You can build your brand for years, investing in your network, value added services and advanced customer service tools. Then, one day, you realise a young upstart company is taking your subscriber base away from you with the promise of slashed prices.
This is becoming a more and more commonplace event for service providers.
Disruptive price offers shake up markets and have an immediate effect on revenues. In France, 9% of the annual revenue of the more established mobile operators was lost in one year. In Israel, ARPU saw a sharp decline of 36% and there was an 87% increase in the number of subscribers moving their accounts to other operators, mainly down to pro-customer regulatory initiatives and new competitors. In Spain there were a record number of subscribers moving operators even without any major events happening in the markets. What options are available for those trying to survive a pricing war?
How Low Should You Go?
It is very important to research and estimate how many people will leave you at each price point, as well as identifying these subscribers. The purpose of this is making an estimate on how many customers will leave from each value segment and what is the effective ARPU from those that stay. Then you apply the same rules to what would happen with a 5%, 10% or 15% drop until you reach your competitor’s price. Only when this is done will you be able to make an informed decision over revising your price plans
Another factor to consider is that different subscribers may be willing to pay different prices. Why drop all of your pricing by 30% when you could be losing 30% from customers who otherwise would stay paying the full price? This could be a time to introduce a sub-brand; an independent low-cost mobile brand that belongs to you, but is marketed separately. This way, you do not lose loyal customers who are willing to pay a premium. This is a costly way around the issue, because as needed with any new brand a customer acquisition campaign will need to be put into full force, when resources could be put into customer retention.
A completely different approach would be to avoid aggressive price reductions communicated via Above-the-Line methods. Using Below-the-Line personal and contextual activities and only delivering aggressive price reductions to customers with a high risk of churn and maintain the higher price for those with lower risk.
Having a Recovery Plan
Regardless of your method to retain customers, whether through aggressive price reductions across the board or selective discounts, it is important to have a recovery plan in place. Make sure commitment to low prices is for as short a time as they will be effective for. It could be wise to offer subscribers new prices for 4-6 months and then do a re-evaluation at the end of the trial. It could also be beneficial to offer new services or a data plan after your reduced price plan ends.
Best Value for Money
It is worth taking into consideration what your competitors offer for that lower price. One strategy is to provide more services for the higher price, thus also providing more value in your subscription.
For instance, if you competitor offers 100 minutes and 300 SMS for £15 and 30% less than your average price, it could be wise to bundle in 500MB of data usage, or more minutes and SMSs included in your current pricing. While this will reduce price per unit, it will minimise effect on revenues. Or if your competitor is charging 10p/minute on pay as you go, why not offer 600 minutes for £50 and attract higher valued customers?
Make it Personal
Regardless of specific strategy and activities one may select, make sure to include personalised communications to your customers. Such contextual activities will allow you to zoom in on the subscribers that required your immediate attention and deliver flexible offers optimised for the individual. This eliminates need to reduce prices across the board.
Itamar Altalef is the VP Marketing Consulting and Operations at Pontis.