Dynamic Pricing in Telecom
1. Introduction
When the price of an offering can be determined at the time of sale, based on the unique conditions prevailing at the time of sale for that particular customer, we can term it dynamic pricing. Some of the other terms used are surge pricing, demand pricing and time-based pricing.
Until now, this sort of pricing was predominantly used in Airline, Hotel and consumer shopping industries. But there is a good case to be made for Telecom sector too and we will explore this in more detail.
Different ways of achieving Dynamic Pricing
1. One of the simplest ways to achieve dynamic pricing is to configure all possible permutations of the price impacting factors and configuring a price for them in advance. But this approach severely restricts a marketing team’s ability to quickly launch new price based on new factors.
2. A step forward from configuring all permutations is to have rules and programmatic logic to determine the price using the prevailing factors as inputs. Special attention has to be paid to the system performance in such an architecture as executing the programs at run time can get expensive.
3. The best possible method however would be to analyze the past behavior of the customer and performance of the offering to arrive at the price that is most optimal. Getting price right every time is everyone’s concern. But with proper planning and a tool that supports flexible solution, it is definitely achievable. We expect this to be the method that will be adopted by majority of the service providers in future.
2. Need for dynamic offers and pricing
“Why use dynamic pricing when obviously there is an element of customer dissatisfaction?” — This is a question that might cross every marketeer’s mind. The reasons are multitude and it is important to remember that dynamic pricing is mainly driven by the need for dynamic offerings and bundles.
Hyper competitive markets
In a hyper competitive market, customer retention means catering to their personal needs. Creating offers tailored to the needs of each customer and pricing it dynamically has become essential to avoid customer churn.
Fast changing product portfolios
Gone are the days when voice used to be the primary service and data rules now. This could change with time as technology advances and the software should be able to adapt to the ever changing world.
Newer technologies and services enabling a multitude of new services to be launched
Who would have imagined a world ruled by streaming services so much that the traditional ways of viewing content would be sidelined and forgotten. Advent of 5G will bring in more dynamism and services providers should be prepared for the challenges and opportunities.
Customer intimacy and personalization
Offering the same set of products to a wide customer base with wide array of requirements is like offering the same treatment to all kinds of medical problems. One size doesn’t fit all, and bespoke is the need of the hour.
New marketing strategies and offer bundles
While static offer bundles also offer some tools to enhance sales, ability to create dynamic bundles of atomic products offers the best flexibility to marketing to stay ahead of the competition.
3. Factors impacting dynamism
Customer Information
· Location — Customer needs and affordability varies by geography
· Loyalty — Retention is as important as gaining customers to grow customer base and attractive pricing offers are the key to retain loyal customers
· Category — Different categories of customers are willing to pay different amounts for the same product
· Demography — Demography study helps offer the right products to customers
· Past Purchases — Having a robust database of customer behavior can yield good insights to develop future portfolio of offerings
Business factors
· Demand — Service providers can price higher when demand is high and vice versa
· Competition — It is imperative to be able to quickly change pricing in line with competition to retain customers
· Promotional period — Low seasons or festive moods can both be used as reasons to offer promotional prices
· Channel — Promotions can be run to drive sales through Online or App
· Revenue target — Prices can be lowered to drive volumes or raised to meet revenue target
Offering Parameters
· Volume — High volumes can be driven by offering great prices for bulk purchases
· Contract period — Locking customers for a longer period can yield profitability even with lower recurring charges
· Value — Plans with high cost can also have higher discounts while still being profitable
4. Use cases
Here are some examples of real life situations when dynamic prices can be used and how it can a source of customer delight as well as profitable to the service provider when used with the right strategy. Such frequent changes in pricing is only possible with a flexible and easy to use pricing engine.
Consumer
A consumer who wants a great discount waits for a Black Friday deal that was advertised to start his subscription. He already has a subscription with a rival competitor and doesn’t mind waiting. When the day comes, he bags a great deal and ports his number to the service provider.
A few days later, the same customer wants to buy an additional subscription with same allowances for his daughter who is turning 14. He doesn’t mind paying a little extra for the additional subscription since he wants it to a birthday gift.
Few days later he receives an offer to buy the latest device at a deep discounted price based on his loyalty and multiple subscriptions. He is delighted and appreciates that the service provider was able to offer him a personalized offer.
Service Provider
A Service Provider wants to gain more customer base in the market and hence launches offers with aggressive pricing in the market. Due to the great competitive price, it manages to gain a huge volume of consumers.
After a few days when the target consumer count is reached, the price of the same product is raised in some markets which are identified as price agnostic, with a higher QoS. This keeps the sales intact while obtaining a higher revenue per user and helps them meet the revenue target.
To retain recently acquired and long term customers, the service provider designs bundled offerings with attractively priced accessories aimed at existing customers. The rental of the base plan is raised slightly so that the promotional discount is recovered in the long run.
5. Pros and Cons of dynamism
Dynamic pricing is a strong tool in the business team’s arsenal to drive up sales, while still maintaining the revenue target. From a customer point of view, they can avail great discounts if purchasing offerings at the right time.
Customers can be antagonized if the right strategy is not followed and they notice a huge discrepancy in pricing compared to other customers.
Some form of dynamism already exists in telecom services pricing in a rudimentary form. The best results can be achieved by forming the right strategy and having the right tools to achieve the goals identified.
6. Proposed architecture for dynamic pricing tool
Proposed solution for the dynamic pricing system works on a two-step architecture.
First, dynamic offerings and bundles are formed utilizing direct inputs from customer as well as personas formed by data analytic inputs.
This can then be priced not just on the offering/bundle composition, but also based on myriad of other factors like demand, retention, location, promotion etc.
The architecture intends to leverage the robust product capabilities and years of industry experience to deliver a dynamic pricing solution that is flexible and scalable. It is expected to support a wide variety of factors which can determine the dynamism of the price.
The proposed system also intends to allow the business users to enter the inputs easily and help reducing the go-to-market time for any new product launch.
7. Summary
Even though dynamic pricing is not used as widely in telecom product pricing as it is in some other industries, it offers some exciting possibilities with both customers and service providers. Adopting it in the right manner can result in win-win situation for all involved.
In future, this could become the preferred way of pricing products and it is imperative to get a head start on implementing automation in applying dynamic prices.
by Apoorva Manmohan and Krishan Dhall
