Defining a pricing elasticity model to improve

current pricing strategy

Point of view
20th May, 2011

For more information, please contact:

Carlos Valdecantos (cva@group-mmc.com)

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 1

Agenda.

Pricing  elas,city  and  expected  effects  in  the  telecom  industry  

mmC  Group’s  approach  and  methodology  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 2

An  rigorous  elas-city  and  pricing  review  exercise  leads  to  the  iden-fica-on  of  value  
growth  opportuni-es  and  new  targeted  pricing  plans.  
UNDERSTANDING  OF  CURRENT  SITUATION  >  AFRICAN  TELECOM  PRICING  ISSUES  

Major  challenges  for   Typical  Issues  

telecom  operators   Possible  solu,ons  

A  
•  Non-­‐ •  Target  segments  not  clearly  defined  and   •  Iden3fica3on  of  key  segments  and  specific  
efficient   communica3on  and  benefits  diffused   value  proposi3on  elements  for  each  
Pricing   •  Price  plans  too  similar  and  do  not   •  Price  plan  porBolio  restructuring  
value   address  specific  segment  needs   •  Drive  price  plans  and  promo3ons  towards  
proposi,on     •  Price  plans  do  not  incen3vize  usage  (for   increasing  share  of  wallet  and  on-­‐net  usage  
double  simmers)   •  Set-­‐up  promo3ons  roadmap  to  drive  
•  Lack  of  explicit  usage  s3mula3on   reten3on  and  usage  
programs  

B  
•  Pricing  wars   •  Pricing  wars  translate  into  ARPM   •  Iden3fica3on  of  elas3city  gaps  to  op3mize  
deteriora-­‐ pressure  across  the  subscriber  base,   pricing  ARPM  re-­‐balancing  towards  op3mal  
,ng  the   leading  to  a  significant  loss  in  segment   pricing  points  per  segment  and  CLTV  
profitability    
market   •  Conduct  innova3ve  pricing  exercises  to  
•  Tariff  decline  leads  to  reduced   heavily  s3mulate  usage  leveraging  excess  
investment  in  telecommunica3ons   capacity  in  network  
infrastructure  and  severe  quality   •  Define  “out-­‐of-­‐the-­‐box”  pricing  approaches  to  
deteriora3on  (due  to  high  network  
combat  value  destruc3on  (e.g.  dynamic  
conges3on)   tariffs,  3ered-­‐pricing,  op3cal  pricing,  etc.)  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 3

Broad-­‐reaching  analysis  of    demand  elas-city  of  products,  prices  and  the  compe--ve  
environment  allows  an  operator  to  define  the  best  adapta-on  of  pricing  strategies.  
UNDERSTANDING  OF  CURRENT  SITUATION  >  QUESTIONS  TO  SOLVE  

Introduc,on   Ques,ons  to  solve  

•  The  current  compe33ve  dynamics  in  the   •  How  do  elas3city  curves  in  the  telecoms  market  
Tanzanian  telecom  market  are  complex,   drive  churn,  new  customer  acquisi3on,  usage  
aggressive  promo3ons,  drivers  of  churn  differ  by   profiles,  increase  in  revenues,  margin  and  EBITDA?  
segment,  downward  spiral  in  pricing,  etc.  
Defining  the  correct  response  requires  a  clear   •  How  are  elas3city  curves  affected  by  the  
interpreta3on  of  the  drivers  and  in  par3cular   incumbent’s  and  compe3tor  pricing  strategies?  
demand  elas3city   •  If  the  operator  raises  prices  closer  to  those  of  the    
•  mmC  has  developed  a  specific  methodology  and   incumbent,  will  churn  increase?  In  which  
tools    to  allow  telecom  operators  to  understand   segments?  
the  complex  demand  elas3city  variables  in  their  
•  How  will  price  elas3city  impact  operator’s  churn  
markets  and  to  define  appropriate  pricing  
rates  if  it  adopts  a  “price  killer”  posi3oning?  
strategies  
•  mmC’s  methodology  is  based  on  the  rela3on   •  How  can  an  operator  improve  EBITDA  by  
between  price,  traffic  paSerns,  churn,  service   decreasing  prices?  In  which  segments?  
adop3on  and  customer  profitability   •  How  much  can  an  operator  raise  prices  in  which  
•  mmC  has  develop  a  tool  based  on  pricing   segments  without  losing  in  EBITDA  terms?  
paSerns,  pricing  bundles  and  services,  allowing  to   •  Are  other  operators  affected  by  the  same  price  
handle  expected  increment  of  revenues,  churn   elas3city  curves?  
and  EBITDA.  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 4

Operators  aim  to  set  the  op-mum  pricing  level  for  each  bundle/product  whilst  
controlling  poten-al  churn  and  customer  acquisi-on  impacts…    
UNDERSTANDING  OF  CURRENT  SITUATION  >  ELASTICITY  DEFINITION   CONCEPTUAL

Price  Elas,city  defini,on   Applicability  to  prepaid  tariffs  and  products  

ARPU   Elas,city  =1     The  op,mal  price  level  for  a  MOU  is  found  where  the  marginal  
cost  is  equal  to  the  marginal  revenues  –  the  price  point  where  
Op,mum  price  level   an  addi,onal  minute  does  not  generate  any  addi,onal  marginal  
profit  and  does  not  improve  any  cri,cal  KPI  

$/min  
Marginal  cost   Cri,cal  KPIS  
varia,on  

CHURN  (%)   MOU  (%)  

Op,mal  price   Y  %     B  %    
P0  
Marginal   B4%  
revenues  

∆  increase  
Risk:  too  aggressive   Risk:  too  high   B3%  

discounts  generate   prices  increase   Traffic   B2%  

massive  profit   churn  and  cause   B1%  

erosion   value  loss   Profit   A1%   A2%   A3%   A4%  

A  %     X  %     ∆  increase  
Price  1   Price  2  
Elas,city  <1     Elas,city  >  1     Price  increase  

Where’s  the  op,mum  

Price  level   inflec,on  point?  
Demand  elas,city  measures  the  rela,on  of  price  and  demand   P0   $/min  
for  a  certain  tariff  /  product,  looking  for  an  op,mal  price  level    

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 5

 …addressing  total  revenue  growth  poten-al  derived  from  alterna-ve  pricing  strategies  
across  segment,  product  and  tariff  offerings.  
UNDERSTANDING  OF  CURRENT  SITUATION  >  ELASTICITY  FRAMEWORK   NOT EXHAUSTIVE

Impact  of  demand  elas,city  on  total  revenue   Methodology  

•  Poten3al  drivers  of  improved  

Micro   Call  length   X   #  of  calls   revenue  are  determined    
level   •  Impacts  at  the  micro  level  on  
VOICE

subscriber  behavior  are  analyzed,  

i.e.  impact  on    ARPU  of  exis3ng  
ARPM   X   MoU   subscribers  either  by  inducing  
longer  calls,  more  numerous  calls,  
DATA

or  changing  the  mix  of  calls  

towards  more  expensive  ,  off-­‐net,  
Market   X  
des3na3ons  
Users   ARPU  
level   •  The  impacts  of  pricing  strategies  
adopted  by  the  operator  at  the  
market  level  are  analyzed  and  
Market   poten3al  compe3tor  reac3ons  
Market   X   X   ARPU  
Share   are  studied  
•  Scenarios  are  developed  to  
analyze  the  impact  of  alterna3ve  
pricing  strategies  and  market  
Total  revenue   reac3ons  on  operator’s  revenues  
by  segment  and  total  revenues  
Note:  Market  level:  Model  the  rela/onship  between  demand  and  prices  for  the  market  as  a  whole  over  a  period  of  /me;  Micro  level:  Response  of  individual  customer  segments  to  a  given  price  
change  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 6

Elas-city  es-mates  are  an  important  part  of  the  marke-ng  toolkit.  While  es-ma-ng  
elas-city  is  difficult,  it  is  worthwhile.  
UNDERSTANDING  OF  CURRENT  SITUATION  >  ELASTICITY  QUESTIONS  

•  Consumer  behavior  in   •  For  consumers  the   •  Sejng  prices     •  Elas,city  may  be  in  
1   2   3   4  
mobile  telephony  is   overall  bill  is  more   according  to  elas,city   conflict  with  other  
complicated   important  than   can  increase  revenues   objec,ves  
individual  prices   without  an  overall  
increase  in  prices  

•  Customers  understand   •  Customer  may  see   •  Increase  prices  for  the   •  The  most  inelas3c  
the  value  of  calls  (A   value  on  a  individual   most  inelas3c  customers   customers  tend  to  be  the  
repeat  purchase)   decision  basis:  “Is  this   and  services   most  valuable  (e.g.  
call  worth  more  to  me   business  users)  
•  However  customers   •  LiSle  impact  on  volume  
than  its  cost?”  (VALUE   so  that  the  price   •  Inelas3c  customers  may  
awareness  of  the  price  
-­‐  SERVICE  ELASTICITY)   increase  flows  through   be  less  valuable  (e.g.  low  
of  calls  is  limited  
•  …or  on  an  aggregate   to  revenues   spending  residen3al  
•  Tariff  plans  hide  the  
basis:  “Is  my  current   users)  
price  of  an  individual   •  Reduce  prices  for  the  
usage  worth  more  to   most  elas3c  customers   •  There  may  be  a  desire  to  
call  Feedback  on  the  
me  than  my  monthly   and  services   raise  prices  to  increase  
cost  is  delayed  
bill?”  (BUDGET  –   profitability  
•  For  innova3ve  services   AGGREGATED   •  The  effect  of  price  
both  the  pricing  and   ELASTICITY)   reduc3ons  is  offset  by   •  Price  reduc3ons  can  spark  
the  value  of  the   increases  in  volume   a  price  war  Price  
service  may  be   increases  can  lead  to  
•  “Ramsey  pricing”  states  
unclear.   increased  churn  if  not  
what  the  theore3cally  
matched  by  compe3tors  
op3mal  pricing  is  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 7

Agenda.

Pricing  elas,city  and  expected  effects  in  the  telecom  industry  

mmC  Group’s  approach  and  methodology  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 8

A  pragma-c,  results-­‐driven  approach  is  suggested  to  achieve  short-­‐term  results  as  well  
as  define  long-­‐term  pricing  strategies  
UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  

APPROACH  &  METHODOLOGY  

Pricing  plans  
evalua3on  tool   Pricing  plans  elas3city,  compe33veness  
mapping  and  gap/opportuni3es  analysis   Offering  design  
development   alterna3ves   Pricing  strategy  and  
Alterna3ves   offering  design  
iden3fica3on  &   selec3on  
Compe3tor s  pricing  strategy   Mobile  clients  percep3on   defini3on  for  2011  
evalua3on  
evalua3on     &  needs  analysis  

•  Elas3city  model  design   •  Traffic  paSern  analysis  per   •  Develop  a  gap/opportuni3es   •  Pricing  offering  elements  defini3on  
•  Pricing  plans  simula3on  tool   segment  /  tariff  pan   analysis  iden3fying    the  main   (pricing  structures,  tariffs,  modules…)  for  
programming/modeling/design  for:   •  Compe33ve  pricing  plans   poten3al  pricing  strategy  and   voice  and  data  services  
Main  ac3vi3es  

-­‐  operator’s  pricing  plans  in  the   analysis  and  mapping  for   offering  alterna3ves  (for  current   •  Launch  plan  defini3on  
different  regions   different  usage  paSerns   and  new  customers,  and  for  voice   •  Hand  over  of  tools  designed  for  poten3al  
-­‐  Compe3tor s  pricing  plans   •  Revenues/margins  sources   and  data  services)   implementa3on  at  an  OSS  level  
•  Compe3tor´s  expected  pricing   analysis  for  the  different  clients/ •  High-­‐level  recommenda3ons  for  
strategy  analysis   usage  profiles   •  Economic  &  commercial  impact   streamlining  pricing  related  processes  
•  Support  to  operator’s  pricing  team   •  Clients  pricing  percep3on/ evalua3on  of  alterna3ves  and  
in  training,  coaching  on  analysis  and   needs  (for  operator  and   final  recommenda3on  
pricing  tools   compe3tors)  market  research  
analysis  
1   2   3   4  
•  Pricing  elas3city  modeling,   •  Op3mal  pricing  analysis   •  Pricing  strategy  and  offering  development  defini3on  including:   •  Implementa3on  /  
including:   (either  internal  and  vs.   -­‐  Pricing  opportuni3es  &  gaps  for  operator  in  voice  and  data   ac3on    plan  
-­‐  Elas3city  opportuni3es   compe3tors)   -­‐  Pricing  strategy  and  offering  alterna3ves  iden3fica3on  and   -­‐  Roadmap  of  
Deliverables  

-­‐  Elas3city  Risks   -­‐  Current  price  plans   evalua3on   product  launch  
-­‐  KPIs  evalua3on   -­‐  Planned  prepaid   •  Detailed  pricing  offering  elements  (in  voice  and  data  services)   -­‐  Migra3on  plan  
•  Pricing  plans  simula3on  tool   offer  to  be  launched   to  develop  in  2011  for  both,  current  and  new  clients,  including:  
including:   •  Gaps  and  opportuni3es   -­‐  Economic  and  commercial  impact  analysis  and  
-­‐  operator s  pricing  plans   in  the  short-­‐term   quan3fica3on  
simula3on   -­‐  Tac3cal  structures   -­‐  Offering  structure  -­‐    first  level  defini3on  
-­‐  Compe3tors  plans  simula3on   -­‐  Price  levels   -­‐  Tariffs  range  levels  analysis  
-­‐  Compe33ve  mapping  simula3on  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 9

The  ini-al  step  consists  in  a  deep  assessment  of  operator’s  current  pricing  situa-on  and  
it’s  posi-oning  in  the  na-onal  market  
UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  

1A   Pricing  plans  evalua3on  tool  development  

MAIN  RESULTS   SAMPLE  OUTPUT  

ILLUSTRATIVE  
•  Assessment  of  market  pricing   Pricing  elas3city  plan  evalua3on  –  premium   Analy3cal  insights  and  
trends  and  operator’s  current   and  discount  analyses   understanding  
posi3oning  
Prepaid  segment:  Best  plan  map  and  premium  vs.  cheapest   •  Our  structural  prepaid  porBolio  has  
•  Elas3city  model  structure   (promo3onal  plans  included)   several  plans,  with  no  clear  
defini3on  and  valida3on   MoU  
differen3a3on  
400   –  There  is  a  clear  overlap  among  
•  Pricing  elas3city  modeling  per   >  50%  
Discount >80%
Discount >80% various  plans  

Client’s  discount  
segment,  tariff  plan  and  product  
>  50%  
35%   to  50%  
Discount from 50% to 80%
•  2  entrant  is  cheaper  structurally,  
nd

cheapest  
Discount from 50% to 80%

20%   to  35%  
Discount from 20% to 50%
with  significant  discounts  across  most  

vs.  
•  Review  of  current  library  of   300   Discount from 20% to 50%

10%   to  20%   profiles.  Elas3city  applies.    

35%  to  50%   Discount from 10% to 20%

pricing  structures  and  elas3city  

Discount from 10% to 20%

5%  Discount
to  10%  from 5% to 10%
20%  to  35%  
Discount from 5% to 10% •  3rd  entrant  is  aggressively  targe3ng  
gaps  iden3fica3on   10%  to  20%  
200  
0%  Discount
to  5%   from 0% to 5%
Discount from 0% to 5% high  value  clients  with  promo3onal  
5%  to  10%  
plans  
35%  to  50%  

Increase of price from 0% to 5%

•  Assessment  of  pricing  offer  trends  

10%  to  20%  

0%  to  5%   0%  Increase

to  5%   of price from 0% to 5%
5%  to  10%  

Client's  premium  
Increase of price from 5% to 10%
•  We  maintain  a  premium  of  ~20-­‐30%  
in  the  market     5%  Increase
to  10%  of price from 5% to 10%

cheapest  
Increase of price from 10% to 20%

100   10%   to  20%  

Increase of price from 10% to 20% –  Promo3onal  plans  reduces  it  to  

vs.    
•  Compe33ve  landscape  analysis  
Increase of price from 20% to 50%
10%  to  20%  
20%   to  35%  
Increase of price from 20% to 50% almost  0%  for  the  average  client  
Increase of price from 50% to 80%

and  mapping  of  current  pricing   35%   to  50%  

Increase of price from 50% to 80% profile  (90-­‐180  MoU)  
Increase of price is higher than 80%

offer   0   >  50%  

Increase of price is higher than 80%
–  On  higher  profiles  premiums  reach  
0%   25%   50%   75%   100%   50%+  
%  Peak  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 10

Detailed  modeling  of  price  elas-city  and  traffic  paRerns  allows  the  iden-fica-on  of  
pricing  gaps  and  opportuni-es  within  operator’s  current  product/service  porSolio.  
UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  

1B   Pricing  elas3city  modeling  

MAIN  RESULTS   SAMPLE  OUTPUT  

Discount >80%

Discount from 50% to 80%

ILLUSTRATIVE  
Pricing  plan  1  -­‐    Traffic  elas3city  
Discount from 20% to 50%

•  Assessment  of  elas3city   Discount from 10% to 20%

1   High  post-­‐paid  
opportuni3es  in  current   analysis  -­‐  postpaid   Discount from 5% to 10%

customer  base  &  traffic   400+  

Discount from 0% to 5%

paSerns     0%  Increase
to  5%   of price from 0% to 5% Indicators   Points  of  aSen3on  

Es3mated  Traffic  
5%  Increase
to  10%  of price from 5% to 10%
•  27%  of  customers     •  4/5  of  overall  

increase  
•  Iden3fica3on  of  main   10%   to  20%  
Increase of price from 10% to 20%

•  80%  of  revenues   total  postpaid  

20%   to  35%  
Increase of price from 20% to 50%

traffic  KPIs  and  correla3on   35%   to  50%  

Increase of price from 50% to 80% •  Bill:  >  12USD  
revenues  
with  price  increase  per   •  Uses  phone  
>  50%  
Increase of price is higher than 80%
•  MOU  plan1:  723   mostly  in  peak  
segment,  product  and   1   min.   hours,  but  also  
%  MOU    

tariff  plan   -­‐  %  On-­‐net:   has  off-­‐peak  

37.19%   usage  
•  Understanding  of   -­‐  %  Off-­‐net:  25%   •  Highest  mobile-­‐
customers’  pricing   160  
-­‐  %  M-­‐F:  38%   mobile  caller  
requirements  as  per  traffic   •  %  Peak:  58%   •  High  on-­‐net  
paSerns   •  Highest  off-­‐
•  %  Other  plan:  20%  
net  
3   2  
•  Pricing  gaps  and  
opportuni3es  iden3fica3on   0  
0%   %  Peak   66%   100%  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 11

In  the  second  step,  an  op-mal  pricing  exercise  is  conducted  to  manage  revenues/clients  
“at  risk”  and  iden-fy  op-mal  price  points  per  bundle/product  and  migra-on  strategies..  
UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  

2A   Op3mal  pricing  analysis  and  migra3on  risk  

MAIN  RESULTS   SAMPLE  OUTPUT  

ILLUSTRATIVE  
•  Traffic  segmenta3on  per   Op3mal  price  points  analysis  –  Poten3al   Analy3cal  insights  and  
pricing  plan  and   migra3on  rate  and  revenues  at  risk   understanding  
consump3on  analysis   %  Prepaid  subs.  de-­‐posi3oned:  Poten3al  migra3on  analysis   •  Most  of  our  cri3cal  prepaid  customer  
•  Pricing  re-­‐segmenta3on  of   37,825  sub   14,322  sub   6,975  sub   2,284  sub   2,588  sub   12,007  sub   5,484  sub   segments  are  not  under  their  op3mal  
pricing  plan  with  a  total  average  
the  base  and  op3mal   deposi3oning  rate  of  over  60%.  
pricing  points  alloca3on   •  Significant  risk  of  churn  to  either  a  less  
profitable  pricing  plan  or  to  a  compe3tor’s  
•  Op3mal  price  posi3oning   plan  
measured  and  migra3on  /   •  Key  issue  within  exis3ng  plans  is  not  only  
the  risk  of  increased  churn,  but  also  clear  
churn  rates  es3ma3on   misplacement  of  customers  against  
Op3mal   Internal  de-­‐ Churn  risk  to   exis3ng  pricing  plans.  
•  Revenue  loss  and   posi3oned   posi3on   compe3tors  
•  Furthermore,    most  customers  (86.5%  
cannibaliza3on  rate   Migra3on  risk  analysis  –  Revenues  and  %  of  revenues  at  risk)   across  microsegments)  do  not  use  their  
measured   bundles  completely  on  a  monthly  basis.  
•  A  total  amount  of  >33MM  is  “at  risk”  
•  Elas3city  re-­‐evalua3on   unless  suggested  op3mal  price  points  are  
implemented  and  pricing  realloca3on  
•  Scenario  analysis   takes  place.  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 12

…  and  op-mal  price  points,  pricing  gaps  and  the  tac-cal  pricing  strategies  are  detailed    
to  turn-­‐around  the  current  situa-on  
UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  

2B   Pricing  plans  compe33veness  mapping  and  gap/opportuni3es  analysis  

MAIN  RESULTS   SAMPLE  OUTPUT  

ILLUSTRATIVE  
•  Compe33ve  pricing  plan   Prepaid  offer  gaps   Analy3cal  insights  and  
analysis  (operator’s  vs.   understanding  
compe3tors)  based  on  
Average  postpaid  premium  per  brand  (Premium  through  MoU)   1  •  Specific  innova3ve  offer  and  value  
elas3city  and  risk  assessed   2nd  entrant  is  the  cheapest   proposi3on  for  high  users  where  3rd  
Premium  vs.  our  
posi3oning   entrant  is  specially  targe3ng  its  efforts  
•  Pricing  gaps  per  segment/ 3rd  entrant  is  the  cheapest  
and  our  premiums  are  above  50%  
1  
bundle/product  and   3  
migra3on  strategies  in  the   2  •  Offer  elements  to  manage  price  
premiums  across  usage  profiles  against  
short-­‐term   2   compe3tor's  offers  avoiding  direct  
•  Tac3cal  structures  and   comparison  and  premium  erosion  
Plan  a  (ours)   Plan  b  (3rd  entrant)   MoU  
op3mal  price  levels   3  •  Pricing  offer  /  elements  to  reduce  and  
iden3fied  and  revised   Client’s  pricing  porBolio  –  line  graphs  (bill  vs.  MoU)  
fine-­‐tune  high  price  percep3on  (whilst  
maintaining  a  real  premium  vs.  
•  First  recommenda3ons  on   Bill  size   compe3tors)  
pricing  improvement  (tariff  
4  •  Bundle  minutes  structure  review  to  build  
structure,  tariff  points,   clear  targeted  bundles  and  facilitate  
etc.)     4   clients  decision  
MoU  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 13

  The  third  step  consists  in  “building”  the  detailed  pricing  offer,  defining  a  tailored  offer  
for  each  of  the  target  segments  and  bundles/products  
 UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  
3   Pricing  offering  design  alterna3ves  iden3fica3on  &  evalua3on  
PRICING  DESIGN  
PILARS   RATIONALE   SAMPLE  OUTPUT   ILLUSTRATIVE  
Pricing  offer  structure  design  per   Pricing  offer  structure  
•  Deliver  to  the  customer  a   segment  /  brand   defini,on  

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A  
consistent  value  proposi3on    
COMPATIBLE  WITH   Postpaid offer discussion Current offer Pricing strategy
Proposal study results ( Acquisition market )
discussed

compa3ble  with  operator’s  

Previously proposed and agreed with BU
Postpaid current offer Postpaid offer shortlist elements summary (to be tested)

VALUE   The new pricing strategy defined for the high prepaid sub-segment The new pricing offer will focus on three main structural blocks on

strategic  posi3oning   leverages simplicity and add-ons customization which we’ll deploy add-ons to increase customer attractiveness

PROPOSITION   Plan Structure – High prepaid

Type Add-on Oper. (1/2) Oper. (3) Oper. (5) Oper. (6) Oper. (7) Oper. (8) Ope. (9) New
brand-wide
Comments

•  We have very different

Pricing offer detail
MOU
+

plan structures for

Peak/off- Structured offer
Minutos 50, each of the brands
peak Minutos 40, 100, 150, 200,
Plano 240, Minutos 20,
55, 65, 150,
500 300, 500, 600, profesional –  Number of bundles, Add-ons
Minutos 50, Minutos 40,

25,40,55,80,150, 250,
On-net/ 220, 400 -
1000 size and pricing vary

350, 450, 550, 700

55, 100, 150, 55, 65, 150, 80, 150,
-
Off-net %
Low/mid users High users

+
300, 600 e 900 220, 400 200, 400 significantly Peak

Minutos
•  Ensure  that  market  and  own  
CUG or Youth2 •  The previously
F&F 5 proposed pricing
Bundle A Monthly bundles (minutes) 1

B  
Shared plans have a very
minutes 120, 360, simple structure STRUCTURAL /
600
–  Same structures BASIC OFFER Head line tariff Digressive
e 2 3

value  is  kept,  without  entering  

Carry-over 151, 60 900 nationally Daily bundle (minutes)
–  Carry-over is present
Single Minutos 50,
–  Reduced number of
tariffs
100, 150, 300,
4 5
500, 650, 1100 bundles, with a
B CUG bundle F&F bundle

AVOID  
CUG or different entry size
F&F Familia 100, depending on the ADD-ONS (OFFER On-net/to fixed minutes 6

in  to  head-­‐on  confronta3on  

Family Familia 120, 360,
150, 300, 600
bundle Shared e 900
600, 900 region ATTRACTIVENES
minutes –  Add-ons S INCREASE) Weekends 7
Advanced •  The new Family

COMPARABILITY  
Different add ons
price (off-peak, on-net, On-net (off-peak?)
structures
Bolt-on
SMS, etc)
bundle, just launched, 8
has the same minutes C

against  brands  nor  compe3tors  

On-net/ Personal included of the new
Básico Personal
Off-net Perso portfolio to be ADD-ONS 9
Classical
Peak/ Econ.,
nal
released (PRICE Daily bundle (minutes (to fixed, to mobile, to one number, SMS))
Nocturno Básico Básico
off-peak Básico PERCEPTION)
Note: (1) Entry bundle minutes varying among brands;
(1) Additionally, a to mobile add-on will be evaluated as a potential tactic launch to face all mobile pricing type of approach from competitors

20110119_AFRICA_PRICING-STRATEGY-2011+_v5.pptx 18 23

•  Capability  to  have  addi3onal   Pricing  module  tariff  detail   Churn  analysis  derived  
C   and  market  comparison   from  new  pricing  uptakes  

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components  added-­‐on  to  
FLEXIBILITY   answer  specific  segment  needs   Pricing strategy study results ( Acquisition market ) Under optimal or optimal plan
Over optimal plan
Postpaid offer shortlist elements summary (to be tested) Retention plan

and  compe3tor  moves   Target segment: Mid/High users (from 50 to 300 MoU)
Value proposition: The more minutes you buy, the less you pay.
After assessing the new plan positioning of the client base, the
impact in churn levels will be low.

Pricing offer detail – Mid / high users offer Pricing offer detail – Churn map by MOU and type of pricing plan (Current client base)
VC1 MOU profile Sob
OFFER DESCRIPTION MARKET PRICES (Best Vivo Plan) 15 30 (Jovem) 50 55 100 150 300 600 900 Other Medida Total

•  Increment  current  pricing  

Incumbent 50,
Bill (R$) 100, 150 and
MoU VC1 60 min. 120 min. 180 min. 240 min.
0-25 min 24% 32,2% 40,3% 32,1%
300 300 (Plan 15)

B   Bundle 250
New plan 25-125 min

posi3oning  whilst  maintaining  

price 70 100 120 150 24,5% 26% 46,7%
(currency) 200 (Plan 55) 25,7%

Overage 150

SUSTAIN  REAL  
125-250 min
minutes 0,79 0,69 0,59 0,49 3rd entrant plan 50 (Plan 150) 26,4% 24,3% 52,4% 26,2%
100

customers value  
(Currency
2nd entrant 50, 70, and plan B
min.)
90. 140 and 200
50 250-450 min
32% 24% 65,6% 29,1%

PREMIUM  BUT  
(Plan 300)
•  Main competitors: 3rd entrant (Plan 50 and Plan B) 0
and 2nd entrant (Plan A, B, C, D and E)

120

160

200

240

280

320

360

400
0

40

80
450-725 min
•  Easy for the customer to understand the (Plan 600) 42,4% 29,3% 64% 37,2%
MoU
value proposition

LOWER  PERCEIVED  
Pros Targeted profile
•  Can be used as a base tariff for add-ons
>725 min
•  Similar to current plans •  The average premium of the new plan between 50 (Plan 900) 73,7% 55,7% 26,5% 69,3%
•  Easily comparable MoU and 300 MoU is ~20%
Cons
•  For higher users the premium is over 25% 28,7%

24 26

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 14

In  the  final  step,  a  detailed  ac-on  plan  will  be  defined  to  implement  the  new  pricing  
strategies,  covering  concrete  and  pragma-c  ac-ons  per  segment.  
 UNDERSTANDING  OF  CURRENT  SITUATION  >  MMC  GROUP’S  METHODOLOGY  
4   Integrated  pricing  strategy  guidelines  and  implementa3on  plan  

PREPAID   POSTPAID  
ILLUSTRATIVE  
Price  premiums   •  Defini3on  of  guidelines  to  manage   •  Iden3fica3on  and  defini3on  of    elements  to  
SEGMENT  1  

management   price  premiums  and  the  offer  elements   develop  the  bundle  offer  taking  in  to  
Bundle  offer  
(structural  offer  and/or   needed   account  the  sustainability,  economic  impact  
sophis3ca3on  
promo3ons/   and  poten3al  compe3tors  reac3on  
recharges)  
Recharge  values/
SEG.  2  

•  Defini3on  of  guidelines  for  recharge   •  Module  and  elements  design  to  allow  
promo3ons  and   Value  proposi3on  for  
values,  promo3onal  offers  and  validity   develop  specific  value  proposi3on  for  high  
validity   high  value  clients  
value  clients    

Value  proposi3on  for   •  Defini3on  of  new  modules  and  elements  

SEG.  3  

(aligned  value  proposi3on)  for  high  value   •  Design  of  specific  elements  to  build  defend  
high  value  clients   Reten3on  oriented  
clients     current  customer  base  (taking  in  to  account  
offer  elements   tenure  and  value)  
•  Defini3on  of  specific  value  proposi3ons  on  
Modules  to  target  
pricing,  leveraging  innova3ve  price  offer  
specific  profiles   •  Iden3fica3on  of  specific  elements  to  fine-­‐
elements,  to  target  key  market  segments   Current  clients  base  
(youth/massive)  
…  

price  premium   tune  current  customers  premiums  when  

management   needed  
•  Defini3on  of  specific  elements  to  
Consump3on  reward   reward  subscribers  based  on  
consump3on   •  Combined  offer  elements  defini3on  in  
Data  /  voice  mixed   order  to  avoid  comparability  and  
•  Design  of  combined  offer  elements  in   pricing  offer  elements   complete  the  value  proposi3on  to  the  
Data  /  voice  mixed   clients  
order  to  avoid  comparability  and  
pricing  offer  elements   complete  the  value  prop.  to  clients  

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 15

mmC  Group’s  real  experience  in  pricing  related  projects  can  be  easily  validated  through  
reading  any  of  our  publica-ons  published  in  our  corporate  blog.  
APPENDIX  2  >  PRICING  PUBLICATIONS  

Consultant  Value  Added   Pricing  essays  and  publica,ons  of  reference  

•  March  3,  2011  Mul3-­‐SIM  usage  in  telecom  –  Threats  and  challenges  for  mobile  operators      
•  July  2,  2010  Value  based  segmenta3on,  or  how  to  get  boSom-­‐line  results.      
•  March  2,  2010  Reflec3ons  on  on-­‐net  /  off-­‐net  differen3al  in  developing  markets      
•  September  19,  2009  Will  dynamic  discount  tariffs  succeed  in  Africa?      
•  September  12,  2009  How  can  operators  win  the  interna3onal  roaming  baSle?    
•  July  1,  2009  Mul3ple  SIM  ownership  in  emerging  and  mature  markets    
•  June  21,  2009  Cri3cal  success  factors  of  a  money-­‐transfer  service  in  telecom    
•  Consultant  Value   •  June  10,  2009  Pricing  op3miza3on  in  Africa:  the  challenge!    
Added  is  mmC  Group’s   •  May  13,  2009  What  are  operators  doing  with  their  excess  of  capacity?    
corporate  blog   •  February  2,  2009  ARPU  s3mula3on  in  3mes  of  crisis    
•  November  14,  2008  Preparing  for  a  slump  in  earnings.  What  are  operators  doing?    
•  Founded  in  2008,  it’s  
•  September  5,  2008  Double  simmers  in  your  opera3on?  Welcome  on  board.      
currently  a  leading  
•  August  11,  2008  Key  ques3ons  in  market  share  revamping    
blog  in  the  telecom  
•  July  2,  2008  Seeing  ARPU  decrease  in  your  market?  Stay  calm…    
category  in  Emerging  
•  June  19,  2008  There  is  always  a  right  price.    
markets  
•  June  16,  2008  Convergent  pricing  in  triple-­‐play  operators      

mmC GROUP Strategy Consultants – Telecom Pricing Strategy– May2011 Page 16

mmC GROUP Strategy Consultants
Joaquín Turina 2, Office 1-2-1
Pozuelo de Alarcón
28224 Madrid, Spain

T +34 91 1298100
F +34 91 7141888
www.group-mmc.com
www.consultantvalueadded.com