Getting Pricing Right
By Neal Paye and Michael Dargue
The recent Strava debacle provides but one glaring example of how sudden pricing adjustments can go terribly wrong. The popular app for serious athletes to track their progress took the misguided step of a surprise and dramatic price hike at the end of 2022 that left loyal customers bewildered and the company scrambling to clean up the PR mess left in its wake. As of this writing, Strava CEO Michael Horvath has resigned. Nothing says “we got it wrong” quite as clearly as a top-level defenestration.
Without going into all that was awry with Strava’s approach (suffice to say it was everything), hitting selected customers with an unexpected and unexplained price hike of 50% fails on many levels. Worse still was the widely varying gouge depth they imposed in different countries. Hats off to DC Rainmaker for the deft forensic sleuthing that cracked Strava’s baffling regional adjustment scheme. At its root, the move reflected a woeful disregard for the customer and what we identify as the essential pillars of good pricing adjustment strategies, namely: Predictability, Transparency and Fairness.
Behind these customer-facing principles, and the art of conveying them to the market, is the science of understanding customer acceptance of the predictable, transparent and fair price adjustments you present. While this is certainly more complex for the telco than a single web app provider like Strava, the process is relatively straightforward for product management and marketing to undertake in a relatively short period of time. And as we’ll examine in this article, taking a customer-centric approach provides a wealth of insights that can not only guide mature pricing adjustment strategies but also uncover opportunities for subscriber base growth and increased ARPU.
The first step is to get a coherent look at the competing brands, service categories, packages and pricing models that make up your market landscape. Before building the pricing analysis, take a good look at your pricing model alongside your competitors when it comes to the basics, like published speed and actual performance. Remember that how you deliver your service – be it via fiber, fixed wireless or cable (once copper is in the past) – is much less important to the customer than what you deliver in terms of upload and download speeds. Brand recognition plays strongly as well, but again less so than the table stakes of your offering.
The next step is to understand how customers in your target market perceive and weigh these factors. A proven approach is through what’s known as Conjoint Pricing Analysis that allows you to stand up competing packages in your target market and take the customer’s temperature on them. Even if you are the dominant brand, your perception against the plucky new entrant may surprise you. Likewise, new arrivals to the market shouldn’t be overly intimidated by big name brands, and can greatly benefit from the process of letting customers weigh in.
A recent Cartesian mandate with a Broadband ISP brand in the US provides a great example of how a Conjoint Pricing Analysis is undertaken and the kinds of helpful, decision-driving insights it can provide. Here, we developed a short online survey distributed to some 1000 subscribers in the client’s target market. The viability of this broad cohort was determined on availability of the 3 categories of service in question: Fiber, Cable or Fixed Wireless. Respondents could be customers of any of the provider brands covered in the survey, including the client. They wanted to understand what the pricing thresholds of a number of sample packages would be. These included the usual (brand, speed and price) and were further expanded to test appetites for various incentive and router bundled packages. No overly complex segmenting was done related to household budget or demographics. While this can be essential in deeper dives, focused specifically on segments (e.g. gamer-hosted households), it was not critical here. Neither was the respondent’s understanding of the access technologies (Fibre, FWA or Cable).
After answering the pre-screening questions related to their current access category, respondents were given four packaging options from which to choose, with ten aggregated variations of each. In order to adjust for ‘offer ambivalence’ (i.e. the least unappealing of all), respondents were asked to weigh their interest in the package selected on a scale of 1-10. The variations were simulated packages that made slight changes to the product’s weighted attributes of brand, speed (symmetric and asymmetric), incentive offers (e.g. a $100 gift card, 1-month free, 1-week free, etc.), and a router, included or not.
In a nutshell, the survey analysis answered the all-important question of “Where could the client raise prices?”. It indicated the relative strength of certain packages proposed, and to what degree price hikes brought price elasticity of demand so high as to cause demand to drop off. The golden zone is where pricing increases while demand remains inelastic. While the analysis found a strong opportunity to raise prices on some packages and not others, it also provided key insights into the relative importance of the attributes. No surprise, speed was the dominant factor, while things like incentives and, further down the curve, router inclusions, were deemed less important. Additional insights yielded brand perception-related findings that suggested opportunities for the client to introduce more aggressive incentives to boost brand buy-in.
All told, the Cartesian conjoint study took about a month from start to finish while yielding years’ worth of solid strategic direction. Though seemingly a tough nut to crack, it’s clear from this case and others that proven approaches can provide ISPs with the essential clarity to get pricing right at a time when it’s needed most.
Cartesian Can Help
Cartesian has the practical experience to help its clients get pricing right.
To learn more, contact Cartesian.