Disciplined pricing and distribution spearhead marketing and market transformation.
A leading Asian mobile operator suffered an 80 percent drop in average price per minute in 12 months as mobile operators fought aggressively to lure customers away from incumbent carriers and retain their own customers. This hypercompetition can quickly take a toll on revenue The company sought McKinsey’s help in developing a strategy that could stabilize pricing and eventually allow the company to return to revenue growth.
The first step was to conduct a survey to assess customer perceptions, sensitivity, and awareness of pricing dimensions, and complete a distributor diagnostic. We discussed the results with the client and the team embarked on a three-front effort to reverse the negative trends. The team focused on:
- Winning on revenue by moving from uniform pricing to more targeted and calibrated price changes. Specifically, the company introduced pricing differentiated by region and customer segment to reflect variations in market share, assets, and level of competitive intensity. The team developed economic models and segmentation to clarify the path to growth
- Winning on perception with customers by using more innovative promotions and nonprice incentives to create a stronger value-for-money perception
- Winning on the street by enhancing the company’s retail presence, introducing practices to better manage the channel performance, and refining the roles and responsibilities of the internal sales organization
Among the tools created and adopted by the team were economic models that simulate the impact of pricing moves allowing for more informed decisions on tariff changes, and new performance dashboards and monitoring tools for the distribution channel, which created greater performance transparency and helped management to focus on the distribution hotspots.
In combination, the pricing moves and distribution changes reversed the spiral the company had fallen into. Revenue growth was restored within 12 months, reversing a flat or slightly negative revenue trend by swinging to an average revenue increase of 5 percent month-on-month. The company’s position as the leading brand in the country—known for distinctive, competitively-priced, and generous voice-minute bundles—was consolidated. The number of distributors and retailers increased by more than 20 percent within a year. The distributors were given clear performance targets in defined sales territories, with proper rewards and consequence management.
More important, these results provided the cushion and confidence the company needed to invest in future services centered on data, wireless broadband and content, as well as the skills to avoid price wars in the future.