50 percent of revenues in the automotive market come from premium services, according to Dr Ekkehard Stadie of Simon Kucher and Partners, speaker at the recent IIR pricing data and BSS conference. In telecoms, this figure is not quite ten percent.
His presentation was full of examples of pricing pitfalls and billing blunders. How pricing models that seemed a good idea at the time turned into turkeys. The favourite was the distribution company that won a hard fought fight to win distribution for a television company in Germany. For a year, they were happy, then things got difficult and finally impossible.
Why? Because they had priced on delivery per TV, and as the sets got bigger, things got, well, bigger, heavier and tougher.
Michelin, on the other hand, played it well. As their truck tyres became more and more durable, they moved from a price per tyre to a price per kilometre. Truck companies loved it.
He talked of price anchors as a way of demonstrating value, even though there seems no difference between price points. The Economist magazine launched its online version and offered customers $59 for the online version and $125 for the online and print version. The outcome was average revenue per user of $85.
They followed this up by doing this: they offered the online version for $59, a print version for $125 and, for the same $125 a print and online option. This perceived extra value of the best of both worlds stretched the average revenue per user to $114.
McDonalds, the king of the burger, knows how to bundle. Bundle a Coke (other brands are available) with a Big Mac and you have a great offer. Bundle a coffee and you kill the deal. Coke (other brands still available) is something that you might buy, but if you stopped to think you would conclude that the Coke in your fridge is probably going to have the same effect. Give it away and your customers see you as great value/great people/a great chain (delete as appropriate). Coffee is something that you buy – or don’t buy.
All the examples were interesting, and made you think differently about pricing services and products. The most relevant to communications services, however, was the Mercedes example.
Their model was, and still is, new cool stuff you offer as an add-on first. This was true from power steering to air bags. Then you bundle. And as you bundle you, you trickle the now not so new stuff down to the more standard tariffs (oops, we meant cars).
With partnerships and pricing, thinking like the customer thinks and looking at other industries will pay dividends – perhaps literally.
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