Industry Blog

The New Consumer Economy – A Move Towards the Macro Trend of Service-based Pricing Models

In the “good old days”, consumer behavior was predictable and at least somewhat consistent. We were offered packaged deals, in-store-only purchases, annual subscriptions, and other means of obtaining items and things that “locked us in”. Consumers were willing to make a significant commitment and accept that they might not always use the goods to the extent they anticipated. Today, however, they want more control over what they buy. Consumers want the option to purchase only what they need and even then, to pay only for what they use. They expect vendors to offer goods and services in bite-sized portions, and in terms they can easily understand.

At Openwave Mobility, we call this “The New Consumer Economy”.  Today, consumers have begun their transition toward a macro trend of usage-based, application-based and service-based purchases. Increasingly, they are now able to buy things in bits and pieces of what they need rather than the whole.

Take the iTunes model, for example. People used to have to go to record stores and purchase entire CDs and albums if they wanted music, even if only for a handful of songs on the record. Now, these same people are able to purchase individual songs – only the songs they want – from an entire album. Zipcar is another perfect example of purchases made in the New Consumer Economy. It doesn’t make sense to purchase a vehicle when all someone needs it for is to lug groceries from the supermarket twice a week. Even renting a car for a day doesn’t make sense for this task since all they need it is for a couple of hours. Zipcar empowers those who need vehicles by the hour and not only that, consumers are able to choose the type of car they’d like and even the car’s accessories such as a GPS or DVD system. Moreover, in many cities such as London, we see endless racks of rental bikes – no need to buy and maintain your own bicycle, just insert your card, use for an hour or two, and return it. Easy!

Markets in the New Consumer Economy break purchases down into more granular, easily quantifiable choices so that people understand their purchases and pay for, and get, only the things they want.

More and more companies are successfully adopting this usage-based pricing model, and it’s no wonder mobile operators are starting to get in on the game. Usage-, application- and service-based pricing enables mobile operators to offer personalized plans to subscribers rather than encouraging them to add another “bucket” of incomprehensible megabytes or gigabytes to their plans that they wouldn’t know what to do with. This innovative mobile data charging model gives mobile operators the data and insights to engage with subscribers in real-time and offer services that they know the subscriber would be interested in purchasing whether it’s, for example, a Roaming Pass for a day, Premium Video access for the week, or Tethering for the month. At the same time, subscribers can buy and use data packages with confidence as they’re in more control of the types of services they purchase.

When data-enabled smartphones first hit the market, they came with payment options based on monthly data usage. Some plans offered up to 5GB of data use per month for a flat fee. The trouble is that consumers know they’re paying a monthly fee for 5GB of data, but don’t understand exactly what that means. Most consumers aren’t able to discern how many MBs or GBs are in an app download, or how many MBs or GBs it “costs” to visit a mobile website. They don’t know how many Facebook updates they can put up, how many Tweets they can post, or how many YouTube videos they can watch. Bits and bytes just don’t translate well into consumer behavior metrics.

Because of this, some carriers are beginning to develop sophisticated data product offerings and to promote them in simple language to target subscriber segments. These can be either offered as tailored price-plans or one-off customer promotions. These plans represent the wireless industry’s foray into the New Consumer Economy. Carriers are now opting for usage-based charging to help quantify bundles of bits and bytes in terms comprehensible to consumers.

One real example is a FaceTime data package for iPhone users. On top of their monthly data plan, consumers can pay a monthly fee linked to their FaceTime usage to ensure FaceTime video calls do not represent constant data overages. Rather than pay for 1GB of FaceTime per month, a user can instead pay for five hours or ten hours per month. It’s much easier to understand how many hours one has used against a limit, rather than how many MBs has gone by. At the same time, mobile operators are offering personalized services to their subscribers, helping to enhance customer experience and secure new revenues. For example, if analytics indicate that a particular subscriber is an avid FaceTime user, the mobile operator can take this actionable intelligence and pro-actively offer the subscriber a monthly, unlimited FaceTime data package.

Another example of usage-based pricing is that of streaming videos-as-a-service plans. It’s quite easy to lose track of how much data has been used if someone is streaming mobile content. Does anyone really know how many bits and bytes are in a full-length, streaming movie? How about the difference in data between standard-definition and high-definition movies? No. That’s why before they know it, they may have unknowingly gone past their data limits and have already incurred tons of overage charges. Now, mobile operators have the capabilities to identify subscribers who regularly watch videos on their mobile devices and offer them the option of purchasing plans that includes a timed video allowance. This empowers them to know exactly how much streaming video they can consume – five hours, 10 hours, 20 hours per month – and if a user is coming up on their allotted time allowance, they have the option to top it off. Bye bye, bill shock.

The New Consumer Economy is helping ease the transition from bits and bytes to hours and minutes – something that consumers have an easier grasp on. As operators work to provide more granular offerings, consumers and providers alike will benefit from the increased transparency. Soon, there will be 15 hours per month of website browsing plans, rather than 200MB of Internet data per month plans. Consumers will actually be able to understand what they’re paying for and not be surprised when they get their monthly wireless bill. Granular, understandable pricing plans will be a boon to the wireless industry. The New Consumer Economy is here to stay and consumers and the industry alike will benefit greatly.

This blog was published by CCA Voice on Sept 17 Click Here