With the holiday season upon us, carriers have tripped over themselves to undercut the competition and woo customers. But from the outside, it seems there’s something missing from their offers: strategy.
While bottom of the barrel promotions may help bring in customers, they’re hardly a sustainable, long-term solution. That’s where a model called “strategic pricing” comes in.
“You can always win a short term battle with promotional pricing, but unless it’s really thought out in a strategic framework, you can really lose the war,” said CMG Partners senior consultant Stephen McPhail. “You can quickly wreck your customer base revenue with an offer that can crater. You have to have an eye outward to the environment but also inward to your own customer base.”
Rather than pursuing price drops that over time can send companies scrambling to make up for lower average revenue per user (ARPU), McPhail said companies can take up a strategic pricing model that uses data and analytics to determine a new, sustainable sales mix based on both internal and external factors.
In one example cited by McPhail in a recent CMG case study on strategic pricing, a wireless provider was able to avoid across the board price cuts through a careful and strategic approach. The two-step plan involved adding value to its entry level plans to maintain those prices while lowering pricing on the highest end of its portfolio.
To achieve this, the carrier lowered the cost of its top two plans by $20 each and took $10 off the third highest plan. Prices for the bottom three product offerings remained the same despite added value offerings.
This slight shift allowed the carrier to stabilize its lower-tier plans and generate more sales activity on higher-end plans.
The result was that the proportion of sales in its top three plans grew from 32 percent to 40 percent, raising ARPU from $64.89 to $66.24 with the new sales mix.
“When you can lower prices and raise ARPU it’s a win-win, but you don’t do it by guessing,” McPhail said. “You do it by analytics and understanding the marketplace and your own customer base and what is the right pricing for your product set.”
Among the most important factors that carriers need to look at before deciding on new pricing, McPhail said, are the market and its dynamics, the competitive landscape, the carrier’s own capabilities compared to those of the competition and both current and future customers.
“Picking a price should be the last thing you do,” McPhail said. “It’s all about understanding that price’s impact and looking at the analytics.”