Pricing for profit: strategies for low-ARPU subscribers in India

HYDERABAD, INDIA: Intense competition and subscriber growth potential have resulted in sharp tariff decline in Indian mobile industry in the recent few months.

According to a new report from Ovum, the global analyst and consulting company, Indian operators can mitigate pressures to engage in price wars and grow profitably by adopting appropriate pricing strategies. The report titled “Pricing strategies for low-ARPU subscribers in India” analyzes operators’ current pricing strategies and outlines more profitable approaches.

”Aggressive pricing initiated by one operator is usually followed by the rest. Recent examples of this dynamic are per-second and per-call billing. Tata was first to introduce these options, and other operators promptly responded by launching more aggressive similar plans.” said Amit Gupta, Principal Analyst, based in India.

“Unwise and reactionary price cuts have a direct impact on profit margins. Recent price cuts have been too steep to be compensated by top-line growth. But due to intense competition, once prices are reduced it is difficult to roll them back.” explains Mr. Gupta, author of this research.

New entrants are adopting more aggressive pricing strategies to get a foothold in the market. Larger incumbents are not only responding by launching similar offerings, they are also better positioned to absorb a reduction in profitability.

“As market growth starts to slow in the medium term, the combined effect of slow growth, declining ARPU and margins will become unsustainable for the smaller and weaker players. Larger incumbents will still be viable due to better economies of scale. We expect smaller players to lead the wave of consolidation in the market that will ensue.” adds Amit Gupta.

While many of the current pricing options offered by Indian operators are of questionable viability, a few are apt for low-ARPU customers. Such offerings include time-based static tariff discounting, discounted pricing for on-net calls, lifetime validity prepaid plans, low-denomination recharge, discounted pricing for rural cooperatives and handset micro-financing.

“However, Indian operators can benefit from exploring many other profitable pricing strategies successfully implemented in developed and other emerging markets” said Gupta.

He adds: “We believe that Indian operators should apply best practices from other markets and industries. Dynamic traffic based tariff discounting, segmentation and value-based differentiation, advertising-based pricing models, subsidized and sponsored connections, and ‘collect call’ pricing are some of the powerful options to pricing for profit while growing market share.”