The document discusses the application of behavioral economics and pricing analytics in the telecom industry to enhance pricing performance and customer insights. It emphasizes understanding customer behavior, segment analysis, and the impact of pricing strategies on perceptions and willingness to pay. Several case studies, frameworks, and examples illustrate how effective pricing mechanisms can drive profitability and customer retention.

1. ANALYTICS
Unlocking Customer Behavior Insights
To Boost Pricing Performance
Sagy Gulianka
March 13, 2012
© 2012 – PROPRIETARY AND CONFIDENTIAL INFORMATION OF CVIDYA

2. Topics
Marketing and pricing framework
Pricing analytics and examples of analysis results
Introduction to behavioral economics
iPAD case study
2

3. Pricing Framework
3

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
Context
4

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
analysis
5

6. Pricing Analytics
6

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 analysis
7

8. How Many Different Structures Can Be
Built With Six Lego Bricks
There are 915 million ways
to combine six LEGO bricks
8

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 mixed
9

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) High
10

11. Examples Of Analytics Results (1)
Usage profiles by pricing plans ARPU distribution by service
11

12. Examples Of Analytics Results (2)
Original New Simulation
12

13. Examples Of Analytics Results (3)
ARPU change by Service Dilution analysis by original pricing plan
13

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 pay
14

15. Behavioral Economics
15

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 product
16

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. 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 losses
18 Attaching a small spend to a larger spend

19. Use Of Loss Aversion To Increase Credit Card
Spend
Money is credited
19 Bitter Wallet blog - By Paul Smith

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 owned
20 McKinsey Quarterly: 2/2010

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 better
21

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 Payoff
22 David A. Levine

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 cents
23

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 decisions
24

25. Behavioral Biases
Case Study - iPAD
25

26. Framing Effect Experiment
Scenario 1
 Option A saves 200 people's 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 strategy
26

27. The Message Has A Major Influence On The
Perceived Value
27

28. KISS
In many cases:
28
Too many choices = No selection

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
$ $ $ $ $
chocolates
29 Dan Ariely - Predicting Irrationality

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. 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. 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. 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 compare
33

34. Summary
Solid Pricing Framework
Accurate, fast Understand Simple
and rich and measure effective
analytics values and message, influe
perceptions ntial methods
34

35. cVidya Pricing Analytics
Solutions
35

36. About cVidya
A global leader and innovative provider of Revenue Intelligence
solutions 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 vendors
36

37. OfferImpact™
A comprehensive and accurate analytics
solution that supports on time pricing
decisions based on advanced modeling &
methodologies
37

38. OfferAdvisor™
A comprehensive, robust and accurate
“Next Best Offer” solution providing
personalized, value-driven pricing plan
recommendations to achieve retention
and revenue targets
38

39. Contacts
 Sagy Gulianka
Pricing Expert
sagy.gulianka@cvidya.com
 Amit Sheps
Pricing Analytics Products Manager
amit.sheps@cvidya.com
39

40. THANK YOU!
www.cvidya.com