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Wednesday, April 05, 2006

Value-based pricing? No, I don't think so.

"We don't want to be a dumb pipe. We want to offer value-based pricing for specific services".

In other words, service providers love to monetise their networks by charging more (or very occasionally less) for certain "valuable" bits and transacations, irrespective of the underlying cost of service provision, but aligning tariffs more with how their customers perceive the "inherent value" of that service.

The problem is the lack of finesse, and the rather fuzzy definition of "value" used by operators.

I was reminded of this recently by Martin Geddes' comments about operators' Gollum-like need to "capture your value, all my beautiful bits, preciousssss bits". I've also written jokingly about an ultimate incarnation of this.

I think we need to have greater granularity than just Value vs Commodity pricing. I propose the following scale:

Bargain-based pricing - it's so cheap, it's unbelievable. You tell everyone about it. You use it for the sheer sake of it. You buy other stuff just as an excuse to use it more. Example: free WiFi in cafes.

Value-based pricing - it's the right price. It seems reasonable given the probable underlying costs or its inherently fair market-based pricing mechanism. It does what it says on the tin. You can justify it easily. You mention it to friends or colleagues. Examples: Yahoo Mail Plus, Google AdWords, eBay pricing, Boeing Connexion inflight WiFi.

Inertia-based pricing - it's a bit steep. You know you could find it a bit cheaper. But it works, it's convenient, and it's not worth the effort to shop around or switch. You don't complain, but you don't recommend it either. Example: SkypeOut calls, your current broadband provider, your current mobile voice tariff, airport food.

Ignorance-based pricing - it's a ripoff, but you don't realise it. You've got no real benchmarks, so it seems "reasonable". If it was cheaper, you'd probably use it more. You don't know it's available to other people (maybe in another country) at a much lower price. If you found out, you'd be quite annoyed, complain to friends, and probably feel a bit gullible & prone to switch suppliers when the opportunity arose. Example: European SMS pricing, PSTN calls.

Resentment-based pricing - you know you're being ripped off hugely, but you "have" to pay as you have no immediate alternative. You grit your teeth, and (hopefully) expense it afterwards. You actively look for a way to avoid the cost, and minimise your usage. You complain to friends & colleagues. You develop "active customer disloyalty" and vow to switch suppliers, out of distaste for their show of customer disrespect, whenever you can. Examples: Hotel WiFi, cellular data roaming.

1 comment:

Anonymous said...

The best pricing system I've seen - would work well with PurpleBunny 1.0.0 or similar.