June 06, 2005

First law of telecom

Spotted at Keele services on the M6 motorway going home last night:

Apologies for the crapcam picture; the clouds and sunset are actually a reflection of the real clouds and sunset. The moons and planets are a reflection of the deranged touchy-feely-spacey marketing of mobile operator O2.

The top priority for every telco marketing department is to obfuscate the real price of the product. In this case, if all you’ve got is a lookalike GSM network with the usual indifferent customer service, the last thing you want is the punters shopping around based on price.

Hence wheezes like this one.

One of the great marketing innovations while I was at Sprint was the “Fair and Flexible” plans (PR regurgitation here). The perfect foil for comparison shopping — a differently-structured plan that doesn’t use the normal bucket break-points.

Incidentally, these pay-as-you-go plans are a bit of a pain for operators. People are increasingly expecting all-you-can-eat pricing for other media and communications. I’d expect PAYG to go the same way, where instead of the payment period being monthly, it becomes daily. First call of the day costs you — but the rest are “free”.

There’s a little hint of this with Vodafone’s price plans in the UK. Their old PAYG plans came in vanilla and “smartstep”:

Calls to standard UK landlines and Vodafone mobiles: 30p per minute for first 3 minutes each day and 5p per minute after that.

So not quite “free”, but getting there.

Their new option is called “Stop the Clock”:

If you talk for more than an hour, you’ll just pay for the first three minutes plus any extra time. [Even if you call for less than 3 minutes — Telepocalypse.] This will be taken from your monthly inclusive minutes if you pay monthly, or if you’re on pay as you talk, you’ll need at least three minutes of credit.

Once your hour is up you’ll go back to your inclusive minutes or standard rate charges. So you can make as many calls as you like, chat for up to 60 minutes and only be charged for the first three minutes of each call.

(Vodafone’s web site is utterly beyond crap with all sorts of content management errors, timeouts, loops, and un-linkable URLs that embed your session ID. I’ll rant about it in full another day.)

Stop the Clock is rather sneaky; Vodafone knows that the average call length is a minute or so. (How often do you terminate immediately when you get through to voicemail or an answerphone?) So when their copy says “Where’s the catch: There isn’t one.”, you have to mentally append “(except you’ll pay three times the usual price)”.

Summary: Expect more of this price plan complexity to emerge. And don’t let your mum change price plans without asking your advice first.

Posted by Martin Geddes at 04:34 PM
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Comments

What do you think of Stelios' pricing sructure?

Posted by: at June 7, 2005 04:02 AM

Stelios is competing on price against bloated incumbents, so he needs to start off with clear pricing to make people switch. If you're trying to avoid competing on price, then obfuscate. Although EasyJet is pretty transparent on pricing, Ryanair isn't; a lot of people get stung for excess baggage due to the unusually tight rules. There also comes a point near the bottom of the market where the operational cost of price discrimination starts to overtake the benefit, and you have to move to a volume model: your competitive advantage comes from low supply chain, inventory, opex, etc costs. Even then, price discrimination happens - Dell charges different amounts for the same PC depending whether you enter via the home, small biz or enterprise portals.

Posted by: at June 7, 2005 11:29 AM

I presume that phone call length is power-law distributed. Creating a pricing plan that is punitive to very short calls will presumably kill traffic, maybe a lot. The argument goes the other way around for the pay for a day plans; you they reward elite callers and punish the vendors. These plans look like they chop off the tail and then give the head away for free!

Is there a innovate around patents perversity to some of this generation of PAYGo plans?

At what rate does the wireless industry need to increase traffic every year? A factor of 3 is Gilder's law. The perfect pricing plan would herd customers toward that goal.

In other domains where Moore and his friends have been messing with markets the N/$ increases go mostly to the consumer with the industry capturing the increasing reach of the tech/platform.

Is it low cost airlines or disk makers that telecom should be looking at closely? The disk makers, do an amazing amount of discriminatory/value pricing - the best deal are now all quarterly model number retirement inventory clearance sales, with a store coupon, and store loyalty discount, and two rebates.

Posted by: at June 7, 2005 01:25 PM

Hi

Calls under the 3 mins are still charged by the second - read the full T&Cs http://shop.vodafone.co.uk/index.cfm?fuseaction=home.viewSTCTerms

Posted by: at June 7, 2005 02:01 PM

Surely, this pricing weezies can only damage the long term viability of a carrier. If you submit your customers to electric shock 2 to 3 months after they sign with you (or re-sign) then you can expect them to get bitter and twisted about your brand.

As Scott Relf used to tell us, "...our industry practices a sadistic business model where we punish our customers for being better customer and/or more loyal customer. That isn't sustainable."

I think the (no longer recent) arrival of Virgin in the mobile space says it all. Branson's MO is "enter a business when everyone else is doing it badly". Says it all really.

Posted by: at June 7, 2005 07:18 PM
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