Preparing for a slump in earnings. What are operators doing?

Current trends suggest telecom operator’s earnings may fall more than most experts expect. Telecom service providers and operators should prepare for steeper declines and take steps to strengthen their positions when times improve. Is this possible? Can pricing strategies help to increase usage in these difficult times?.

The answer to this question is clearly YES. We are currently conducting a couple of pricing elasticity analysis as part of two different engagements in mobile operators (one in Western Europe and another in Africa). The results obtained unveil good opportunities to drive revenue increase as both assessments show clear elasticity room in their current pricing strategies to boost usage and therefore, ARPU stimulation.

Main objective of these collaborations is supporting our CXO-level clients to take their marketing decisions, for example, defining how to increase the revenue line through defining new tariff plans and pricing campaigns or showing how to stimulate their acquisition aggressiveness through the implementation of innovative pricing elements. Our clients need to have a clear understanding of how subscribers behave and change their usage patterns when facing price changes, as this can strongly impact their top-line performance. How do we do this?: Through pricing elasticity analysis.

For those readers unfamiliar with this topic, price elasticity of demand is defined as “the measure of responsivenesses in the quantity demanded for a commodity as a result of change in price of the same commodity. In other words, it is percentage change in quantity demanded as per the percentage change in price of the same commodity. Applied to telecom, pricing elasticity show how far can you increase (or decrease) your pricing points to ensure an increase revenue growth.

However, due to the unpredictability of the behaviour of each individual subscriber, this understanding can only be achieve through a deep analysis, based on segmented usage historical data of the base.

With this purpose, we previously conduct a detailed customer segmentation with operators’ CDR data grouped according to business relevant KPI’s, followed by an in-depth impact analysis of two main indicators: A) per minute vs. per second billing and B) call duration vs. revenue per minute. Our methodology approach can be seen in the following slide:

Elasticity analysis

After exploring the impact of elasticity in the operators’ customers base the results show that small changes in price will have a significant impact on demand of some of their telecom services. This leads us to believe that there is potential to exploit substantial effective tariff decreases.

As a result, some specific pricing plans have been defined for specific segments (e.g. high-value customers through the use of “all you can eat” plans that provide very low effective tariffs by using large bundles of on-net minutes) and we are about to see results after a month of implementation.

In any case, and concluding with an answer to the questions asked in the first paragraph of this post: Yes we can.

Best regards
CVA. Flying to Capetown

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