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Umbrella-sharing Startup Loses Nearly All of Its 300,000 Umbrellas In a Matter of Weeks (shanghaiist.com)
With bike-sharing companies like Mobike becoming incredibly successful in Chinese cities, a few startups have decided to mimic the concept with shareable umbrellas. The only problem: most of the umbrellas have gone missing, reports local media. From a report: Only a few weeks after starting up operations in 11 cities across China, Sharing E Umbrella announced that it had lost almost all of its 300,000 umbrellas. The Shenzhen-based company was launched with a 10 million yuan ($1.5 million) investment. The concept was similar to those that bike-sharing startups have used to (mostly) great success. Customers use an app on their smartphone to pay a 19 yuan deposit fee for an umbrella, which costs just 50 jiao for every half hour of use.
I guess everyone else knows how to convert yuan and jiao , but I didn't. Ten jiao equals one yuan, so 50 jiao equals 5 yuan. The story probably would have made more sense in uniform currency units. The idea is that if you had the umbrella for less than four hours, it was worth returning it.
Too complicated; just make the deposit twice the cost of the umbrella, and the incentive is gone.
Umbrellas are cheap and available anywhere, there's no problem with access or cost.
The problem they're trying to solve is that people haven't carried an umbrella with them at the necessary moment.
It would seem to me that rather than banking on people going out of their way to return a cheap item in order to receive a deposit back, less a significant fee, maybe they should be selling umbrellas an offering a small deposit return if the umbrella comes back, similar to soda cans and bottles in the 70s and 80s.
The business model is upside down for low-value goods that people might well just keep instead of walking down the street to return.
The problem is that umbrellas are too cheap. If they make the deposit any higher people won't use the service out of fear of losing it, but at the same time it's not enough to motivate them to return the item.
This hasn't stopped Redbox in the USA. Redbox doesn't even charge a deposit but they will continue to charge you for 30 days if you don't return it. After that, it's yours.
All you need to know are two clauses from the article:
1. "Customers ... pay a 19 yuan deposit fee for an umbrella"
2. "Each lost umbrella costs the company 60 yuan to replace"
I think we can safely conclude that the business owner had a good idea, but needed to take just one more economics course.