John Linton
Not being a monopoly that can arrange to deliver profitable results by simply increasing prices to deliver whatever result is required with no fear that your customers can get their essential services anywhere else makes pricing of services much more difficult. Being a very small company that has many much more established competitors is almost a worse case scenario - just making enough money to stay in business has defeated almost every start up communications company in Australia over the past 30 years (the length of time I've had some knowledge of the subject).
Exetel has an even more difficult task in terms of pricing than even its lack of size and buying power and the, what appears to be almost capricious, pricing 'initiatives' of some very large competitors. Exetel has an imperative basis for being in business which is to offer the lowest possible prices for a range of services. If our prices of any service are higher, or even the same, as any other reasonably sized comms company then there is no point in Exetel being in the marketplace at all.
This remains a difficult set of circumstances at this stage of Exetel's 'life' which I was reminded of as I re-focus what remains of my mind on what needs to be done in this second month of the new financial year in terms of product, service and price positioning. In such circumstances I guess it's inevitable that I feel some measure of envy of companies like Telstra who can make comments such as the one reported yesterday that "Telstra hasn't changed the prices of [these] services for over two years.
I doubt Exetel goes more than two months without changing prices of product/plan definitions and has been 'forced' to do that since March 1st 2004 (when we introduced the concept of no charge off peak services for ADSL) having set our initial plan and price offerings in mid January 2004 - it has remained the same process ever since - but always with the huge restraint of never setting a recurrent price that is anything but lower than any realistic offer from any realistic competitor while dealing with the problems of always paying more than our larger competitors for the components of the services we offer.
July was an exceptionally good month for Exetel - setting new sign up and revenue records across eight out of ten of our service offerings with an overall result around 50% higher than any previous month in the case of three services. That was a comforting set of days in July as I was away for almost all of the month and only saw the daily summary results from 20,000 kms away with that view often ameliorated via yet another different single malt. However, I was aware that some of the things I had put in place before I left to ensure that I had a 'worry free' holiday would need to be re-considered once I returned to Australia and that is certainly the case.
One of the major difficulties, at least at Exetel's current size, is that if you are going to offer the lower price services than all of your major competitors you are never gong to make very much money and you are going to need to continually operate on the thinnest of margins consistent with staying in business - this means that you are forced to pay a great deal of detailed attention to every nuance, not only of your own business but also of every action of your competitors and every event that occurs in the wider financial environment. This is an exhausting regimen the width and depth of which which you only appreciate in the last few days of your holidays when you actualy feel like you have some semblance of a life again.
That feeling, this time, has lasted less than two weeks and the demands of a strongly growing business in a very competitive environment quickly uses up whatever miniscule 'recovery' three holiday weeks provides. Not that I'm complaining, it is a choice not an imperative for me to work in the ways and number of hours I do in this first five years of creating a start up company (still four and a half months to go), but there is a great temptation to be able to do what Telstra has just done and simply raise the prices of all our services by a dollar or two a month and relax the daily regimen of examining and improving every aspect of everything we do and endlessly discuss pricing with our suppliers.
The necessity for increasing pricing is not reached
lightly, it is reached in Exetel after a lot of procrastination and exhaustive analysis, but the reality seems to be that no matter how hard, and successfully, we work to
get better buy pricing and how many innovations we introduce into our
automation programs our costs do increase. Our personnel costs obviously increase as we employ mor people and pay those people who have been with us more money as their skills and job effectiveness increases. While our payroll is stil very 'small' compared, even of a ratio basis, with any of ur competitors it is still a significant part of our monthly costs. However the major cost remains the inexorable increase in the amount of data a customer downloads each month and, despite massive gains in lower IP charges, the cost of data delivered is still more each month per customer than it was in the previous month.
So it must be a sign of encroaching age that brings with it a lessening desire to work every waking hour that I compromised on pricing ease of life by increasing the 'sign up' prices for many Exetel services while leaving the recurrent pricing the same and so 'kept faith' with all current Exetel service users but added an estimated $120,000 a month of 'profit' to Exetel via charging that amount of 'extra' money to new customers who will take the start up charges in to consideration when deciding on which supplier they will choose.
While that will undoubtedly reduce the number of new sign ups an extra $A1.4 million in annual 'profit' will make life much easier for me, on a daily basis, but will also make life easier for everyone else in Exetel without changing anything for 85,000+ current customers.
Too much of a compromise? Perhaps - perhaps even yes.
However there's always next month to review the decision and change it if necessary.