The reason for 2Degrees can be aggressive (or as their competitors would call them irrational) is they are trying to move up the ARPU curve (Average Revenue Per User) by attracting higher value customers. I suspect that their current ARPU is slightly lower than $49 therefore any customers they bring on will have an ARPU of at least $49 (plus add ons such as roaming) and therefore will improve total company ARPU. The business case will be driven from acquiring high value customers from Spark and Vodafone and to a lesser extent the migration of their high value pre pay customers to on account. As an offset to this upside they will face a number of their super high value on account customers trading down to the new plan.
Vodafone were very quick with a response to their base to ensure that they managed potential churn. As per the image above they DM’ed (directly marketed to or contacted) their base with a retention offer. The offer was a $10 or 14% discount on their existing in market plan and had a strong call to action with its short expiry (a week). Vodafone then followed this up by increasing the data limit to 4.5gb to all $69 plan customers thereby giving some space between the 2Degrees plan and their plan and allowing them to hold a price premium.
I was a perfect candidate for the new 2Degrees plan as I was on a 300min and 1.25gb and was always running out of minutes or data and then would have to ration myself near the end of the month. Therefore I could move from 300 to unlimited minutes and double my data for $10 a month albeit I would need to change providers. I was in stage 3 moving to stage 4 of the purchasing process (alternative evaluation moving to purchase decision) with 2Degrees, however I then received the offer from Vodafone. Once I received the offer from Vodafone I worked through the value equation (Value = benefits – costs) and decided to stay with Vodafone.
Benefits: Moving from 300mins to unlimited and two times data (2Degrees) or the same voice and text and three times the data (Vodafone)
Costs: An additional $10 per month and the (perceived) hassle of changing providers vs. $20 extra per month
As a side note to the story I was recently talking to some industry insiders, and they said the original move by 2Degrees and subsequent market reaction was an $85m reduction in the size of the market. Clearly bad for the shareholders great for the consumer
Key Takeaways:
- When faced with a direct competitive threat you do not necessarily need to respond with an aggressive above the line response the first action should be identifying the risk and then ‘suring’ up your existing customer base.
- When you are working through an offer to your customer base or potential customers remember the value equation that customers will work through Value= Benefits – Costs, the key is that all of these elements have a monetary and non-monetary component to them
- As always irrational pricing to one party is very rational market aggressive pricing to the other.
*Note: I do not know Sparks below the line response as I am not a customer but I assume that it was similar.
KS.
