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Turning Exceptions Into Rules: Dynamic Pricing and the Operator's Advantage

Turning Exceptions Into Rules: Dynamic Pricing and the Operator's Advantage Image Credit: The Fast Mode

How do companies price what they sell? Most people will point to competitors' prices, others will opt for the cost-plus method. If the product is new in the market, they may go for penetrative pricing as an effective means to quickly build their customer base. If it’s new and demand is huge, they might even go for price skimming. And somewhere during the product’s lifecycle, they could resort to promotional pricing to beat others in the game, which can start off price wars but never mind that, because a new price equilibrium eventually always settles in. 

But of the many ways of pricing a product or a service, dynamic pricing is perhaps one that warrants the most attention, especially if one is trying to have this implemented in a highly commoditized market. And telecoms market, in its current state, is a highly commoditized market. Despite the occasional move by the more innovative Operators to add something new like an OTT TV channel to their standard voice, SMS and data bundle, the latter three staples are pretty much what define mobile service plans across all Operators; plus, those add-on services - be it video or music streaming, or mobile wallet or carrier billing - themselves have limited differentiation in that they seem to come from the same content source and vendor brands, and tout the same offerings.  

In a highly commoditized market, dynamic pricing can be a tricky manoeuvre. Dynamic pricing by definition requires some form of price discrimination, and the tricky part of this is whether the variables upon which the discrimination is based on is agreeable to the buyers and more importantly, to existing customers. For example, everyone knows that prices go down during sale, or that during certain seasons of the year when demand is high or when it is low, prices are adjusted accordingly. Remember the days when telephone charges are halved for calls made between 7pm to 7am. It’s a form of formalized dynamic pricing, just like how hotels charge more over weekends and public holidays, and less during off-peak seasons.

For the telecoms sector, there are many scenarios where dynamic pricing is just the right pricing strategy, where it makes perfect sense to change price tags (ie subscription rates) at different sale points and where it has worked successfully in building and expanding Operators’ customer base. Examples include discounts during festive and sports seasons, where prices are reduced to entice subscribers to bring their experience to mobile, and at other times, where there is excess capacity on the network allowing Operators to mete out such discounts via cheaper top-ups or data passes or even data giveaways. At the far end of the spectrum, even if it is not purely a case of dynamic pricing, we have discounts being offered to loyal subscribers, allowing them to consume a couple more gigabytes of data at the same price; or shared plan discounts that effectively reduce per gigabyte rates, just like how bulk discounts work in the retailing sector.  

The Fundamental Difference between Dynamic Pricing and Tailored Plans

Dynamic pricing seems simple enough in its concept and also in its implementation. However, in recent weeks, dynamic pricing has managed to elicit much attention following huge customer outcry in certain telco circles in the APAC region. Dynamic pricing which is an effective strategy in adjusting capacity to demand and in boosting sales figures, has in this case, been implemented as ‘tailored plans’, a linkage that could have potentially sparked off much of the discontent.  

It is worth noting at this point the fundamental difference between dynamic pricing and tailored services (or other terms commonly used to mean the same including ‘customization’, ‘bespoke’ or ‘personalization’). These terms refer to the changes or alignment in the actual product or service itself. In the telecoms context, that will be giving one customer VoLTE and 5 Gigabits of LTE data, and giving another customer 8 Gigabits of LTE data with free access to 2 OTT TV channels. Obviously, each customer will be charged very differently as different services are being sold. The difference in their plan tariffs has nothing to do with dynamic pricing of any sort.

Hence, in the earlier case, by linking dynamic pricing to the idea of ‘tailored plans’ while no real changes were made to the underlying services being offered, a pricing strategy that worked wonders for many other retail businesses appeared as an unfair pricing policy because the same plans were offered at different subscription rates to different people, leading to dissatisfaction among those who are unable to secure the lower rates.   

How to Work Dynamic Pricing Successfully – and How Technology Helps

The real issue in the scenario above however is not really how dynamic pricing was implemented, rather how fast piece-meal decisions to grant discounts that worked well in retaining subscribers could be implemented as a rule rather than an exception, making those discounts available for anyone asking for them, taking the cue from customer service centers which had begun to be inundated with such requests. This undoubtedly points to the technology side of things – whether the Business Support Systems (BSS) were set up in ways that will enable the marketing end to respond to market needs in real time.

With rigid BSS infrastructure and with Policy and Charging Control capabilities that are not fully developed to respond quickly to market sentiments, the marketing end of any Operator will be constrained in their ability to move with the fluctuations in demand, crippling their ability to innovate, experiment and tune quickly to what customers really want. If these capabilities are in place, plans could be upgraded overnight and extra gigabytes could be thrown in for long standing customers. Nothing works like real-time in the telecom business especially when decisions to switch over can hinge on whether there is an extra 2 gigabytes of data in the pocket. 

In a nutshell, the telecoms industry thrives on innovation, and dynamic pricing goes a long way in adding more excitement to the many plans we see today in the market place. However, it is almost impossible for marketers and those driving subscriber numbers to work dynamic pricing to their favour if the existing solutions that dictate what’s allocated to whom and how these allocations are enforced and billed network-wide lack the required agility and real-time responsiveness.

As customers, at some point in our lives, most of us would have still tried to negotiate our way with prices of the goods or services we buy, despite clearly published price tags, so if someone has gotten off with a better deal, it should not come as a surprise that those who are too shy to haggle or who for some reason did not make the cut to be included, will be disgruntled and will consider walking away. For Operators, what really matters is their ability to respond to this by being able to replicate any deal to any customer segment anytime of the day, and that too in the shortest time possible. After all, the customer is always right, isn’t he? 

Author

Founder and CEO at The Fast Mode | NFV/MANO/Openstack | Telecoms Service Innovations & Monetization | Speaker, Moderator and Analyst

Prushothma brings more than 22 years of experience in designing and delivering some of the most advanced service innovations in the telecoms industry.

Follow him on Twitter @prushothma, LinkedIn @prushothma

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