July 01, 10:35
Mobitopia paints the telcos in a shade of ignorance on MMS pricing:
It's not based on any real profit model (i.e. "it costs x to send a message and we will then add y profit and get a result of z to charge the consumer"). These guys are just half ass guessing.
It sounds like Russell Beattie needs a brief introduction to economics and pricing. It's actually really simple, so I won't even charge tuition.
Perfect pricing is all about gauging demand. Once you know the demand curve, you pick the sweet spot where price and demand meet in maximum profit.
Unfortunately, it's hard, expensive, time-consuming, and often down-right impossible to get a good fix on the demand curve. Especially in new markets that hasn't yet matured or even stabilized. MMS is such a market.
High-stake markup pricing
So what's a telco to do? Should they, like Russell suggests, stick to markup pricing? After all, it works well for the small-time merchant or the restaurant around the corner selling cheap wine at a consistent 250% markup.
No, of course not. Markup pricing disregards potential to an astonishing degree. Imagine a telco calculated that sending an MMS costs 5 cent and they'd like a 100% markup. That's 10 cent. Great, but what if the customer was willing to pay 50 cent ? message? You just forfeited 40 cent without even trying.
Forfeiting to meet demand at its maximum price doesn't matter much if you sell 10 bottles of cheap wine a week, but if you plan to deliver millions of MMS'es a week, it's a huge deal. A few cent off could mean millions or perhaps even billions in lost revenue.
In addition, pricing has to consider a world of other influences, such as competitive pressure and market rates (getting 5% in return on your MMS department doesn't fly in face of a 10% market rate on capital, but it's decent against a 1% market rate).
Guessing is good (when it's all you can do)
So in summary, the telcos are doing a perfectly natural thing in the face of unknown market demand: Testing the waters. Starting MMS pricing at a premium allows them to lower it over time without consumer backlash (everyone hates prices that goes up) and gauge the changes in demand as they incrementally adjust the rates (demand/usage went up by 10% when the price went down 5%).
It's research time. The telcos are well aware that they haven't cornered the demand curve yet, but they're narrowing it down. They're experimenting while the market is going through it's infancy. This should ensure that they know all there is to know about milking this calf once it turns into a cash cow.
Challenge by Morten Krog on July 03, 14:00
Perfectly rational argument if the company's goal simply is to make profit. In a simplified capitalistic world this is true, but a company is not just "investor money". Often companies have mission statements along the line of "providing service X to target group Y cheapest possible".
The SMS (and now MMS) pricing is obvisouly not aimed at providing a service. It is bloody capitalism at its worst. One of the reasons why I would never, ever use one of those services.
Challenge by Lau Taarnskov on July 06, 15:22
"Perfectly rational argument if the company's goal simply is to make profit."
If the customers don't pay for the products and services they use, who should? You don't expect investors to give away their savings just so kids can send MMS'es for free, do you? And what is wrong with making a profit as long as you get the service/product that you pay for?
I don't think the mobilephone tariffs are that bad in Denmark. I'd prefer the Danish phone services and prices over those in Cuba or Northkorea anyday. I don't think SMS sending/recieving is even possible in those planned-econonomy countries.
"Often companies have mission statements along the line of "providing service X to target group Y cheapest possible""
They might do, if that contribute to the overall goal of all profit making companies: to make a profit.
"It is bloody capitalism at its worst."
It's not pure capitalism, though. The largest telco "TDC", former public monopoly has been sold together with all the infrastructure. Also the prices are regulated by the government to a degree. In capitalism you are free to not paying for services you don't want.
Challenge by Allan Hill on July 19, 18:12
Perhaps the words "It's research time" ring truest and some dynamic pricing would be an option.
http://www.fastcompany.com/online/68/pricing.html
Systems randomly offering customers experimental prices.
Challenge by Morten Krog on July 30, 17:46
True; I can choose not to use a service if I find the prices are higher than fair. This right I exercise daily by _not using_ my cellphone in any way other than to receive calls and if I should be involved in an accident of some kind.
But in our society there are other services that you cannot choose to have. A bank, an insurance etc. In these cases the free market gives you the choise of whom to be robbed by. Neat.
I've never said that customer shouldn't pay for the services they use; but pricing is not allways in any way related to the cost of the service. In these cases I'm more sceptical than most about paying the price.
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