Optimise Pricing Strategies To Meet Targets

Telecoms.
com periodically invites expert third-party contributors to submit analysis on a key

topic affecting the telco industry. In this article Dr. Ekkehard Stadie and Dr. Kajetan
Zwirglmaier of consulting firm Simon-Kucher explore how operators can counter the effects
of declining prices and product development challenges.
Our Global Pricing Study revealed that 72 percent of all new products are a commercial flop. Or put
another way: only one-third of telco operators state that their new products are a commercial
success! At the same time, price pressure in the sector is high: 63 percent of operators have to
compete on low prices. However, only 33 percent feel that the decline in prices is a natural trend in
the industry. Telco operators can escape these trends by focusing on key areas of improvement.
Here are our eight tips on what to do.
1. Optimise pricing strategies to meet targets
Telco operators have a huge number of targets for 2015, most of which focus on improving financial
performance, increasing penetration of services/converged offers and stimulating usage. Wellestablished marketing and brand strategies are designed to support these goals. But what about
pricing? Do they outperform their competitors by having a dedicated pricing strategy? Are they
unique? Do they go beyond copying the competition? A pricing strategy provides clear guidelines for
pricing measures and as pricing decisions usually receive considerable market attention especially
from customers and competitors they are crucial for achieving targets. So establishing the link
between operational pricing decisions and corporate goals is crucial for accomplishing and even
exceeding corporate goals.
2. End price wars to achieve market development
According to our study, 64 percent of operators are currently engaged in a price war. At the same
time, 76 percent of operators think that a competitor started it mathematically impossible.
Regardless of who actually started it, telecoms can seize the opportunity to end the price wars in
2015. To do so, it is essential to design a clear roadmap of when and how to act, and win the support
of the C-suite. The key success factor is to act consistently throughout the entire go-to-market
approach. If you ask yourself why you should end the war, simply calculate what you will lose if
prices continue to deteriorate.
3. Implement segment-tailored value extraction
Many players in the telco market currently fear the risk of commoditisation. Portfolios are
increasingly following the classical, purely volume-based (min/MB/SMS) trend. The transition from
product marketing to segment-driven offers an escape route from the commoditisation dilemma. It
also allows offers to be tailored to customer needs, increasing customer satisfaction and operator
performance. To successfully design a segment-tailored approach, it is essential to first carefully
select a method. Classical, purely demographic-based segmentations will not do. The first step is to
put the customer needs at the heart of any segment building work. Second, develop a consistent goto-market strategy that supports a segment-specific communication approach throughout the
customer lifecycle. This will go a long way to improving customer satisfaction as well as profits.
4. Offer the best bundle
2014 was the year to prepare for convergence gaming. Vodafone, Deutsche Telekom and other
players launched or prepared fixed mobile convergence (FMC)/multi-product offers. BTs February
announcement that it was buying EE, followed by the announcement of O 2 and Threes merger in
March, were the latest indications of how important FMC offers will be in the future. However, FMC
offers are not yet the industrys salvation. Currently the sole advantage they have is convenience,
which is not a big enough pull for customers. The challenge for 2015 is to improve or launch FMC
offers that provide sufficient benefits to be attractive to customers, but still generate incremental
average revenue per user and do not squander future monetisation potential.
5. Fine-tune price models for sustainable development
The Global Pricing Study shows that 66 percent of companies are considering changing their price
models. Why is this also an issue for telco companies? In many markets, current data volumes
already exceed data consumption on average by more than 100 percent and voice services are
already flat. Sure, streaming services and other drivers will increase data usage further. But by how
much? And more importantly, will it grow stronger than included data volumes? Telco operators can
gain a USP and improve sustainability of their business model by improving their price model and
tying it closer to their customers needs. But two guiding principles should be kept in mind: Keep it
simple for your customers and ensure that any performance improvements automatically monetise.
Based on our experience doing so leads to a revenue boost of, on average, five percent.
6. Think of pricing capabilities as investing in future success
According to the Global Pricing Study, margin goals were not achieved mainly due to pricing issues,
i.e. either the organisations pricing capabilities are insufficient or poor decisions in terms of pricing
are made. Additionally, competition is getting fiercer as full market penetration has been nearly
reached, not only concerning voice and SMS, but also data offers. To manage the corresponding
challenges and opportunities, pricing capabilities have to improve. A multi-dimensional framework
that enables your organisation to make superior pricing decisions that are in line with your corporate
goals and dont slow down company processes is essential. As a result the risk of accidentally
entering price wars and/or missing opportunities to generate sustainable competitive advantages
decreases significantly.
7. Implement smart hardware pricing
Hardware will continue to be one of the most important factors, if not the most important purchasing
factor, for telco products, especially in the mobile business. But funding for hardware needs to be
reduced and the only way to do this is to thoroughly understand customer needs and establish an
integrated pricing approach for hardware and tariffs. Currently operators dont even have hardware
and tariff pricing located in the same departments or business areas. This leads to detached pricing
decisions. Understanding customer needs helps appropriately allocate funding to the hardware
combined with the best tariff, maximising customer willingness to pay. Furthermore, it makes it
possible to use hardware pricing strategies that are tailored to the respective customer segments.
Telecom operators who score well here will have a significant competitive advantage.
8. Learn from other industries
In total, 89 percent of telco operators think pressure in their market is intensifying. How can this be
avoided in increasingly saturated markets where the big monetisation opportunity of 2014, the roll
out of 4G, was missed, such as the UK? Learning from other industries and adopting strategies that
have already proven successful in other markets will pay off. The variety of potential extra-industry
benchmarks is great and ranges, from tailored incentive and bonus systems in the construction
industry to freemium models of online businesses and partner cards from credit card providers. The
challenge for telecom operators is to choose the best one for their company in order to gain a
sustainable USP over their competitors.
Its time to act. Telecoms can start exploiting the full potential of the great services they deliver by
introducing a consistent pricing strategy and ending destructive price wars. By doing so they will
regain their ability to proactively shape the market and utilise future trends. Applying a segmentspecific, go-to-market approach and introducing sustainable price models are key pillars of success.
Beyond this, converged offers and smart hardware pricing also play an important role. The first
quarter of 2015 has just ended. Three more to go. Time enough for telecom managers to lead their
company to the champions league of profitability and growth.

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Telecoms.

com periodically invites expert third-party contributors to submit analysis on a key

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