Finding value through smart pricing

Telecom operators must integrate pricing and analytics across the value chain
Analytics, Hicham Fadel, Mahmoud Makki, Performance management, Pricing, Simplification, Strategy&, Telecom pricing, Columns

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By Hicham Fadel and Mahmoud Makki, partners with Strategy& Middle East (formerly Booz & Company), part of PwC network

Telecom executives in the Middle East do not have it easy these days. You walk into board rooms and management meetings and there are intense debates: Should we digitise the core or launch a separate digital-only brand? How do we get into relevant content again? How should we venture into financial services?

While all these questions are valid, executives should remember that there is hidden value at the core. Long-standing pricing tenets feel ripe for disruption: Why do telecom operators continue differentiating postpaid and prepaid? Why are they still pricing voice? Why do they continue to debate unlimited versus quota-based packages? Why are packages so complex to comprehend?

To extract that value, telecom operators need smart pricing. Although initially treated with skepticism, leading companies in other sectors have used this technique successfully. Netflix moved from fee-per-movie to subscription-based streaming. Spotify changed the music delivery model to subscription-based streaming rather than the prevalent pay-per-song/album model.

A smart pricing strategy requires boldness. It requires being analytically obsessed and intimately connected, around the clock, with consumers’ needs and consumption means. Finally, smart pricing for telecom operators requires a pragmatic blueprint:

Analytics – a mindset not just a tool

Telecom operators must integrate pricing and analytics across the value chain—from marketing, sales, and customer care, all the way to network, IT, and operations. Front-line agents need access to the same detail as marketers and strategists. Operators should link pricing a data package to customer needs and willingness to pay, customer behavior and type of traffic (browsing, video, VoIP, etc.), technology economics, seasonality, and quality of service. Network planners and engineers need this information so that fixed and mobile infrastructure deployment is optimised to best serve customer needs in different areas. The analytics backbone engine should run in real-time, analysing data and spotting opportunities.

Integrating pricing and analytics also means transforming systems and database design, how sales and call center agents input data into CRM platforms, how operators store network data and track network assets, and how customer consumption is being tracked.

Smart pricing is founded on analytics and enables operators to indirectly increase Average Revenue Per User without losing market share. A solid analytics backbone, integrated across the value chain, helps marketers use dynamic pricing methodologies properly. It adapts prices to market conditions, optimises megabyte pricing and profitability to different segments in different seasons. It stimulates latent demand and addresses behavioral needs.

Getting analytics right requires rethinking the operating model, and recruiting specialised talent. The analytically-driven organisation of the future needs data scientists, analytical pricing experts, behavioral research experts, and experience designers.

Simplification

Operators must simplify offerings. They should offer customers a wallet of value which they can consume as they wish. Customers will move across offers as it suits them, with marketers stimulating usage based on experience rather than through unsustainable discount offers.

The proliferation of products and services, sales channels, marketing campaigns, and business processes, along with the technology infrastructure needed to support it all, has become too complex to manage for most operators. Consequently, internal processes decelerate and all costs rise, leading to lower profitability, and more importantly customer confusion and dissatisfaction.

Performance management

As most markets matured, the sector is shifting from growth through acquisition to value extraction. Meanwhile, operators, investors, and even regulators are still gauging value with legacy key performance indicators, a chasm that undermines the value of the sector. Forget about Average Minutes Per User, gross sales, churn and penetration—a new wave of industry metrics should be defined.

Revamped performance management   dashboards should be focused on value levers, segment behavior, customer experience, and channel economics. Specifically, data-driven profitability metrics at the segment, product, and site levels should be diligently tracked, and pricing insights carefully extracted. Homogenous pricing curves between fixed and mobile products while optimising infrastructure investments have also to be plotted in quasi real-time so executives can make informed decisions based on rigor and analysis rather than on instinct. Performance management process should also adapt accordingly. Accurate performance monitoring should drive compensation, and regular corrective actions should occur frequently in harmony with the strategy and metrics measured.

By building a smart pricing capability, operators will be more efficient in how they invest and able to vary prices according to customer experience. That will release resources for innovation and to capture opportunities in adjacencies.

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