In the digital market, service providers need to adopt new pricing models that go beyond traditional metering and consumption.
July 25, 2017
As service providers continue to explore new ways to generate revenue with third-party partners and OTT providers, they are starting to offer services that go beyond network provisioning to encompass capabilities such as billing and charging, service assurance and customer care. This new wave of service provider offerings can benefit from innovative pricing models that have proven to work in the first generation of digital services.
Service providers can adopt the three pricing models detailed below with confidence that each has been tested in the marketplace and is well-understood by both consumers and business customers.
1. Try Before You Buy
Free 10-day or 30-day trials are table stakes in the digital services world. At the end of the trial period, credit card charging is done automatically to convert the user to a paid subscription. This model is easy to understand, convenient and involves transparent charges for the customer. The try-before-you-buy model reduces risk for customers, allowing them to evaluate services in order to become convinced of their value before being charged. Although a month of use may be free, conversion rates onto the paid service are often high, justifying the service provider's initial investment in the unpaid period.
2. Freemium to Premium
Another model that attracts users is one in which a company slowly transitions its users from a free plan into a payment scheme. This approach begins by offering customers a basic version of a service for free and enabling them to upgrade to a paid, subscription-based offering that includes a wider set of features and benefits.
This model is widely used by services such as Spotify, which seeds its markets with a basic, free or very inexpensive proposition while also offering a richer, more valuable experience for a higher fee. This model’s intent is to attract customers with a low cost, then ultimately encourage users to upgrade to the premium service by demonstrating and communicating its value.
3. Premium Care and Support
The digital market has done service providers a great favor by acclimating users to self-help customer support. Very rarely do digital companies provide the kind of one-on-one support that is commonly found in traditional service providers’ businesses.
Today's digital service providers rarely have contact centers, and instead focus on self-service automation. In some cases, individual support is only provided–if at all–on a paid basis. Curiously, digital leaders have found that many customers are willing to pay a bit extra for personal support.
With their robust customer-facing sales and support channels, service providers have the potential to monetize their support capabilities by charging a small premium. They can offer this approach by leveraging online charging, providing customers with the option to pay a small fee for personal assistance by simply tapping a button. By embracing the digital market’s approach and breaking the traditional telecom expectation that support is free, service providers can move to a new service model in which increasingly personalized care and support services are offered on a for-fee basis only.
The three models outlined above are proven in the digital market, familiar to customers and well-aligned with service providers’ existing systems and capabilities. They provide appealing ways for service providers to adopt proven approaches to pricing as they offer and support new types of digital services.
Be sure to check out Netcracker's e-book, Building a Digital Marketplace of Commercially Ready Services, to learn more about the pricing models.