Sunday, August 17. 2008Pricing Services Is Never An Easy Thing To DoJohn 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 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. Trackbacks
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So it sounds like you're planning average increases to sign up fees of about $40 or so? Personally I don't think a price increase will throttle your growth rate much - if at all. People are still stampeding into ADSL almost regardless of set up costs.
Also, if I understand correctly, Exetel are enjoying a 20% month-on-month growth rate in new subscribers? If that continues then the extra $120,000 this month will be $144,000 next month, and $172,800 the month after, and so on. Projecting forward, over 12 months you'd have an extra $4.7M, not $1.4M Comments (2)
We are assuming that the set up fee increase will slow down the current growth rate.
Comments (8)
A quick scan through this list:
http://bc.whirlpool.net.au/bc/?action=list indicates that Exetel already has some of the cheapest set up costs around. Take Telstra BigPond for example (since they're the biggest)... $99 for a new sign up to their ADSL2+ service on a 12 month contract if you BYO modem. Compare that to Exetel's $40 for the equivalent. You could double your prices and still be good value to a new customer. Comments (2)
Very true - but bear in mind the restriction of remaining the lowest cost over a six month contract and then ongoing.
At some stage the activation cost will have to rise to that sort of level. Comments (8)
Will long contracts with a waived setup fee work?
Comment (1)
I don't think long contracts are in anyone;s interests - things change so much.
It's something that many company's do but I've never seen the point. Comments (8)
As an agent I'm not fond of price rises of course, but will live with them.
You're probably already aware of this: contracted NextG users can as of August use their phone as a modem and for $10 get 150MB and $30 get 300MB, with no contract or signup cost. This is great for those with no choice other than dialup. For some future mum and dad and low-end users, this might be a new type of competition. On the other hand, your HSPA ideas will help cancel that out in more populated areas when they come to life. Cheers, Mike Comment (1)
Hopefully the HSPA offerings will become a reality before the end of September.
What is really necessary if for HSPA/LTE to move well above the current actually achievable speeds for the service to become more widely useful and, as always, some lower pricing for the amount of downloads. Both these things are happening here and in the EU and there is little reason to doubt that they will continue to occur. Comments (8)
Have you increased the sign-up fees yet?
I was going to sign my parents up shortly... should I get in soon? Comments (2)
They were increased last week.
If you email me their number when you sign them up I'll get the increase amount waived. Comments (8)
is the increase effective from connection date or application date? I just got connected and there does appear to be a variation between what I signed up for and what I got on connection, to be fair it did take over a month from the date of the original application and had to resubmit the application four times due to some Telstra stuff ups that were out of Exetel's control
Comments (2)
The fe that applies is the one when you signed up - any subsequent change (up or down) does not affect your transaction.
Comments (8)
Ok thanks
Comments (2)
John,
You're always very quick to get stuck into "Crazy Kevin" and "Stupid Steven" as you so affectionately call them. Why no criticism of Howard and Costello for not breaking up the Telstra monopoly when they had the chance? (i.e. the final sale of Telstra.) Arguably they are directly responsible for the situation you describe above. Regards, Ian Comments (2)
I've always been a major critic of the way the 'sale' of Telstra was cnstructed - that was a long time ago and i've never changed my view that the Coalition screwed it up.
However - the Labor party made a great deal of fuss along the same lines from the 'safety' of opposition. Now they're in government but I see no immediate agenda to actually do what they urged so vehemently in opposition. As with the GST (remember how their posturing about Labor not ever introducing GST which got Keating a go at PM?)- one stance while in opposition,a completely different stance in Government. They are, and remain a bunch of intellectually inferior, hypocritical losers with ABSOLUTELY no ideas on what to do except sound bite posturing. Comments (8)
By that do you mean the Labor gov't should be breaking up Telstra? Surely that would be extremely difficult now that they are no longer a majority shareholder? Not to mention our imported Telstra execs with their imported litigation-happy mentality.
Comments (2)
The reality is that governments can do whatever they decide is in the best interests of the country they govern.
The current government, or any subsequent government can 'nationalise' Telstra or do anything else they deem to be in the electorate's interests. There is no such thing as a private company's interests over riding a government's view of the national interest. Comments (8)
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