Unlocking Customer Behavior Insights To Boost Pricing Performance - cVidya Webinar


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The success of a new pricing campaign relies on the balance of many factors, some are measurable and some seem to depend mostly on creativity and talent
The challenge is to bring the science much closer to the “artistic” part
In this webinar the participants will learn about:

Behavior Pricing analytics framework, profitability modeling, simulations and forecasting
Needs Determining pricing structures based on segments/micro segments needs
Perceptions Value based pricing strategy in practice
Influential Behavioral economics real life examples – providing additional science into pricing structures & campaign messages

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Unlocking Customer Behavior Insights To Boost Pricing Performance - cVidya Webinar

  1. 1. ANALYTICS Unlocking Customer Behavior Insights To Boost Pricing Performance Sagy Gulianka March 13, 2012© 2012 – PROPRIETARY AND CONFIDENTIAL INFORMATION OF CVIDYA
  2. 2. Topics Marketing and pricing framework Pricing analytics and examples of analysis results Introduction to behavioral economics iPAD case study2
  3. 3. Pricing Framework3
  4. 4. Marketing Framework In Telecom Customers Behaviour and past Needs Perceptions selections Collect Customers Market Customer info Information Interactions Researches & XDRs Behavioural structured pricing Internal marketing Ideas for Income, profitability, Analysis/ new products Segmentation CLV deliverables Relative Value, Pricing points, Effective message Pricing Analysis/ Pricing structures willingness to pay, financial impact deliverables price perception Retention Acquisition Communication Cross and Up sell Context4
  5. 5. Pricing Framework In Telecom Filters Work plan Ideas Implementation generation Launch Primary 2nd 3rd Reject options  Test market  Fine tune  Approve price plan  Compose Based on inputs not consistent acceptance of pricing plans using quantitative and simple, scope all options with: remaining and pricing qualitative info creative, available in  Strategy options level through Communicate effective Objectives pricing  Assess sensitivity  preferred options to message  Technical competitive analysis IT and technical  Economics reaction  Determine groups and adapt financial where necessary impact  Internal brain-  Internal  One to one  Business plan  Financial analysis as  Behavioural storming decision interviews part of decision economics  Financial methods  Int’l best practises making, unit  Focus groups analysis  Cross-functional meeting Tools  Quantitative  Forecasting co-ordination  Initial financial research meeting tests  Competitive price positioning analysis5
  6. 6. Pricing Analytics6
  7. 7. Pricing Analytics Tradeoffs Accuracy Support complexity of pricing plans and market XDR analysis Time to Market Better Pricing Decisions Speed of analysis Richness of results, detailed per segment analysis7
  8. 8. How Many Different Structures Can Be Built With Six Lego Bricks There are 915 million ways to combine six LEGO bricks8
  9. 9. Accurately Calculating The Financial Impact Of New/Refreshed Pricing Plans Is A Challenge Allowances Multiple Prepaid, Base plans, allowances, Service Roaming add-ons, priority & bundles pospaid, zones promotions Value Volume rankings hybrid Monthly fee, Bespoke Best plan, Acount, discounts, Usage rates offers optima subscribers Roll overs rebates levels Daily/ Off-peak, Connection Per second weekly Friends & Tier, step weekend fee, Data & billing, 12, The most offers family calls rates discounts minimum content 60 price Almost unlimited number of potential pricing mixed9
  10. 10. Bundle The Right Pricing Structures And Values For Each Segment High “Take advantage” – Price increase 1. Out of bundle billing increment 1 2 3 “Calculated risk” – price differentiation Low awareness 2. Monthly fee (Segment A) High awareness 3. Data bundle size Revenue “Collect pennies” – price increase 6 4. MMS 5 7 5. Handset insurance 4 “Strategic move” – Price decrease High price perception 6. Monthly fee (Segment B) 7. Roaming Risk (measured by price Low sensitivity and churn risk) High10
  11. 11. Examples Of Analytics Results (1) Usage profiles by pricing plans ARPU distribution by service11
  12. 12. Examples Of Analytics Results (2) Original New Simulation12
  13. 13. Examples Of Analytics Results (3) ARPU change by Service Dilution analysis by original pricing plan13
  14. 14. Adding Value Is Hard, Capturing Value Is Art Sometimes the value is easy to measure (e.g. cost savings), but difficult to capture due to perceptions and tendencies Marketers Consumers Add value Perceived value Communicate value Message reception Influence the Price perception willingness to pay14
  15. 15. Behavioral Economics15
  16. 16. Behavioral Economics  Behavioral economics use social, cognitive and emotional factors to understand the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market prices, returns and resource allocation  Behavioral economics brings the science much closer to the “artistic” part of commercials  The message influences the product16
  17. 17. Daniel Kahneman 9th October 2002 Daniel Kahneman testified that he never took a course in economy. He is notable for his work on decision- making and behavioral economics. With Amos Tversky and others, Kahneman established a cognitive basis for common human errors and developed prospect theory . He was awarded the 2002 Nobel Memorial Prize in Economics for his work in prospect theory.17
  18. 18. Prospect Theory Pleasure Diminishing marginal pleasure (and pain) Loss - Gain The reference The pain of loss is point can change greater than the rapidly pleasure of gain Pain A person found a $100 but lost it after a minute. Is he the same? Loss aversion, postponing losses18 Attaching a small spend to a larger spend
  19. 19. Use Of Loss Aversion To Increase Credit Card Spend Money is credited19 Bitter Wallet blog - By Paul Smith
  20. 20. Use Of Loss Aversion For Retention  An Italian telecom company managed to increase the acceptance rate of an offer made to customers when they called to cancel their service  Originally, a script informed them that they would receive 100 free calls if they kept their plan  The script was reworded to read - “We have already credited your account with 100 calls — how could you use those?”  Many customers did not want to give up free talk time they felt they already owned20 McKinsey Quarterly: 2/2010
  21. 21. An Experiment That Assisted To Identify Loss Aversion Imagine you are facing the following decisions Decision A: 1. Earn $1,000 2. Take a 25% chance to earn $10,000 and 75% chance of earning nothing Decision B: 1. Loss of $5,000 2. Take a 75% chance of losing $10,000 and a 25% chance of losing nothing Most people choose options 1 and 4 although options 2 and 3 are statistically better21
  22. 22. This Version Of The Loss Aversion Experiment Was Really Astonishing In her January 26 2006 column in the New York Times column, Virginia Postrel presented an intriguing discussion of a paper written by Shane Frederick, professor of Management Science at MIT He asked people (mostly students) to select one of the following: 1. Win $500 2. Take a 15% chance at winning 1 million dollars Why So Many People Are Unwilling To Wait For or Gamble on a Bigger Payoff22 David A. Levine
  23. 23. CRT - "Cognitive Reflection Test" Shane Frederick developed a test to determine how rational people are. This is one of 3 questions in this test: A bat and a ball cost $1.10. The bat costs $1.00 more than the ball. HOW MUCH DOES THE BALL COST Answer: 5 cents23
  24. 24. The Results Of The Experiment  High CRT – answered all the questions correctly  Low CRT - answered none of the questions correctly Group Win $500 15% chance of winning 1 million dollars High CRT men Low CRT men High CRT women Low CRT Women Less impulsive people (when answering questions) tend to bet more on the bigger prize People that are good with numbers tend to make more profitable decisions24
  25. 25. Behavioral Biases Case Study - iPAD25
  26. 26. Framing Effect Experiment Scenario 1  Option A saves 200 peoples lives  Option B has a 33% chance of saving all 600 people and a 66% possibility of saving no one Scenario 2  If option C is taken, then 400 people die  If option D is taken, then there is a 33% chance that no one will die and a 66% probability that all 600 will die  Scenario 1 = Scenario 2  Different phrasing impacted participants responses to a question about a disease prevention strategy26
  27. 27. The Message Has A Major Influence On The Perceived Value27
  28. 28. KISS In many cases:28 Too many choices = No selection
  29. 29. Anchoring Effect  Customers have no Idea how much they are willing to pay  Initial prices can be almost random, but once anchored, they will influence similar product prices  An anchor might seem to be totally irrelevant  The following examples demonstrate the correlation between writing the last 2 digits of the credit card and the willingness to pay People with higher People with 2 digits are willing lower 2 digits to pay more… Last 2 digits of – – – – – Correlation SSN Cordless $ $ $ $ $ Keyboard Neuhaus $ $ $ $ $ chocolates29 Dan Ariely - Predicting Irrationality
  30. 30. Compromise Effect A Economy C B Quality Adding Option A will increase the selection of option C that becomes the compromise point More people prefer the middle option C. Simonson and Tversky (1992)30
  31. 31. iPAD Presentation  What is the right price for a new product?  Can consumers say how much a product is worth to them?  How do we influence the price perception?31
  32. 32. iPAD Pricing Points  Which module would/did you choose?  What is the leading selling model? Apple sales figures on launch day in London: 16 GB 32GB 64GB WIFI 6% 17% 3% WIFI + 3G 18% 33% 23%32
  33. 33. iPAD Launch - Behavioral Economic in Use  Initial Anchor = $999, everything below that is not expensive  Lower pricing point = $499, Effective for price perception. The message is: “…starting at $499…”  Compromise effect in action. The sweet point is 32MB  Simple message, few options, easy to understand, easy to compare33
  34. 34. Summary Solid Pricing Framework Accurate, fast Understand Simple and rich and measure effective analytics values and message, influe perceptions ntial methods34
  35. 35. cVidya Pricing Analytics Solutions35
  36. 36. About cVidyaA global leader and innovative provider of Revenue Intelligencesolutions for Telecom, Media and Entertainment service providers  150 customers  #1 Revenue Management Global Market 20 out of the 30 largest operators Provider by Gartner (April 2011)  300 employees  TM Forum Leadership  Global presence in 20 locations  Partnership with the world leading vendors36
  37. 37. OfferImpact™ A comprehensive and accurate analytics solution that supports on time pricing decisions based on advanced modeling & methodologies37
  38. 38. OfferAdvisor™ A comprehensive, robust and accurate “Next Best Offer” solution providing personalized, value-driven pricing plan recommendations to achieve retention and revenue targets38
  39. 39. Contacts  Sagy Gulianka Pricing Expert sagy.gulianka@cvidya.com  Amit Sheps Pricing Analytics Products Manager amit.sheps@cvidya.com39
  40. 40. THANK YOU!www.cvidya.com