The Pricing of mobile productsSimon-Kucher & Partners                             London Office                           ...
Scope and reputation of Simon-Kucher               Global presence since 1986                           Competence ranking...
Pricing power                Pricing power is the ability                of a company to get the                price it d...
Pricing power: The single most important lever                                                "The single most            ...
64% of media companies believe they have low pricing power                                                          % Comp...
Pricing does not receive the management attention itdeserves…"Not long ago, a guy here did an analysis of our pricing in a...
…particularly in the media industry                                   Share of companies with pricing as a boardroom topic...
Why is pricing power so important?                                   Profit      Price       Variable Costs            Vol...
In the short run, price is every companys most powerful profit driver             Example                                 ...
Top 5 reasons for low pricing in media                    1. "Our content is a commodity"                    2. "The web g...
1     "We are a commodity"… so?Other industries show how a premium can be commanded even through artificialdifferentiation...
1     Case study: Premium pencils Own Brand                                                       8p                      ...
Top 5 reasons for low pricing in media                    1. "Our content is a commodity"                    2. "The web g...
The future of online prices is not about lower prices ….  2     … it’s about more prices!                                G...
2     Remember: Price transparency ≠ value transparency                                                                   ...
Top 5 reasons for low pricing in media                    1. "Our content is a commodity"                    2. "The web g...
Risk: We offer digital cheaper because we can …3   ….not because we should !                                              ...
3     Problem 1: We have created false hope                                                                               ...
3     But there is good news - perceptions can be changed                                                                 ...
3     Problem 2: We are focused on the wrong segment                                                                      ...
Top 5 reasons for low pricing in media                    1. "Our content is a commodity"                    2. "The web g...
If you believe that….          … more eyeballs means greater        monetisation potential (advertising) …     …and lower ...
…then you must believe that demand is elastic…                                                     Newspaper cover price a...
Top 5 reasons for low pricing in media                    1. "Our content is a commodity"                    2. "The web g...
Are aggressive competitors a reason for low pricing power?                                                                ...
5     Who is responsible for price wars in digital media?                                                                 ...
5   It is always the others! – Really?                                               Take control                         ...
5     Volume focus never works: Case study - Telecom incumbentsBoth incumbents were former monopolies and had to face mass...
5     Lead the market – Airbus A380 example                                           Le Monde, 5th of July 2005Source: Si...
What have we learned?                  Pricing power means getting the price you deserve for                  the value yo...
All this is easy to say… It’s much harder to do….                                      Costs are a                        ...
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Mark Billige Mobile Media Strategies 2012

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Mark Billige Mobile Media Strategies 2012

  1. 1. The Pricing of mobile productsSimon-Kucher & Partners London Office 5th Floor, 233 High Holborn, London WC1V 7DN, UK Tel: +44 20 7841-5750, Fax: +44 20 7841-5751Presented by Mark Billige E-Mail: mark.billige@simon-kucher.comManaging Partner, London Internet: www.simon-kucher.com
  2. 2. Scope and reputation of Simon-Kucher Global presence since 1986 Competence ranking "Marketing & Sales"25 offices worldwide 625 associates Rank Consultancy Average Score*Amsterdam MiamiBeijing Milan 1 Simon-Kucher & Partners 395Bonn MunichBoston New YorkBrussels Paris 2 Boston Consulting Group 379Cologne San FranciscoCopenhagen Singapore 3 McKinsey & CompanyDubai Sydney 359Frankfurt TokyoIstanbul Vienna 4 Bain & Company 347London WarsawLuxembourg ZurichMadrid 5 Roland Berger 342 Revenue 2011: £105m Deep media industry experience World market leader in pricing "world leader in giving advice to companies on how "…the worlds leading to price their products" pricing consultancy…" Peter Drucker "pricing strategy "... in pricing you offer some- specialists" thing nobody else does." -1-
  3. 3. Pricing power Pricing power is the ability of a company to get the price it deserves for the value it delivers -2-
  4. 4. Pricing power: The single most important lever "The single most important decision in evaluating a business is pricing power." "If youve got the power to raise prices without losing business to a competitor, youve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then youve got a terrible business." Warren Buffett, 2011Source: www.bloomberg.com/news/2011-02-18 -3-
  5. 5. 64% of media companies believe they have low pricing power % Companies with low pricing power Chemicals 86% Transport/logistics 81% Telecommunications 74% Automotive 73% Travel/hospitality 70% Financial services 70% Media/entertainment 64% Retail 63% Energy/utilities 57% Industrial goods/machinery 55% Consumer goods 53% Construction 51% Simon-Kucher Pharma, biotech/medtech 47% Global Pricing Study 2011Source: Simon-Kucher & Partners Global Pricing Study 2011n= 3,904; % respondents who are C-level executives = 31%* High pricing power is the ability of a company to fully/almost get the money it deserves. Low pricing power means the company lacks the ability to fully/almost get the money it deserves -4-
  6. 6. Pricing does not receive the management attention itdeserves…"Not long ago, a guy here did an analysis of our pricing in appliances and found out thatabout $5 billion of it is discretionary. Given all the decisions that sales reps can makeon their own, thats how much is in play. We would never allow something like that onthe cost side. When it comes to the prices we pay, we study them, we map them, wework on them. But with the prices we charge, were too sloppy." Jeffrey Immelt -5-
  7. 7. …particularly in the media industry Share of companies with pricing as a boardroom topic Energy/utilities 47% Chemicals 31% Retail 28% Indust. goods/ machinery 21% Consumer goods 21% Pharma, biotech/ medtech 18% Transport/ logistics 17% Travel/ hospitality 12% Financial services 9% Construction 8% Media/ entertainment 7% Telecommunications 7% Simon-Kucher Automotive 6% Global Pricing Study 2011Source: Simon-Kucher & Partners Global Pricing Study 2011n= 3,904; % respondents who are c-level executives = 31% -6-
  8. 8. Why is pricing power so important? Profit Price Variable Costs Volume Fixed Costs -7-
  9. 9. In the short run, price is every companys most powerful profit driver Example Resulting improvement of profit & loss structure operating income* Sales Price = 1, Volume = 100 5% improvement in 13% 100 variable cost ... Variable Price can do more for cost 5% improvement in fixed cost ... your bottom line than 40 cost control alone Fixed cost 5% improvement in 45 volume ... Operating income improvement 33% 15 5% in price ... Little / no upfront investment Quick implementation Rapid profit improvement effectsSource: Simon-Kucher & Partners; * Assuming all other variables are constant -8-
  10. 10. Top 5 reasons for low pricing in media 1. "Our content is a commodity" 2. "The web gives so much price transparency that we cannot charge what we would like to” 3. "Products sold on the web have to be cheap(er)… don’t they?" 4. "If I give away content really cheap I can monetise more eyeballs" 5. "We would like to charge more, but to be honest our competitors are stupid (really?)" -9-
  11. 11. 1 "We are a commodity"… so?Other industries show how a premium can be commanded even through artificialdifferentiation £0.01/litre £0.50/litre £1.55/litre £4.52/litreSource: Simon-Kucher & Partners research - 10 -
  12. 12. 1 Case study: Premium pencils Own Brand 8p Staedtler £1.14 Faber Castell £2.00 "Perfect £38.00 Pencil" 5 design awards Anti-break system Prices 25x own brand Staedtelr / Faber market share c. 45% "In places where labour is expensive, the ideas simply have to be greater."Source: Simon-Kucher & Partners research - 11 -
  13. 13. Top 5 reasons for low pricing in media 1. "Our content is a commodity" 2. "The web gives so much price transparency that we cannot charge what we would like to” 3. "Products sold on the web have to be cheap(er)… don’t they?" 4. "If I give away content really cheap I can monetise more eyeballs" 5. "We would like to charge more, but to be honest our competitors are stupid (really?)" - 12 -
  14. 14. The future of online prices is not about lower prices …. 2 … it’s about more prices! GE microwave oven price: Amazon vs Best Buy Price ($) Best Buy $900 $810 Amazon $745 So what is the price of a microwave? 12am 6am 12pm 6pmSource: Wall Street Journal article 6 September 2012, "Don’t like this price? Wait a minute" - 13 -
  15. 15. 2 Remember: Price transparency ≠ value transparency 1.25L 1L 750ml £1.79 £1.89 £2.65 (£2.39/L) 26% up (£1.89/L) 12% up (£2.12/L)Source: Simon-Kucher & Partners research - 14 -
  16. 16. Top 5 reasons for low pricing in media 1. "Our content is a commodity" 2. "The web gives so much price transparency that we cannot charge what we would like to” 3. "Products sold on the web have to be cheap(er)… don’t they?" 4. "If I give away content really cheap I can monetise more eyeballs" 5. "We would like to charge more, but to be honest our competitors are stupid (really?)" - 15 -
  17. 17. Risk: We offer digital cheaper because we can …3 ….not because we should ! Illustrative Value Cost plus based mentality mentality Profit Profit Profit Profit Cost Cost Cost Print Digital: Cost Plus Digital: Value Minus - 16 -
  18. 18. 3 Problem 1: We have created false hope Simon-Kucher Survey -Newspapers- At a price of £1/day, the value for The main reason is … digital compared to print is… LOWER 56% EQUAL 16% 54% 46% HIGHER 13% "It costs newspapers less to produce digital content. It should therefore be cheaper"I don’t know 15%Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815) - 17 -
  19. 19. 3 But there is good news - perceptions can be changed Simon-Kucher Survey -Newspapers- Argumentation Newspapers have traditionally depended on advertising for 70-80% of their revenue. However, UK newspapers online and print advertising revenues are currently weak (down 21% in 2008). 22% Therefore there is a pressure to develop new revenue streams in order to keep operating, of readers who originally stated thereby ensuring quality and plurality in the news available to you. that it was fair not to pay for News Corporation (e.g. The Times, the Sunday newspaper content online Times and the Sun), started charging online customers for news content across all its websites changed their minds after recording a net loss of £2bn in 2009 amid advertising slump and Internet losses.Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815) - 18 -
  20. 20. 3 Problem 2: We are focused on the wrong segment Simon-Kucher Survey% that find £9.99 pm prohibitively expensive who…. -Newspapers- …do not own a tablet pc / e-book …own a tablet pc / e-book 32% 20%Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815) - 19 -
  21. 21. Top 5 reasons for low pricing in media 1. "Our content is a commodity" 2. "The web gives so much price transparency that we cannot charge what we would like to” 3. "Products sold on the web have to be cheap(er)… don’t they?" 4. "If I give away content really cheap I can monetise more eyeballs" 5. "We would like to charge more, but to be honest our competitors are stupid (really?)" - 20 -
  22. 22. If you believe that…. … more eyeballs means greater monetisation potential (advertising) … …and lower prices means more eyeballs... - 21 -
  23. 23. …then you must believe that demand is elastic… Newspaper cover price and circulation Price 54% Price 43% (000s) £1 (000s) £1 £1 2,500 90p 2,500 Circ. 24% 80p Circ. 21% 2,000 65p 70p 2,000 70p 1,500 1,500 1,000 ELASTIC? 1,000 ELASTIC? Elasticity = 0.4 Elasticity = 0.5 500 500 -24% -21% 0 0 2007 2008 2009 2010 NO 2007 2008 2009 2010 NO Price 43% Price 43% (000s) £1 (000s) £1 2,500 90p 2,500 90p 80p Circ. 19% 80p Circ. 25% 2,000 70p 2,000 70p 1,500 1,500 -25% 1,000 ELASTIC? 1,000 ELASTIC? -19% Elasticity = 0.4 Elasticity = 0.6 500 500 0 0 2007 2008 2009 2010 NO 2007 2008 2009 2010 NOSource: Simon-Kucher & Partners newspaper study, August 2011 (n=815), National readership survey, and The Times research July 2011 Circulation - 22 -
  24. 24. Top 5 reasons for low pricing in media 1. "Our content is a commodity" 2. "The web gives so much price transparency that we cannot charge what we would like to” 3. "Products sold on the web have to be cheap(er)… don’t they?" 4. "If I give away content really cheap I can monetise more eyeballs" 5. "We would like to charge more, but to be honest our competitors are stupid (really?)" - 23 -
  25. 25. Are aggressive competitors a reason for low pricing power? Simon-Kucher Global Pricing Study Reason for low pricing power in media 2011 29% 71% "We operate in a very price-aggressive competitive environment"Source: Simon-Kucher & Partners Global Pricing Study 2011n= 3,904; % respondents who are C-level executives = 31%* High pricing power is the ability of a company to fully/almost get the money it - 24 -
  26. 26. 5 Who is responsible for price wars in digital media? Simon-Kucher Global Pricing Study 2011 Companies in price war Price war was initiated by… "Us – by accident" 8% "Us – on purpose" 9% Without With price wars price 51% wars "the 49% others" 83%Source: Simon-Kucher Global Pricing Study 2011n= 3,904; % respondents who are C-level executives = 31% - 25 -
  27. 27. 5 It is always the others! – Really? Take control 1 Focus on margin over market share 2 Lead the market - 26 -
  28. 28. 5 Volume focus never works: Case study - Telecom incumbentsBoth incumbents were former monopolies and had to face massive and inevitableloss of market share. Where they differ is how they manage the decline Telco incumbent 1 Telco incumbent 2100% 100% ARPU90% 90%80% 80% 20% gap70% 70% Market share60% 60%50% 50% Q4 1998 – Q2 2004 Q4 1998 – Q2 2004ARPU – Average revenue per userSource : Simon-Kucher & Partners projects - 27 -
  29. 29. 5 Lead the market – Airbus A380 example Le Monde, 5th of July 2005Source: Simon-Kucher & Partners research - 28 -
  30. 30. What have we learned? Pricing power means getting the price you deserve for the value you deliver 1. "Even commoditised products can command a premium" 2. "Online pricing is not about lower prices but about more prices!" 3. “Digital should be priced on value, not on marginal cost. It’s time to change readers perceptions” 4. "Lowering price is a very expensive way to attract more eyeballs. Focus on product quality and content before low(er) prices" 5. “It cannot always be the others. Take responsibility to lead the market to better pricing" - 29 -
  31. 31. All this is easy to say… It’s much harder to do…. Costs are a matter of fact – Pricing is a matter of guts! Jack Welch - 30 -

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