By André Levisse, Ali Malik, Samba Natarajan and Shaowei Ying
The world of prepaid telecoms is rife with signs of maturity, even in emerging markets. Rapidly decreasing yields or revenue per minute of use, increasing incidence of multiple SIMs per customer, price-volume elasticity well below one across the customer base, and declining ARPUs are the major culprits. In such a context, it's hardly surprising that many forward-thinking telcos are looking to pricing as an important way to help them grow (or at least maintain) revenues.
Telcos can simultaneously create positive price perception and maintain or even increase margins by leveraging a wide range of pricing elements (on-net vs. off-net, peak vs. off-peak, data vs. SMS vs. voice) to develop targeted offerings to address customer segments with different price preferences and elasticities. If an over-simplified, single plan is implemented, it gives away the benefits of segmentation. If it's too complex, it could be confusing and might be misread by competitors, unnecessarily increasing the risk of a price war. The challenge is to strike the right balance.
McKinsey's experience across more than two dozen emerging markets shows that sophisticated pricing techniques can unleash 3 to 10 percent of revenue growth.