Our client needed to design a business/marketing plan that maximized the value from a recent investment in wireless spectrum. Some of the decisions they asked us to help make included:
- What services should they offer (subject to FCC restrictions)?
- What customers should they target? Are there sub-segments within this group?
- Should the client simply serve as a capacity reseller or should they offer network services to end users? Additionally, how do the financial returns vary across these options?
- As previous end users received spectrum for free, there were no market prices available so the client needed to know how to set pricing levels in order to maximize returns?
- Were there different elasticities across customer groups and do customers have preferences for particular pricing structures (e.g., flat vs. variable pricing)?
Our objective was to determine relevant customer segments/targets and design a value maximizing marketing strategy. We needed to quantify how much customers would pay and the desirability of each potential pricing option (from a customer perspective.)
We also wanted to develop an in-market testing program which could be used to modify preliminary recommendations.
Finally we wanted to benchmark the viability and financial returns of alternative business models (e.g., network operator vs. capacity reseller).
We utilized primary and secondary research to create a detailed model of the customers’ economics. This provided an essential view of a customer’s ability to pay for services and allowed us to employ scale curves, geographic cost information, and customer survey results to determine how economics varied across customer segments.
We also conducted extensive surveys and interviews with members of key customer segments to determine price elasticities and customer requirements.
Using this data, we built a sophisticated pricing model that evaluated the financial impact of potential pricing plans and structures. The model utilized logistic regression analysis in order to quantify the trade-offs between price and volume and to determine how these trade-offs differ between customer groups. It also allowed us to evaluate the financial returns of each pricing plan for all 722 metropolitan and rural statistical areas in the U.S.
We then used analytic and research results to design a comprehensive set of targeted marketing plans and to structure an in-market testing program.
Dean & Company’s analysis resulted in an optimal “average” price that was almost 3x what the client had planned on charging. The recommended methodology for targeting specific, identifiable customer segments with different plans resulted in financial returns that were 2x what the client had initially modeled (the client had planned to offer a single, flat rate national plan).
We provided the client with a pricing tool which will enable them to adjust pricing levels and plans as initial results become available. The market sizing and opportunity quantification provided client with important leverage for negotiations with key strategic partners.