Operators should attract customers with a balanced approach to pricing, by setting low prices and appealing headline messages for the primary services on which customers focus and higher prices on the secondary services, which are not purchase drivers for them.
Pricing is a complex and critical activity for mobile operators, which has a significant impact on business performance. Operators who have revamped their tariff portfolio in an attempt to boost customer acquisitions have realised how easy it is to destroy value with very aggressive pricing. Nevertheless, we believe it is possible to design tariffs that enthuse the customer and generate significant take-up and customer growth, but without having a negative effect on margins.
This is not an easy task, as mobile voice is increasingly perceived as a commodity service in which customers are simply looking for low prices. However, everyone has their own way of assessing the attractiveness of a tariff plan. For example:
- people who call family members and/or friends are typically attracted by low on-net tariffs, possibly through a closed user group scheme such as Friends & Family (F&F)
- people who make very short calls will look at the billing increment, seeking per-second billing options with no minimum call charge
- heavy SMS users will concentrate mainly on the SMS price and on the availability of SMS bundles.
For each of these user types there are a subset of options within the service and pricing mix that primarily attract customers’ attention. This is what we call the ‘primary focus’ of customers; the remaining service and pricing components are of less interest and represent their ‘secondary focus’. Operators should leverage this asymmetry in the attention of customers and design innovative tariffs that achieve the dual targets of (i) increasing customer volumes, by attracting customers using appealing headline messages related to primary-focus services, and (ii) generating a healthy margin, by charging higher prices on secondary-focus services. In this way, the operator will ultimately be able to substantially improve its business performance.
However, as the primary focus varies by customer type, an operator will need to define several tariff plans, each targeting a specific customer segment. The definition of tariffs therefore needs to be supported by thorough segmentation analysis, which clusters customers on the basis of commonalities in their behaviour (e.g. call volumes, calling pattern, call duration, frequency of recharge), and research (e.g. by means of focus groups) to identify the primary-focus services and the customers’ sensitivity to specific price points.
Figure 1 shows an illustrative set of targeted tariff plans designed on the basis of the preferences of customer segments. A similar approach has been taken by TIM in Italy, whose Chiara portfolio has five targeted tariff options (each with a 50% discount on a specific pricing component), whereby the customer is prompted to choose a tariff on the basis of his communication needs and preferences (i.e. “choose your 50% discount”). This is a remarkable example where an operator has effectively combined customer segmentation and price discrimination, and wraps them together with an effective communication approach.
Analysys Mason has helped MNOs and MVNOs worldwide to enhance their pricing strategy: our end-to-end approach begins with analysis of the key demand drivers and of the competitive landscape, and highlights the key behavioural features of customer segments, in order to define an innovative and disruptive portfolio of targeted tariff plans that maximise margins. Our pricing recommendations are supported by extensive quantitative analysis carried out using PriceManager®, our proprietary tariff optimisation tool that allows us to rapidly analyse the positioning of new and legacy tariff plans and simulate the impact of new propositions on revenues and margins.
Figure 1: Example of segmented tariff portfolio [Source: Analysys Mason]
