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Differential pricing next?

  • Posted by Tony Poulos
  • September 30, 2013 3:44 PM BST
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There are already thousands of ways to price and charge for digital services but how long before we have to get down to pricing for demographic groups and even individuals.

We are all aware that the digital revolution is disrupting every industry but it is also creating new possibilities and changing the way business is done. The challenges of providing new services and working with new partners are putting strain on all departments, none less than billing and revenue management.

It’s not just the range and number of new products and services that are being launched, it’s also the significant shift in the way many of these are being charged for.

Whilst the telecoms industry may have been fixated on complex tariffs for calls and data, content providers have opted for a simpler pricing catalogue model that should have made things easier, but not necessarily.

Credit and debit card issuers continue to work on percentage of transaction pricing models, but negotiate different rates with different merchants. Financial institutions like banks tend to charge fees for differing types of transactions like transfers, drafts, etc. These fees differ dramatically depending on the account or customer type and whether they fall into high value premium category with high deposit ratios or lower value types charged for each transaction.

Energy utilities have their own set of requirements that can vary price for services by time of day, demand and even supply costing.

Even moves by some players in the digital services space for a simple subscription-pricing model need to be carefully managed. Here there is a need to account for exceptional usage by a small percentage of customers that can skew profitability dramatically.

Vendors in the charging systems space are finding the length and breadth of requirements continuously growing. Even companies like SunTec that have grown up in both the telecoms and financial worlds will tell you that requirements are expanding dramatically as service providers venture into cross-selling of products.

Content and app store operators like Apple and Google Android are under pressure to price their products fairly across international boundaries and not just apply an exchange rate to a catalogue that starts out in US dollars. The concept of differential pricing, where goods are priced according to a market’s ability to pay, adds another dimension to the pricing stakes.

This is based on the concept of ‘ability to pay’ – an item of US$1 may be out of reach for a mass market in Asia for example, but pricing at a lower rate especially for that market may be a requirement in future. This would also require the system to manage the supply side as well.

Content owners may well be asked to calculate differential supply pricing for each individual market. Can you imagine the settlement issues that could occur if the business systems were not up to the task?

We may be obsessed with charging in real-time just now but it won’t be long before some form of ‘differential pricing’ will be demanded that will allow pricing variations down to customer level to occur in an instant. How many will be ready for that?