and ingredients to make the meals themselves. Secondly, the employer gives up the potential for a small profit to be made by selling meals to employees at more than their cost price. And thirdly, the employer runs the risk of abuse of the system, which can lead to unexpected additional costs.

Despite this, massively successful companies such as Google are well-known to incorporate this practice into their offices. So the question is- why?

Perhaps even more significant than the direct benefits mentioned earlier, is the ability of a free meal in the office to win the employers more of its staff time. This starts with breakfast: providing the most important meal of the day for free increases the probability that staff will come to work sooner, reducing the level of tardiness. When it comes to lunch, employees are able to stay in the office, rather than head out to the shop to buy a meal deal. Removing this travel time, and keeping employees in the office, means lunch breaks are likely to be shorter when lunch is provided in the office.

Some companies like Google take the food offer further- even offering free dinner on-site. This increases the likelihood of late working nights- especially, in the case of Google, because many employees will be young and no doubt become dependent on meals provided by the office.

The numbers can prove that providing office meals genuinely brings greater benefits than cost*. Assume that, given the costs of ingredients, cooking facilities, staff, an economy of scale whatnot, the average cost of producing a meal is £6. Furthermore, reasonably assume lunch provided in the office increases an employee's working time by 15 minutes every day.

An example of the fine food on offer at Google
(Credit: Michael Krehan, Quora)

Google's average salary in the UK is reportedly £160,000- though it's highly likely that this figure is skewed by the number of staff being paid 7 figure salaries, so assume a lower average salary of £120,000. This means roughly £2300 a week- £640 per working day, and thus, given a 9 hour working day, £71 an hour. By offering free meals, Google increases each employee's working time by 15 minutes- bringing an extra £17.75 of value, according to the £71 an hour pay estimation. The cost of this, according to our assumption, is £6- bringing a net benefit of £11.25. So, the cost of providing the free food is more than paid for by the additional productivity!

According to the above assumptions, a minimum average wage of £56,160 is required for a business to breakeven in their offer of free lunch. For most large businesses, this is not an unreasonable level.

From an employee perspective however, free hot meals can have negative effects, if not executed properly. A heavy meal can negatively impact worker performance, and in the long run, can lead to weight gain. Furthermore, some argue the shorter lunch breaks caused by on-site meals can negatively impact employee wellbeing over time.

Free lunch also brings intangible benefits. We emphasised in a previous article the significance of community spirit in any office. By offering lunch in a single place, employees are more likely to eat with each other, rather than head their own separate ways, increasing the likelihood of relationships across the country developing.

So we have (loosely) proven that free lunch can bring net benefits to a successful business like Google. But does free lunch work for all businesses? No.

Massive businesses, hiring thousands of employees on a single site, may enjoy a larger economy of scale, but equally they may find it harder to monitor and control the free food. Smaller businesses are the least likely to offer free meals. Though it may be an emerging trend, particularly with Silicon Valley startups, most small businesses may not be able to invest in the facilities and staff for free office meals. Such businesses may instead decide to invest in something similar, like free snacks.

Free lunch works for most businesses that demand a lot from workers. Some businesses take the investment in such perks even further- for example, Google offers free laundry services in many offices for its employees. Such perks are luxuries- but through increasing employee satisfaction, and minimising time wasted by employees, investment in these things can provide significant benefits for the firm.

*warning- an avalanche of assumptions is imminent...

The Office - To Hot Desk, Cold Desk, or not Desk At All?

Can businesses increase their employee productivity if they let them work from anywhere- even from home?

Last week we discussed how businesses can work to keep their employees satisfied- we learnt how features of a job such as a trusting employee-employer relationship, the design of an office space, and a community atmosphere were crucial in keeping employees happy.

But this is not the end of the story- productivity is key, as it is the ultimate result of all the satisfaction and hard work put in by employees. Productivity is arguably the ultimate aim of any firm- it directly determines the overall output.

Like with employee satisfaction, the methods of improving productivity range from massive scale to very small details. The first feature we'll talk about today is

We mentioned last week that the atmosphere and design of an office can have significant psychological effects on those working in it. But the design of an office is equally crucial in determining productivity.

The traditional office that we are perhaps accustomed to is one that is desk-based, perhaps in cubicles or small sections, with each employee assigned their own desk to keep. However, a recent trend has emerged of what is called 'hot-desking'- where no employee actually has their own desk, but they are instead expected to come into work, unpack their things onto any open desk, and pack everything back up at the end of the day.

Could empty desks be part and parcel of the office
of the future?

On the plus side, hot-desking is argued to save employers rather significant amounts of money. A study from Vodafone UK, whose Newbury HQ is entirely hot-desk based, £5,746 could be saved per desk per year if an office is hot-desked. What's more, many argue that the nomadic behaviour brought on by hot-desking increases the opportunity for employees in a business to work with and get to know more people in the company, improving office relations.

However, hot-desking has a number of reasons to be unpopular for. Some employees see their desk as a 'home away from home', often adorning it with photos, decorations, and also organisational aids, like a whiteboard. The lack of their own desk also reduces the potential for employees to store their items at work- instead they have to take things home each day. Hot desking removes this possibility, due to the fact that employees have to clear their desks at the end of every day. From a direct productivity standpoint, there are time savings to be had from a traditional assigned desk policy, particularly when accounting for the time each employee must spend setting and packing up each day, which may be small on a daily basis but add up over time.

What's more, many argue that hot-desking doesn't always open the door for more relationships to be built. On the contrary, sitting next to new colleagues each day for some can make every day feel like their first, especially when considered that people in the office are not always so free as to get to know new people every day.

Some argue that no desk at all is the way forward- ie., the office is a thing of the past, and benefits can be enjoyed by letting employees work from home. Though one can envisage issues with this proposal- notably the lowered opportunities of communication between teams, and the potential for employee distraction- there are well-defined benefits to enabling employees to work from home. Firstly, by allowing employees to work from home, businesses can hire the best talent, regardless of any other commitments potential employees may have (most notably, having kids to drop and pick up from school). Employees can enjoy a better work-life balance, improving their satisfaction with their job and opening potential for increased productivity. Employees save time and money on commuting, too.

Businesses stand to save even more on office space and maintenance by allowing employees to work from home, and the wealth of video conferencing and document sharing platforms mean that employees can maintain communication wherever they are. Fewer sick days are expected to be taken by employees, and the lack of a trudge to the office every day may also reduce the employees' demand for leave days. And employees can use that hour or two spent commuting daily to do more work.

All this adds up to improved productivity caused by allowing employees to work from home- as much as 13.5%, according to a study by Nicholas Bloom of Stanford University.

So, what should businesses do? The answer, as it so often does, depends largely on the individual circumstances of a business. Businesses whose work is done entirely digitally, like many modern tech firms, stand to benefit perhaps most from allowing employees to work from home, while of course working from home is not such a viable option for businesses involved in face to face sales. Whatever the business, the future of the office seems to be becoming far more dynamic and less building-based. Particularly due to its cost and productivity benefits, more and more businesses appear to be shifting focus from their physical offices to alternative workplaces.

What's The Best Way To Keep Employees Satisfied?

There's a reason why The Office is such a popular hit TV show, that has been subject to numerous remakes from around the world. While often exaggerated, the life of seemingly regular office workers relates to many, many people who can see glimpses of their own office in the TV show.



86% of American workers sit all day at work- and the majority of these, like Michael Scott and co., are likely to be office workers. Given that the economy is driven by people working, the office is a generator for growth and economic success, and thus plays a key role in any nation's fortunes, let alone a company's.

When it comes to how offices should be run, however, there is a distinctive lack of uniformity across businesses and countries. From the renowned 'Google-plex', the Silicon Valley HQ of Google, to the more traditional cubicle based offices that have existed for decades, the office today arguably plays the greatest role it ever has in the lives of employees.

To begin looking at what kind of office brings the best results, we have to first determine what the desired result is. This will, of course, differ between businesses- but a safe assumption to make would be that a business seeks to maximise the productivity of its employees, taking cost into account. That is, the business wants to maximise output, while relatively minimising how much it pays for it.

And to go deeper, what determines productivity? Again, there are an abundance of factors- but, for simplicity, we'll look at two of the biggest- employee satisfaction, and employee organisation. We'll be exploring the first of the two today.

Employee satisfaction
The term 'satisfaction' is highly subjective, of course. Many people, usually those on the lower end of the income spectrum, will not be overly concerned with job satisfaction- sadly because many will not have the luxury of doing so. For people struggling financially, or with a lack of alternatives, hard work is a must.

Recently, a trend of 'job-hopping' has emerged, particularly among the younger generation, who seem more willing than ever to switch between jobs. They seek new challenges, new experiences, and for the more educated there is arguably more choice than ever, especially given the globalisation of the jobs market.

Thus, some younger workers today are more sensitive to their satisfaction at work- which is why companies nowadays must invest significantly in their offices if they want to recruit the brightest young people.

Not only does the prospect of job satisfaction help a business' recruitment, but it has been proven to improve performance on the job. A recent study from the University of Split in Croatia concluded that "there was an impact of the majority of job satisfaction factors on organisational performance". This is rather common sense- people who feel happier at work are likely to spend more time at work, likely to be more willing to work and thus are likely to perform better (though there is little consensus on whether more hours = better results).

The atmosphere of the office plays perhaps the most obvious role in determining employee satisfaction. This starts with the design of the office itself. Apple is not spending an expected $5bn on its beautiful new Apple Campus just for the sake of publicity- but research has proven repeatedly that a more scenic environment helps to improve wellbeing, and thus productivity at work.

Apple's new 'Spaceship' head office in Palo Alto, California

Psychology is key here- features of an office like an abundance of natural light, tall ceilings and even sufficient distance between workers and screens can impact the productivity of a worker. Evidently, this is not a discovery that works in favour of cubicle offices.

The mental wellbeing of an employee also has to be cared for- gone are the days when a worker was just counted as a number. Businesses now have to realise the full human aspect of their employees, and this is where the support system in an office is crucial. A good HR department, and sufficient pastoral support for employees can generate substantial improvements in productivity.

The employer-employee relationship must be a positive one. Bosses can no longer rely on fear, and their position of authority to bring sustainable results- they must be a lot smarter than that. They must take an active interest in their employees, and develop relationships that engender trust and loyalty from those who work for them. Different bosses will naturally have different styles that bring their results, but generally it is crucial that a boss is honest, considerate and open to their employees. Hating one's boss is such a common phenomenon that Hollywood got 2 films out of it- but in the real office, the boss-employee relationship is perhaps the most important of them all.

Maintenance of a good work-life balance is also very important. Schemes such as paid maternity and paternity leave are in vogue, and for good reason. Offering employees a 'sabbatical', time off to pursue other positive interests, also has a positive impact.

A positive community atmosphere helps massively. Whether it is through creation of communal lunch spaces, office events and competitions, or perhaps most importantly a strong bond between employer and employee, a business must invest both time and money into the office community. Not only does it improve the team harmony, which can lead to more positive results in work, but it gives employees another reason to want to work. Of course, the time dedicated to such activities must be balanced with the actual time spent working. Anyone who has watched 'The Office' will know that practically nothing actually gets done when employees are too chummy with each other. But there is a school of thought that believes once employees are taken care of and in a positive state of mind, the employees themselves will be motivated, and feel a duty, to self-regulate and ensure they get their work complete.

A positive workplace can have drastic impact on employee tenure- how long an employee stays with the business. As we mentioned earlier, the average tenure of an employee is decreasing these days- and there are both benefits and losses associated with these, that largely depend upon the firm. On the one hand, a high employee turnover rate can lead to a dynamic, fresh firm that does not get so entrenched in any old, perhaps flawed ways. On the other hand, such a high turnover requires significant investment by way of recruitment and induction, and perhaps has the adverse effect of reducing employees' loyalty to the firm.

For example, a law firm is likely to desire greater employee tenure. It will want barristers who have experience in the court of law and the kind of clients the firm serves. On the other hand a management consultancy firm (for example McKinsey & Co., which has a notoriously low average tenure) may have an interest to refresh its workforce with new blood to keep up with the changing landscape of the business world. Of course, that's not to say firms with lower average tenure will deliberately create negative workplaces- they have 'other ways' to ensure a lower tenure.

In today's world, businesses have to focus on their employees' satisfaction more than ever, and to do so, many businesses will go to extraordinary lengths: whether it's Google's free gourmet meals for all employees (which we'll discuss more next week), or Uber's super-cool office, happier employees will generally perform better.

The challenge that exists for the majority of businesses who are not Google or Uber is having the capacity to invest in such things. For these businesses, the cost of building a trendy office, or giving free food to all employees may not be financially viable (at least in the short run). This is where the less material aspects come into play. Small businesses can still offer career development opportunities to employees. Most small businesses can still create an open office atmosphere. Small businesses are suaully better, in fact, at fostering team spirit.

So whether a company is a giant or a dwarf, it is key that it recognises the importance of employee satisfaction, and invest for long run productivity gains, one way or another.

How Do Buffet Restaurants Make Money?

'All you can eat' buffet dining is a popular phenomenon that you'll be able to find on pretty much every high street. On the face of it, it seems to be a bad deal for the restaurants- but that's usually far from the case.



The concept is simple- you pay a fixed fee, you grab a plate, and you take however much of whatever food you want. On the face of it, it seems a great deal for the customer. You can try multiple dishes, so you have a much lower of ordering something you don't end up liking, and, crucially, you don't have to leave the restaurant not feeling like you've eaten your fill.

But take a look at buffet dining from the other side, the side of the restaurants. Offering customers the opportunity to take as much food as they like seems like a risky proposition, right? This is what it may seem at first, but it obviously isn't the case- since, of course, buffet restaurants continue to exist and thrive. So what we're going to look at today are 3 reasons why buffet restaurants are profitable businesses.

1) What would you like to drink today?

If you do go to a buffet restaurant, this is probably the first thing you'll hear when being seated. Have you ever been to a buffet with free refills on drinks (if you have, please let me know)? Probably not, because drinks are a significant part of revenue at buffet restaurants. Not only are they generally far more expensive than their equivalents elsewhere, but sales of drinks actually complement the all you can eat food offer.

It's rare to find a buffet that doesn't include salty staples, such as fries or crisps, that significantly increase our thirst levels. Add to that the highly oily food offered, and finally just the sheer quantity of food we consume at buffets, and you've got the recipe for plenty of drinks orders. So, buffet restaurants enjoy the best of both worlds- higher margins on drinks, and high volume of orders. Result = profit.

2) 'All you can eat!'

Firstly, the very phrase 'all you can eat' holds some appeal among most diners, and can be a decisive factor when we choose where to eat, regardless of the actual quality of the food. This is a feature which buffets can market and leverage to bring more customers through the doors.

But the key word here is 'can'. Buffet restaurants depend largely upon the sizes of our stomachs, and how quickly they can be filled up. So ideally, a buffet would want us to be consume quick-filling foods, usually carb-based things such as rice or potatoes, which are cheap and easy to prepare. So such products will form a significant part of the offering of any buffet, and some buffets may even try to nudge us to consume more of them, by decisions as small as placing a larger spoon in the rice tray. Ultimately, the more of these cheap accompaniments we eat, the quicker we fill up, and the less of the more expensive stuff the restaurant has to prepare. Result = profit.

3) Keeping costs low

But, buffets still have to be prepared to serve more premium main dishes, and this can be where costs can get out of control. Most buffets therefore maintain a tight control over these dishes, to ensure they are made in the most cost-efficient manner possible. This can be done by things as simple as cutting meat into smaller pieces (our irrationalities may dictate that we take fewer pieces of anything, regardless of overall size), using cheaper cuts of meat, or creating multiple dishes out of a single base sauce.

Arguably the biggest cost savings, however, are linked to the very nature of the buffet restaurant. We, as customers, go up to pick a plate, serve ourselves the food, dress our own plates- this all saves a significant amount of work from restaurant staff, and thus a significant amount of money. In most buffet restaurants, waiting staff don't have to be trained to carry 5 plates in one go, how to serve a table, or how to take massive orders. They just need to take drinks orders, serve drinks, and keep an eye on who sits where. Chefs, too, don't have to spend time preparing individually decorated plates of food, nor must they know how to. This means that buffets can hire fewer waiters, fewer chefs, and spend less money training them.

So there's a lot more to buffet restaurants than meets the eye. Of course, these things don't guarantee the profitability of the buffet- as with any business, it faces its unique challenges- but next time you visit a buffet, take a moment to just think about and witness all the small things they do to stay profitable.

The Reason Why Apple Can't Open A Store In India

It may be one of the world's largest and most iconic brands, but Apple has yet been unable to persuade the Indian government to allow the building of a single Apple Retail Store.

Photo: @tim_cook

Recently, Apple CEO Tim Cook made a much-publicised visit to India, mingling with Bollywood stars, visiting a Hindu temple and generally experiencing what the second most populated country in the world has to offer. But this wasn't a holiday- following Apple's success in China, Cook has turned his sights to India, a country whose economy has boomed in a similar fashion over recent decades. No doubt, business was firmly in the Apple CEO's mind throughout the trip, as he met with key players in India's technology market as well as the nation's Prime Minister.

One of the issues believed widely to be at the forefront of discussions is that of Apple Stores in India. Looking at the massive boom in consumerism in India over recent decades, it seems unbelievable, but there remains no official Apple Store built in the country. Yes, there are 'premium resellers' located across India, local franchise-style businesses authorised to sell Apple products, but these lack typical features of Apple Stores, such as a Genius bar for technical support. There is no official, Jony Ive-designed Apple Store anywhere in India.

The situation is all due to the interesting government policies regarding the activities of foreign businesses in India. The headline policy preventing Apple here is the one requiring at least 30% of all products sold in foreign retail stores in India to be sourced locally. This is part of the 'Make in India' initiative designed to encourage foreign investment in Indian manufacturing, on top of input in the local goods market.

Currently, the large majority of Apple's products are made in China, the USA and Brazil, and even if Apple* does begin to manufacture products in India as recent talks were also rumoured to be about, it is highly unlikely that it could produce 30% of the ware it sells in its stores locally by 2017 as it hopes.

So Apple must either play the long game and ramp up production in India over the next 5-10 years to conform to the rule, or it must seek an exception. This will prove an interesting test of Modi's government's commitment to his 'Make in India' policy. Apple being such a massively influencial global company, the country could see a substantial, immediate economic boost if it lets Apple bypass the policy.

However, of course this is a sign that there is room for compromise, and it may provoke other multinational corporations to seek exceptions too. Furthermore, the government could make use of Apple's desperation to open stores in India to its advantage, if they demand that jobs and other sustainable sources of growth (such as factories) can be contributed by Apple in return.

From Apple's perspective, it is time to grab the Lurpak and begin to butter up the Indian government. Modi is highly unlikely to allow stores to be opened without any contributions made elsewhere at all, but if any company is to receive a little leeway in this matter, Apple is highly likely to be it.

* Apple does not technically manufacture its products, this is outsourced to dedicated manufacturing firms such as Foxconn.

Pros & Cons #5: Britain's Patent Box

In recent decades, Britain has quite significantly lagged behind other developed nations in its level of innovation and, partly as a consequence, productivity. An active 'Patent Box' has been one of the British government's headline measures taken to try to stimulate the country's level of Research and Development. 

So, what is the Patent Box, and what are its pros and cons?

This graph (left) tells you a lot about Britain's need for more research and development activities. Showing the proportion of national income spent on Research and Development projects, it highlights Britain's lack of investment in innovation compared to the rest of the developed world. Not only is the British average expenditure less than the OECD average, but it has also remained worryingly stagnant compared to almost every other country- in fact, it has decreased in the past decade.

The aim of the Patent box is to address this: "to provide an additional incentive for companies to retain and commercialise existing patents and to develop new innovative patented products", according to the Government itself. 

The Patent box does this by granting a lower level of corporation tax (10%, as opposed to the usual 20%) to profits earned as a result of patented innovations. 

PRO: Incentivising Innovation

This is the headline pro, the main aim of the whole project. Data presented on the right highlights the fact that very few patent applications emerge from the UK, and a major reason for this is the high cost of patenting, something that only hits smaller innovators hard. A properly drafted patent application in the UK can cost up to £6,000, with no guarantee that it will be accepted- it's common that multiple applications must be made before the patent is accepted. And even this does not ensure the international security of the intellectual property- there are even greater costs that come as a result of trying to win a patent abroad. 

In Japan, on the other hand, the cost of a patent applications (including attorney and translation fees) comes to around 210,000 yen, just over £1300. So it's very likely that patent costs are a major reason for the gap in application numbers between the UK and countries like Japan.

While the government wants to do little about patent costs, the proponents of the Patent box argue such smaller businesses will be helped out by the fact that their returns to innovation could be significantly increased by the new tax incentive. This higher profit possibility could give more encouragement to innovators to take greater risks with their inventions and commercialise them.

CON: Favours Larger Businesses?

However, there is an argument on the opposition side that the Patent box system is too 'complex' to be of great benefit to these small, independent innovators, and instead favours the larger firms with access to greater resources. While some financial barriers to entry may be lowered by the tax breaks granted by the box, it arguably also raises some more. 

In order to benefit from the Patent box, there are a number of compliance measures that have to be taken by businesses- most notably, they have to track and allocate R&D expenditures and subsequent patents through to their resulting income. This means that a company has to determine, document and prove how much of their profit is directly as a result of each of their patents. This is something that is far easier for massive businesses that will often have a whole department just for tax, than for small up and coming companies. The Institute for Fiscal Studies is a believer in this argument, arguing that "this [the Patent box] will lead to a significant increase in complexity and compliance burden... administratively burdensome and difficult in practice".

The iPhone 4 featured over 200 patents- the recipe for
a Patent box pickle indeed.

CON: Complexity

There is a further argument that while larger businesses may be in a better position to cope with the additional compliance costs brought by the Patent box, they will not be in an ideal position either. 

Larger businesses are more often than not holders of multiple patents, and in many cases these are commercialised in clusters, put into a single product. Take the iPhone, for example- the iPhone 4 from 2011 was crammed with over 200 patents, ranging from patents on the touchscreen technology, to the battery, to the then-new retina display. Now, Apple aren't beneficiaries of the patent box because their R&D does not take place in the UK- but if they could, how would they apportion their massive profits from the iPhone to each patent to present to the taxman? It would be impossible to objectively say that, for example, 10% of sales were purely down to the new battery patent they won for the phone.

And this issue is not just with phones, but essentially any product that requires more than a single patent- whether it is a car, a factory machine, the issue of apportioning responsibility for profits objectively to individual patents is a massive issue that is generated by the Patent box.

PRO: Attracting R&D to Britain
The Patent box phenomenon started in 2000, when it was introduced in Ireland. France followed in introducing the scheme in the next year, and since then, Belgium, Hungary, Luxembourg, Netherlands and Spain all adopted this approach to stimulating innovation- making the UK a relative newcomer, with our patent box opening in 2013.

With so many European countries having such a tax incentive in place, it was very important that the UK compete effectively with its neighbours, so that it didn't lose out from R&D activities moving away or not coming to Britain at all because of preferential tax rates. Therefore the Patent box, even if it doesn't make Britain more competitive than the rest of Europe, prevents the UK from lagging behind.

However, it's important to note that this might not be such a strong pro as it seems, considering recent developments in the OECD, whose excitingly titled 'Base Erosion and Profit Sharing' (BEPS) scheme intends to tame the level of migration of businesses due to tax reasons. A consequence of BEPS has been that most European patent boxes have now introduced 'Nexus' clauses that require beneficiaries to have performed all of their R&D in the country whose box they are using. So, to benefit from Britain's patent box, a company will have to do all of its work developing a patent in Britain. This reduces the likelihood of companies moving in the middle of their research projects just to benefit from tax cuts, and ensures that the host country granting the tax cut benefits from all of the positive externalities (consequences) of the research.

Nevertheless, it is still important that the UK's Patent box remains competitive, especially when it is considered that some companies will take tax breaks into account when they are planning to set out on their research.

CON: Better alternatives?
The tax cuts granted by Britain's Patent box system loses the government an estimated £740 million in annual tax revenues, so it's incredibly important that this huge cost is allocated to the scheme that is most effective in increasing Britain's innovative competitiveness.

And many argue that there are far more efficient schemes, most notably the existing system of R&D credits. R&D credits reward businesses for research activity in general (as opposed to exclusively commercialised patents), by excluding as much as 150% of research costs from end of year profits. This may sound like a bad thing, but it just means that research expenditure (and a bit more) will be excluded from taxation- ultimately decreasing tax expenses and increasing profits of the company. According to the IFS, R&D credits are preferable to the Patent box as they are "given in proportion to the amount of investment activity undertaken", as opposed to the Patent box which rewards only the profits derived from the group of patented, commercialised research.

£740m is a massive amount of money to sacrifice every year, so there are further alternatives to the Patent box that could have real, long lasting and crucially sustainable effects on the UK's level of innovation. Investment in human capital is arguably the most important of these alternatives- investment in the people of Britain, through avenues such as education, healthcare and general infrastructure.

Investing in education would have massive effects on the level of innovation in Britain. A better educated population would increase the level of innovative activity going on, and the multiplying benefits of a well educated society would mean an initial short term investment could bring far reaching long term benefits. However, that is the issue for some politicians- human capital investment in general often incurs large short term costs, for mostly long term benefits.

Conclusion
One thing that is clear, in this debate over the UK's Patent box, is that this is not simply a case of weighing the number of pros against the number of cons. It's quite evident that the number of cons outweigh the number of pros- but what is most important to consider here is whether the positive impacts of the Patent box outweigh the negative ones.

From our perspective, the negatives outweigh the positives. The Patent box seems a good idea in principle, but in application its shortfalls are exposed. Notable is the burden its complexity places on both small and large businesses, and the scheme's targeting of commercialised patents rather than other forms of innovation (such as copyrights, trademarks, or non-commercial patents), but in our view its most significant downside is the opportunity cost. £740m is a massive sum of money, and it is highly likely that the British government could achieve its aims of increasing innovation in the country by distributing this cost between an improved R&D credits system and further focus on investing in human capital.

What Tesla Motors Must Do To Make The Model 3 The American Car Of The Next Decade

If Tesla Motors play their cards right, their upcoming Model 3 could be the defining car of the next decade.



The Model 3 could define the future of automobiles- a fully electric, tech-packed compact executive car from the Californian firm that is expected to go head to head with established models from Mercedes, Audi, BMW and Jaguar.

Its older, bigger, more expensive sibling the Model S is already doing a fantastic job of taking on Germany and Britain's finest- but it could be the Model 3 that brings Tesla Motors to the mass market. Especially because, as Elon Musk announced yesterday, it will start at just $35k. To make the Model 3 into potentially the best-selling car in the USA, however, Tesla will need to keep in mind the following things...

1) THE CAR
Of course, the most crucial factor. If the car is terrible, no one will want it. The car, of course, must be comfortable, spacious (for its class) and be practical- easy to use on a daily basis to ferry the family around, or go on business trips.

Design-wise, the Tesla Model 3 has some tough competition. The interiors of the Mercedes C-Class and Audi A4, two of its major rivals, are setting the benchmarks for the compact executive class of car, and in order to match these, Tesla will have to take into account some criticisms of the current Model S' interior quality.

The Model S has excellently capitalised on current
technology trends.

Technology is key, too. Tesla have already set a great example with the Model S- they have effectively capitalised on our modern habits, of spending time looking at screens (it has the biggest infotainment display of any car on sale today), and basically doing nothing (as well as driving itself on the highway, the Model S can now park itself and be 'summoned' back to you when you return). This autonomous aspect of cars is a massive trend right now, and with companies like Mercedes and BMW beginning to get in on the action in their more premium cars, Tesla needs to push on and implement these on the Model 3 to stay ahead in the compact executive class.


The most crucial factor, however, in the Model 3's sales may well be pricing. At a price of $35k (including incentives, potentially $25k), the Model 3 is set to be a bargain compared to its premium competitors. The Model 3 will be even cheaper than some of its non-electric rivals (see image), let alone its few electric/hybrid class competitors in the USA. So if the quality is right, Tesla can expect to cause some disruption to its competitors' sales.

The Model 3 will be cheaper than even the non-electric cars from its competitors BMW and Mercedes.

Given that the expensive Model S and new, even more expensive Model X have established Tesla as a premium carmaker, one could question whether such a drastically cheaper new model could tarnish this image. However, take a company like the phonemaker OnePlus- their phones are substantially cheaper than the competition, though the quality of the product and their branding and marketing is on par, if not better, than other phonemakers. Consequently, its image is not tarnished by the price of its phones, perhaps the contrary- they are in fact admired by many. It is possible that Tesla, if they maintain their marketing and branding efforts, could be in the same position.

The overall quality of the Model 3 will be crucial. If the quality is too poor, the Model 3 will not be seen as a viable competitor to the cars from Germany and Britain. And if the quality is too high, at such a low price, Tesla Motors runs the risk of cannibalising sales of its more expensive Model S. So, balance is key.

2) Infrastructure

Tesla has a sufficient number of Supercharging stations, but
will require a larger network if the Model 3 is to succeed
in capturing the mass market.

One of the biggest gripes about electric cars right now is that they are inconvenient to live with on a daily basis, primarily due to the (lack of) charging facilities. Of course, by the time the Model 3 comes out there will not be as many Tesla Supercharger stations as gas stations, but Tesla needs to prepare in advance for the potential growth of their customer base. Few customers will be persuaded to put down a deposit for a Model 3 with a promise of a Supercharger somewhere near them coming in the next few years. They want it to be there, ready for when they get the car. So Tesla needs to expand its Charging network sooner, even if for a short while there may be too many chargers. Because if the Model 3 succeeds, there won't be too many chargers for long.

Tesla Motors needs to prepare their production facilities, too. Production delays caused by a lack of preparation left some customers of the Tesla Model X waiting 3 years after having paid a $40k deposit for their car to be delivered. This had terrible implications for the company, contributing to Tesla Motors stock falling by 38% ($12bn) in market value so far in 2016 alone. With a far cheaper car like the Model 3, Tesla needs to anticipate the volume of demand and ramp up its production facilities far in advance of orders. People purchasing cars as expensive as the Model X are arguably more used to lengthy waiting times for their cars- the more mass market potential consumers of the Model 3, not so much.

3) Incentives
Tesla, unlike many other car companies, have established incentivising referral programmes for its cars in the past. For example, anyone who used a referral link from a Tesla owner last year would get $1000 off the price of their new Model S. The people who gave out the most referrals in each continent would receive a top of the range, 'Ludicrous' Tesla P90D Model S and VIP access to the unveiling of the Model 3. If you were the first person to convince 10 others to buy a Model S, you'd get a free Model X. And so on.

Tesla is developing its family of cars with the addition of the
Model X (right) and Model 3 to the Model S (left).

Perhaps with the Model 3, however, Tesla could introduce a more long term incentives program. Something I was pondering over was the idea of a 'Tesla Upgrade Program'. Here's the idea: you buy your Tesla Model 3 on a contract (giving monthly payments for 3-5 years), before you're offered the opportunity to give back the Model 3 and go up the ladder to purchase/lease a Model S, at a discounted price. Keep that for 3-5 years, paying monthly, before being offered the chance to get a Model X at a discounted price.

If you think about the typical expected buyer of a Model 3, this program could make sense for Tesla. Young professionals will no doubt be big buyers of the Model 3, people aged 27-35: lawyers, consultants, doctors, financiers. These people probably wouldn't be able to afford a Model S or X, but they could get into the Tesla brand through the Model 3. Then, as they get older, their salaries are likely to increase. They may also develop their own families, and thus the need for a bigger car- and they may well be able to afford it. So they upgrade to a Model S, then after another few years they could even need space for 7- so they upgrade to Model X. This incentive upgrade program would keep buyers of the Model 3 in the Tesla family, and adapt to the developing lives of these loyal customers. This loyalty will become incredibly important for Tesla in the coming future, as other carmakers catch up and begin releasing electric cars of their own.

To conclude, the Tesla Model 3 definitely has the potential to be a key player in electric cars truly becoming the norm in the US mass market. As long as Tesla makes sure the car is of a good enough quality, puts the pricing just right, develops the right infrastructure for the production and maintenance of the car, and perhaps establishes a good incentive program for buyers, it could become a, or even the, best-selling car of the next decade.

Please Note: All images of the Tesla Model 3 are purely speculative illustrations. The car is expected to be unveiled next month in March 2016.