2017 prediction: The rise of the hybrid pricing model
Fundamentally changing pricing strategy will require investment to ensure the strategy is informed by good data about customers, can be delivered across all services and networks, and can be reviewed to ensure it is performing from a business perspective as expected. The data required to deliver this strategy may be hard to find and interpret and customers will require education and communication to interpret pricing and link it to value delivered, or else they will continue to base their decisions on price.
Put all this in place, however, like Dixons Carphone’s iD Mobile has done in the UK, and you suddenly have an exciting new challenger proposition. Dixons Carphone listened to millions of its customers’ network requirements and desires over a period of years, gathering data from its high street Carphone Warehouse outlets. It identified some common challenges, including a desire for greater flexibility in plans and accessing data and services on the move, and is now aiming to roll out a number of different plans that address these concerns.
It’s a sound approach. If prepaid and postpaid as we know it aren’t working, then we need to find a third way, a hybrid approach, that puts the customer first. Instead of starting from where they want the price to be, operators should start from the needs of the customer – understanding what the customer wants and needs – and then meeting those. This means that the value of the product determines its price, not what the service provider spends on creating the product.
This will require a fundamental change to the internal investment and product management processes – see Figure 1.
(Figure 1: Differences in process between cost-plus and value-based pricing)
By adopting value-based pricing, operators can finally move beyond the prepaid and postpaid models. This means that the most common way to pay for mobile subscriptions will be neither prepaid or postpaid, but another model that makes the distinction redundant and instead offers the best of both worlds to telcos and their customers.
Why, for example, shouldn't subscribers have the flexibility and choice to buy add-on data bundles mid-month regardless of the nature of their plan? And wouldn't it be better for operators to break down the arbitrary silos that currently separate their prepaid and postpaid customers?
A hybrid pricing model is about pricing for the customer, not for the business. New pricing strategies can help service providers extract more value from their offerings and encourage greater focus on profit and innovation. Value-based pricing is meant to capture as much of the perceived value of the product, and it is also consistent with other current strategies within CSPs such as customer centricity, customer experience management and social media initiatives, because it puts the customer at the heart of the pricing strategy, rather than at the periphery. The challenge for service providers in 2017 is not simply to transform the way they price services, but to identify how they can work with third parties and share value with them, and how they can gain a better understanding of customer preferences, behavioural trends and context.
