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Avoiding The One-Size-Fits-All Approach To Bundled Pricing

May 6, 2008
In the past several years, U.S. telcos and cable companies have made big strides with consumer offerings that bundle internet, TV, phone and even wireless services. Providers expect their bundles to reduce customer churn, grow revenue per subscriber and provide greater ability to cross-sell and up-sell. Wall Street expects no less. Industry analysts have also been big fans of bundles as have the industry media - they perceive that bundles strengthen customer retention, which can in turn support growth and generate shareholder value. The typical bundled packages all promise consumers the convenience of a single bill--with a break of as much as 29 percent on the cost of buying the same services la carte, according to Accenture's research.

That's terrific for consumers. But for providers in the U.S. market, the bundling game is about to get much harder. The basic bundle of telephony, video and Internet is now being offered by every major player, and the offers look worryingly alike. Deep discounts are a key element of each player's customer acquisition strategy and messaging, putting the emphasis firmly on price comparisons rather than on greater value for the customer.

The marketing and pricing decisions that communications providers make today will have a huge impact for shareholder value a year or two from now. If they continue their pattern of discounting in order to stimulate customer acquisition, then it is highly likely that value will be destroyed even as the lists of subscribers grow.

Cable companies and telcos alike seem to have settled on per-month charges, discounting the charge for each service component. In essence, they're playing a game of "My discount is bigger than your discount." Their assumption seems to be that all services are equally valuable in the eyes of consumers and that all consumers think alike, behave alike and have the same price sensitivity. The result will be lower margins and a return to higher churn levels.

Accenture's perspective is that communications providers' discounts effectively create a "budget" that could be used to fine-tune the pricing for a portfolio of bundled offers with appeal for many different segments. A good starting point is to look at all the pricing levers that are available to service providers today.

With so many ingredients on the value menu, why should a provider use just one pricing lever--an across the board discount--and the monthly charge as the single value component of the offer? Sophisticated consumer choice survey techniques and in-market experimentation can be used to let consumers decide which mix of offer elements are most appealing and at which price points.

Having the right pricing strategy is only part of the solution, however. Top performers match their pricing strategies with well-designed pricing capabilities. They often set up dedicated pricing groups with responsibility for creation and continual refinement of pricing strategy and for effective execution using the right processes, resources and tools. These companies also commit to investing in innovative technology--particularly the new software tools that make it easier to track pricing trends, to test the likely effects of price changes and monitor the actual effects of pricing decisions.

The challenge won't go away, but the opportunity for first-mover advantage will. The precedents are there, and the tools and the techniques are available; best-practice retailers are using them every day. We're confident that one of these days, a communications provider will be asking them for lessons in price elasticity by region, by customer and by product.
About the Author
Accenture's Electronics and High-tech industry group offers management consulting, technology-strategy and implementation services to all segments of this exceptionally dynamic industry. Read the full article on Avoiding the One-Size-Fits-All Approach to Bundled Pricing. Send an email to Patty Crawford (patricia.l.crawford@accenture.com) if you would like one of our US pricing specialists to meet with you.
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