Adapting a Pricing Strategy for Market Changes
See how BCG helped a telecom client revise its pricing structure to withstand significant market evolution.
Telco was one of the largest mobile telecommunications companies in the world and had been aggressively achieving tremendous growth over the past few years.
However, Telco faced potentially fierce price competition. Deregulation was leading to the introduction of customized pricing for enterprise (business) customers, for which Telco lacked a strategic pricing policy. In addition, mobile number portability (MNP)—the ability for consumers to switch providers while maintaining their mobile number—was imminent and expected to have a significant impact on customer loyalty.
BCG was asked to help Telco meet several goals:
Develop the optimal pricing strategy under the new deregulated conditions
Maximize price realization by selling system solutions (for example, bundled versus individual components)
Transform the sales organization according to the new rules
To design the new pricing strategy, the BCG team undertook several projects:
Segmented enterprise users by value so that service levels could be matched to each segment's value and an optimal pricing scheme could be designed for each segment
Conducted cross-industry benchmarking to detail pricing options, understand potential competitor reactions, and estimate the impact of different approaches
Conducted a customer survey to understand customer perceptions of, and likely reactions to, various pricing options
Used learnings to simulate the impact of pricing options on Telco's revenues and understand financial implications
Determined the most attractive pricing scheme and, based on that, proposed pricing tactics
The team synthesized insights gained from the simulated impact of pricing options with the customer survey findings. Together, the data indicated that the most attractive means to maximize revenues and minimize customer churn was to combine the sales of "solutions" (versus commoditized sales of individual components) with customized pricing.
Customers were therefore segmented in terms of their solution needs, with customized pricing limited to those enterprises that were also purchasing solution sales.
To implement this new approach, the team designed new pricing guidelines and sales processes. In addition, the team developed a coaching manual for sales managers as well as clear key performance indicators (KPIs) to support the standardized sales processes and transform the sales organization from product sales to solution sales.
Transitioning from product sales to solution sales resulted in a significant increase in "locked-in" customers for Telco. For example, the number of accounts locked in increased by more than 30 percent and the share of revenues locked in increased by almost 50 percent.
Telco therefore maintained annual profits estimated to be in the hundreds of millions of dollars, which would have otherwise been lost to expected price declines amid the more competitive situation.