Many of us are addicted to our phones. More than a luxury, they are becoming a necessity – whether for work, staying connected to our loved ones, or even for reading the news. The telecoms industry has had more of a focus on pricing plans and revenue management than other businesses. It’s a similar scenario with other industries such as hotels, car rentals, and airlines. In this article, we will look at several common or special pricing methods and strategies and how these affect our decisions when choosing a mobile phone plan. We discuss these from the lens of both the customer and as a business owner.

 

 

Pricing Methods and Strategies Used In Mobile Phone Plans

 

You’re generally presented with a couple of options for each handset whenever you visit a mobile phone shop. The way that these are presented to you has been carefully thought out before you choose a phone and a plan.

 

The tactical pricing methods and strategies used for mobile plans involve a lot of psychology. We’ll be discussing some common ways telecoms entice you into buying their plans.

 

As a reference, we’ll be examining these Telstra phone packages:

 

Pricing plans Telstra

 

Tactical Pricing Methods and Strategies

In line with our example of online pricing pages for online companies — the example above follows a number of simple and tactical pricing methods and strategies.

 

Highlighting

Phone companies highlight the plans they want you to choose. In this way, your eye is subconsciously drawn to the plan. This is a form of psychological pricing, using tactics that aren’t too obvious, but they work to catch your attention.

 

For example, when big brands enter a new market or an emerging economy, they typically choose price skimming. Usually, they do this by initially setting the highest price for a new product and lowering it over time.. A significant percentage mark up on costs is also applied. This is also known as a cost-plus price skimming approach.

 

In other cases, many businesses set a higher price by multiplying the home country price by the exchange rate and add the customs duties and taxes on top.

 

Bundles

These are one of the best ways to convince people that they should purchase a certain plan. This is an example of value-adding. Basically, the extra features are added to convince you that you’re getting a good deal. Interestingly, Telstra arranged their bundles by order of expense. That’s even after research showed that it isn’t the best way to present products.

 

Price Floors

Phone companies commonly cap lower packages. This can be in the form of limiting the number of cheap plans, or in capping their services. Putting caps on lower plans convinces people that the more expensive plans are worth it.

 

Charm pricing or bumps sets the perception of lowering a price. Putting $10.99 instead of $11.00 categorises the item into the $5-$10 range. So, how you set your price puts the product in specific categories. This is common in the real estate and vehicle industries where customers often shop with a specific price range in mind.

 

Options

Telecom companies typically give you options that you might use to compare to the phone plans. There’s usually an option to buy the phone outright. But why would you want to do that when you could have a phone and a plan all in one for affordable monthly payments?

 

Then there are also options for insurance packages, which give the customers the option for added security.

 


Read our comprehensive overview on Telstra‘s Pricing Strategy


 

Predictability Over Volatility

 

Many experiments show that people choose flat or predictable pricing over volatility. That means they will pay more to feel secure rather than what would logically save them more money! This enables profit maximisation for telcos. Similarly, the entire insurance industry worldwide is built on the same premise.

 

In the context of a mobile phone plan, statistical evidence shows that customers who pay for a higher data usage plan could actually save considerably by using a lower data alternative (and paying for extra charges in the months that they need data).

 

However, many risk-averse customers choose to buy a form of insurance against surprise cost peaks and troughs  – by paying for the higher data usage option.

 

What we can gather from how customers pick phone plans is that psychological nuances can be more compelling than we think. This makes studying consumer behaviour more important than ever.

 

For mobile phone plans, people generally tend to overbuy. This is because they would rather pay more to avoid the psychological idea of “extra fees” or “penalties” for going over their allotted data or minutes. This is despite the fact that it’s still cheaper to get lower plans and occasionally have to pay extra.

 

Anchoring

 

Take the case of Apple’s pricing strategy. They’re just too expensive for the average consumer with most phones starting at $1,100 like the XS Max. Price anchoring by charging over the threshold can be applied if you want to stand out as a luxury brand.

 

Market share growth plays a huge role in targeting ROI or ROA pricing in which price is based on the cost of goods sold + targeted returns * total assets or investment. There are four scenarios in a market share growth:

 

For a provider that has a low market share and price, it constantly battles the pressure of big players in the market and risks getting acquired. A brand that sets higher prices with a lower volume of customers risks less chances of longevity or losing opportunities for target segmentation, diversification, and flexibility.

 

While a brand that has control over price premiums and a large sales volume is a leader in the industry, it will have to watch out for market disruptors. Lastly, a brand that sets lower prices and has high customer volume secures its longevity and sustainability.

 

As more companies try to meet unrealistic expectations and quotas, it prevents them from pricing “logically.”  On the other hand, customers would rather pay more in the long term just to avoid unpredictable costs.

 

Vertical and horizontal differentiation

 

If you want to set yourself apart from the rest of the market, focus on quality, durability, interface, storage capability, and convenience. Customers will compare and choose which phone plan has better features, reliability, reception, and customer service.

 

This gives you the advantage of a price curve by charging at a higher price than competitors. So, with a phone plan service that has better quality, you’re able to justify why customers have to pay more.

 

For customers who fall into the horizontal differentiation, they tend to focus more on personal preferences. For instance, they’d go for a cheaper plan without really considering data speed or security.

 

Others may choose AT&T’s Unlimited Starter because it includes coverage of talk, text, and data for families in Mexico and Canada. That doesn’t necessarily make it better than other phone service packages that don’t have coverage for Mexico and Canada.

 


Read the Dynamic Ticket Pricing trends for concerts and sports events.


 

Factors Behind Tactical Pricing Methods And Strategies

 

Did you know that most people are unaware of the actual cost of providing a mobile phone service? This means it isn’t a huge factor in pricing, unlike many other commodities we often use.

 

This isn’t too unusual though because airlines operate the same way. Like airplanes, mobile phone services take billions of dollars to build. Thus, it would be impossible to pinpoint exactly how much one call would cost. Instead, what phone services measure is the average revenue per user.

 

High competition can affect how much revenue per user a company generates. Companies aren’t keen on price wars, however, so they compete with what they have to offer.

 

For instance, Visible has unlimited data for up to 4 lines at $25 each compared to Xfinity mobile’s $45 plan with unlimited data with 5G coverage. Or Mint mobile’s $30 cheapest unlimited plan with 10GB of 5G/4G LTE which starts at $20 if you’re a new customer. Then there’s T-Mobile’s $30 pricing for 3 lines with the third line free ($90/month.)

 

New technologies also allow companies to increase minutes. While add-on services can also affect how customers choose plans. This convinces people they’re getting more out of a plan without having to alter prices. All they have to do is decide on a plan that gives them the best value. So, highlight your service features and how you target simplicity for customers.

 

Bottomline

 

The plan that customers choose and the reasons behind it can be a very good indication of customer needs and behaviour. Phone plans are well thought-out with tactical pricing strategies. In fact, they play into our subconscious affectations more than just money-saving schemes.

 

Define your brand as a business. What problems do you solve with your phone service plans? Is it data speed, privacy features, or better network coverage? This will help you tap into other customer personas. You’ll be surprised to find more range of customers who are in-between those who settle only for the finest from those who like to find bargains.

 

For a comprehensive view on building a great pricing team to prevent loss in revenue,

Download a complimentary whitepaper on How to Build Hiring Capability To Get The Best Pricing Team

 


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Are you a business in need of help to align your pricing strategy, people, and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 9000 1115.

You can also email us at team@taylorwells.com.au if you have any further questions.

Make your pricing world class!

 

 

 

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