The Move from Commodity-Based to Value-Based Pricing

This article was first published in Mobile Magazine.

Value-based pricing is when a product or service is priced based on the perceived value it delivers to customers. It has many benefits for the service provider including how to improve the business and the product to better meet current and future customer needs. 

The struggle for Communication Service Providers (CSPs)

Communication Service Providers (CSPs) have had a hard time trying to get to grips with value-based pricing for many years. When you think of the value that customers place on their mobile broadband connection - it is huge. It enables people to work from home, it provides the backbone for TV, music and many more everyday services that households across the country rely on to stay connected. It’s pretty much essential. However, until recently CSPs have not been able to adopt value-based pricing. Although mobile broadband is very valuable it’s also a commodity. Customers can get a similar service from a number of different service providers so the decision of which company to go with is usually based on price. It is usually the same with other essential commodities, like electricity.

5G – Opening the door to value-based pricing

5G is enabling CSPs to move beyond commodity-based pricing. Most 5G deals offer unlimited data, which makes sense as most people are usually unaware of their monthly data consumption. What they do notice though is network speed (especially when it’s slow) as this impacts their experience. Speed tiering is the first step to value-based pricing. Many CSPs have begun guiding consumers on the best speed tier for them based on their usage. If a customer uses 5G for social media and general web browsing, then a lower speed tier should suffice. However, customers who stream a lot of video content will need the next tier up, and if they’re also into online gaming, then they’ll need the fastest speed tier.

CSPs are now also bundling in 3rd party content such as Disney+ or cloud-based gaming services such as Xbox based predominately on the preferences of the customer. As a result, customers will now be paying to watch Disney+ or play Xbox knowing that they will have a good viewing or gaming experience given that they are on the right 5G speed tier. We are also seeing CSPs offering speed boosts. This gives customers the option to pay for temporary access to a higher speed tier if they wanted to try out gaming or another bandwidth, low latency service.

More partnerships delivering more value

Partnership ecosystems are key to developing new 5G-enabled services. CSPs are developing more partnerships so they can deliver the content and services that customers (consumers and businesses) want to use over 5G networks. As we move from physical goods to digital services, 5G becomes a very important channel for enabling companies to deliver their services, which means that CSPs become very attractive business partners. CSPs have exceptionally large (multi-million) customer bases, who pay for services via subscriptions and bills every month as well as also topping up their pre-paid balances. So, a ready-made customer base, with regular financial transactions and a delivery channel (the 5G network) makes for a pretty good partnership proposition for any company looking to market and sell their digital services.

With 5G Stand Alone, CSPs can become hot commodities when it comes to potential commercial partnerships. This is because 5G SA will have a 5G core which includes a 5G policy control function. This can manage network slicing, so that specific services can be delivered over specific networks slices which have configured characteristics, such as a minimum bandwidth speed and latency. Now CSPs can offer guaranteed Service Level Agreements (SLAs) for customers as well as wholesale SLAs for partners. Due to policy being integrated with charging, different slices can have different price points. Mission-critical B2B services, such as robotic manufacturing in smart factory assembly lines, require very low levels of latency so prices would reflect this.

Likewise, on the consumer side, offering 5G gaming with guaranteed speed and latency without any lag or connection delays, would mean that customers can receive better gaming experiences that they would be happy to pay for. In essence, they are paying for the experience and not the connectivity. This is value-based pricing and far removed from the all-you-can-eat data commodity pricing models where the only differentiator is price.

Value is subjective

All consumers will have different wants and needs, as different customer profiles will no doubt have different preferences and needs. CSPs will have an ecosystem of partners, offering a range of services that are constantly being updated. There will also be a lot more personalised and contextual marketing with offers created (and priced) for specific target segments. This move to hyper-personalisation with service offerings to match, will impact how CSPs monetise 5G services and engage with their customers. The sheer volume of products, services, marketing campaigns, price plans, revenue share models, customer management plans, and loyalty & retention plans will increase. This will have a significant impact on how CSPs run their systems and businesses.

Hello no-code

If a CSP wants to develop a new price plan, a new service offering or change an existing process, how long should this take to be implemented? Days, weeks, months? Using the traditional (legacy) approach of working with the vendor to develop change requests could well take months to implement and would also come with a hefty price tag. Under this regime, it is no surprise that some critics labelled CSPs as not innovative enough when compared to webscale companies. The baggage of legacy meant that CSPs were unable to freely experiment – the cost of failure was simply too high.

Looking ahead to the potential complexity and volume of offers, processes, and business models that 5G will drive for CSPs, there will certainly be a need for them to try things out and experiment without the fear of failure. This is where no-code comes in. By using a GUI to develop and change processes and configure rules, CSPs can develop new or change existing service offerings and processes within hours. Not weeks or months – but hours. Due to no-coding being required, the process will not need a highly technical IT engineer to make these changes. These changes can be done by business engineers too who would work on the business side of the organisation (marketing, product, etc). This means much more agility, greater levels of innovation, reduced costs, faster time to market, and new revenue streams courtesy of 5G. No-code – it’s a no brainer for 5G monetisation.

Martin Morgan, Qvantel

Elana Crowne, Nokia