Make more money by selling the experience

In the second part of a series of articles on experience-based pricing, Linda Austin and Chris Yeadon focus on making the concept of pricing for specific uses of service components a reality

Value propositions based solely on undifferentiated connectivity cannot satisfy customer expectations of greater choice, personalisation and relevancy based on context. Mobile broadband, smartphones and digital services have enabled a high level of consumer personalisation to the point that almost every customer’s experience is unique and represents a segment of one. The challenges for communications service providers (CSPs) are first, to identify the value components that make up a customer’s experience, and second, to understand the level of value the customer places on each individual, chargeable component.

Linda Austin is director of strategic marketing for Region North America at Ericsson, and Chris Yeadon is director of product marketing for Convergent Billing & Customer Relationship Management at Ericsson
Linda Austin is director
of strategic marketing for
Region North America at
Ericsson, and Chris
Yeadon is director of
product marketing for
Convergent Billing &
Customer Relationship
Management at Ericsson

Does the customer value it enough to pay more? Do they value it enough to choose the CSP’s offering rather than a competitor’s? Once value components are identified and sufficiently understood, CSPs can offer differentiated connectivity that delivers a compelling, relevant experience they can monetise.

Other industries such as airlines, hotels, ride sharing and gaming have found success in breaking their previous business models and offering differentiated experiences that are priced to capture the incremental value delivered. While customers had to adjust to having value components broken out and paid for separately, they eventually accepted the new model, generating additional revenues for the providers. Telecoms customers are likely to undergo similar adjustments should CSPs decide to adopt this approach.

The telecoms industry is already introducing aspects of experience-based pricing. For example, a number of CSPs have launched sub-brands or MVNOs to address components that specific customer segments value. Other CSPs offer less-expensive options and/or alternate ways customers can pay for their service – such as accepting advertisements in exchange for connectivity or content.

Additional examples include offering connectivity at discounted prices to cost-conscious customers when the network has excess capacity, or premium pricing for value-centric customers when network capacity is constrained. Different customers simply do not have the same needs or utilise the same CSP value components at any given time. As device makers and OTT players have shown, communications services are all about the experience – and experience goes far beyond simply having network connectivity perform as expected. It includes connectivity that can be differentiated – using next-generation network and system technologies – according to preference and context, along with non-network services such as customer care.

Exactly what value do you offer?

According to the GSMA, by 2020 the OTT industry will be worth approximately US$500 billion. It is an industry that has been rewarded for delivering experiences that rely on CSP connectivity but, in the main, has no direct commercial relationship with CSPs. The result is that reliable network performance, once highly valued, is becoming perceived as the most basic of services – leaving CSPs uncomfortably close to undifferentiated, utility status.

There are several fairly obvious assets of value that CSPs can provide that cannot easily be provided by OTT players:

Personalisation: CSPs are in the best position to deliver this experience. Through the core network, policy control, OSS, BSS, CRM and analytics, CSPs have the ability to conveniently manage and tailor all aspects of consumers’ digital lives according to their needs and preferences.

Billing relationship: This is now made even more valuable by smartphone, tablet, IPTV and subscription/pay TV retail purchases. Users are able to buy online quickly and conveniently without entering any payment data, and the charge appears on their next operator bill.

Customer care and self-care: The more transparency the CSP provides to users to control their accounts and service options, the more the users trust and value their provider. The user experiences convenience and peace of mind, and the CSP dramatically reduces the time spent fielding user requests through customer care.

Security: CSPs have been managing mission critical networks and data for decades and are best poised to meet the new security challenges of a highly connected, virtualised and mobile society. No one is in a better position than CSPs to capitalise on providing users with peace of mind on this front.

Monetising the true value of the experience

A key concept behind Experience-Based Pricing is that CSPs never give anything away. Instead, excess capacity is marketed to people who are willing to pay for that excess capacity; so when demand is high and capacity is scare, the price is adjusted accordingly – with all the necessary transparency and notification to allow the customer to make an economically rational decision.

Suppose a CSP has a base offer where customers can use up to 500Mb of data with a download speed of 5Mbps, delivered for US$25 per month. The speed and amount of data are reasonable for the average user, and the network is planned and engineered to support that load for the expected number of subscribers.

In this example, add-ons would be available to purchase in advance and at a set price that reflects an attractive discount. If a customer impulsively purchases an add-on during a movie, for instance, the discount could be adjusted according to the availability for network capacity at that time. The customer’s willingness to pay would be based on their context and circumstances.

As we’ve said, nothing on the network is given away for free. Value expected is delivered for the price agreed, so the user always knows what to expect with regard to network performance. Eliminating network volatility actually improves the perceived customer experience, since receiving free faster speeds without being aware of it only provides a contrast to the agreed-upon network performance at comparatively lower specifications. In reality, then, providing enhanced network performance when there is excess capacity sets the user up for future disappointment, and the operator for future lower NPS (net promoter score).

This is exactly the dilemma many CSPs are facing regarding LTE. Given competitive pressures, how do they price the new enhanced experience they are now able to offer? Do they simply upgrade speed at no additional charge to drive loyalty, or should they identify to which customers and under what circumstances they should offer the enhanced experience that LTE delivers?

Enabling Experience-Based Pricing

Let’s return to the spur-of-the-moment add-on purchase example. The customer has begun to watch a movie on demand, but the speed of his data plan results in data buffering and interruption of the film. The CSP is aware of this poor customer viewing experience while it is in progress, thanks to the network and user data pouring into its analytics solution. To remedy the problem, the customer care system immediately offers the user a ‘turbo-boost’ option based on the device the customer is using along with the operator’s knowledge of the customer’s previous experience and expectations.

CSPs can and should insert themselves into these existing opportunities – dissecting the experience and finding new strategies and approaches that deliver the experience better than anyone else – and then monetise that capability.

However, as we mentioned in our first article, CSPs must develop the mindset and culture that continuously seeks to dissect these new experiences users have as they interact with the network through cellular, Wi-Fi, wireline, voice and data.

Intelligent, responsive systems

Siloed, non-real-time systems are incapable of enabling more complex and advanced services that create compelling, real-time user experiences. The experiences that users demand today and will demand in the future require realtime, converged systems that are secure, analytics-enabled and policy-driven.

Fortunately, technology and systems are keeping up just fine – although it will become more difficult to say what is the network and what is IT. New OSS/BSS, NFV, SDN, cloud and other technologies are changing what is possible in telecoms, and changing how CSPs can approach pricing and marketing strategy in an effective, transformative way.

We’ll take a look at the systems and solutions that will fuel Experience-Based Pricing for all CSPs in the next and final article in our series.

Click here to read part 1: http://bit.ly/1S1tTuO

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