Pricing Strategy for www.three.co.uk Essay

Introduction

Hutchison 3G UK Limited (3 Company) is a UK based cell phone company, which concentrates on delivering the internet oriented advantages to cellular communications through which people would be able enjoy Mobile Broadband internet on both laptop and handset and create texts and calls. It offers smart pricing and delivers the target audiences with the broadest preference criteria to connect them with home and abroad through useful, easy, and better-valued approach with an intention of structuring a diversified data transformation network. The company offers components, which are prepared by internet indicating development of internet oriented services into the cell phone. Common delivered items include IM (Instant Messaging), e- mail, social networking, VOIP (Voice over Internet Protocol), location and maps. It also offers “dongles” service through their USB Mobile Broadband modems for building capacity through easy routings for linking the customers to the internet while they are in moving position, for example, 3 Skypephone. According the initial value generation theme, 3 Company incorporated on direct customer involvement and learning by its retail storing and marketing functions. Additionally, one of the other objectives is to assist the controller for realizing the necessary functions for emphasizing the potential growth variables of mobile future as what are the capabilities and lacking of handset internet regarding the projected associated costs. Three.co.uk (2010) reported that this company had already penetrated 91% of the total population locally (UK market) and has a forthcoming vision of capturing 98% of total market share within 2010¹. In accordance with its operational strategy, 3 UK has revealed the opportunity that permits a person with 3 SIM along with a well- suited 3 handset for taking the advantage of endless Skype- to- Skype SMS and calls without any payment. It also possess the largest 3G (3^rd Generation) network within UK by implementing various techniques for estimating its total network size with a potential prediction of obtaining 95% of total domestic population with about 13000 sites among which 9000 sites have already been owned by the company (three.co.uk, 2010, p. 1- 8).

Value based market segmentation

In terms of applying the value based market segmentation strategy, the selected company’s circumstances can be evaluated under the following 6 subsequent phases, as:

Determining the basic segmentation criteria: As there is no single way for making appropriate market segmentation, 3 generally implements some specific segment variables associated by the related combination for developing the desired market structure for the purpose standardized pricing program. Broadly speaking, 3 Company follows the geographic and benefit criteria for segmenting their overall market while any of such criteria are mostly influenced by different pricing contexts and services charges incurred by the company. Demography is another factor, which tends to be considered by any cell phone operator in setting the perceived call rates and other optional packages (Kotler & Armstrong, 2006, P. 195).

Identify discriminating value structure: Several drivers are responsible for creating different values for individual segments being activates among the selected segmentation criteria. Thus, geographic factor incorporates target region, country, and population, which focus basically on the company’s separate national and international pricing structure. On the other hand, demography is initiated by age, income, occupation, and nationality of subscriber while benefits involve quality, service, convenience of the call rates and other charges for internet, voice mail, video mail and message, photo message etc. (Kotler & Armstrong, 2006 P. 196). Thus, the zest statistics of corporate global charges, abroad roaming and other services can be shown as:

• Determining operational constraints and advantages: In both global and local functioning, 3 Company is a subject of some integral competitive advantages and challenges. In stead of facing potential threats from Skype like other operators, it can enjoy leverage from MTR (Mobile Termination Rate) by charging approximately 4.7p or above for per minute call. It is being expected that within this year, the company would be able to complete the consolidated network with T- Mobile with MBNL (Mobile Broadband Network Limited) enabling it to cover 98% of local density over 13000 masts. Introduction of Broadband service in 2007 had been resulted into gaining of 1 million new customers within 1 year while “Ethernet” is another symbol of 3’s sophisticated technology of data transformation between masts and domestic mobile network. It will also permit the projected enhancement of speed at 100 MBPS within 2010 with an extra potential of 1 GBPS along with an association of advanced 3G services. Conversely, relative market regulation from Ofcom seems to create high charge, which restricts the company, is delivering more value to the subscribers. Since the market is posing with a higher chance of fruitful merging, such effort would enhance extra competition and price war by increasing the chance lowering 3’s price below than marginal level (three.co.uk, 2010, p. 1- 5).

Create primary and secondary segments: In the primary segments, 3 Company would consider retail selling to final subscribers while secondary segments would incorporate linking with wholesale mobile voice call termination served to other communications dealers pursuant to situation MA5 from the year 2007. On the other hand, the noted geographic segment can be termed as primary while demographic and benefits segments of this company (three.co.uk P. 1- 4). A part of such pattern of wholesaling can be presented as:

• Create detailed segment description: In this regard, it has promoted the “Bringing about change” strategy through which it promises to deliver actual solutions to their subscriber’s problems challenging everyday. Since 3 is considered as a new comer in Europe, it is lobbying greatly for roaming charges. Because of placing below than Vodafone and T- mobile, it is also targeting subscribers of other networks with internal connection at less revenue, more services. For such procedure, the traveling subscribers of 3 would use its network at lower charges but whey they roam off that and enter into other network, usually a higher rate will be charged (three.co.uk, 2010, p. 1- 10).
• Develop segment metrics and fences: The stream- through impacts from competition based pricing closely associated with Mobile Broadband and a sudden fall in prices over all other industry partners is acting as a favorable impact of 3 on simulated pricing fences (three.co.uk, 2010, p. 1- 7).

Second Assignment

Price structure

A price structure is generally be defined as a series of price levels which represents how a product will be priced. Such levels allow flexible and favorable pricing in relation with the estimated differences in price based on service features, subscriber needs and preferences and consumption behavior (Hanna & Dodge, 1995 p. 9).

As a part of this strategy, 3 Company has introduced the charge free calls in association with Skype while its believes that MTRs are a split- off for outdating required expenses UK landline subscribers at £750m yearly which is over £2m daily. In reducing more costs and illegal MTRs, it is trying to combine the influential power of MoneySupermarket.com, BT, GMB, NUS and so one which is expected to be effective within 2011. In the situation of lower or insignificant termination rates, 3’s pricing structure will also be modified since once the company had adopted an expensive item for capturing the market with a mass-market pricing strategy of £15 for 3GB data (three.co.uk, 2010, p. 1- 5).

However, the seven generic approaches for segmenting market regarding price fences and identification consideration of 3 Company are being elaborated as below:

• Segmentation by buyer identification: Basically, the company has to incorporate on two forms of buyer groups in terms of final subscriber in consumer market located both within and outside of UK and wholesaling market as other telecommunication operators as a part of business market. Today, through Skype, 3 is being able to connect other internet tools and functions regarding Face book, Twitter and other sites to locate potential buyers of their services for a fixed charge (three.co.uk, 2010, p. 1- 6).
• Segmentation by purchase location: It encompasses on core items of geographic segmentation criteria since most of the networking offers are sold through the company directly. It means that, 3 tends to charge heterogeneous prices in EU, other European countries, Australia, Canada, Hong Kong, Singapore, U.S.A and other selected bands of the world (Hutchison 3G UK Limited, 2010 p. 17).
• Segmentation by time or purchase: Here, the company differentiates its price regarding season and celebration since service scenario would be modified from time to time (Kotler & Armstrong, 2006 P. 337).
• Segmentation by purchase quantity: It involves identification of customers in terms of number of services subscribed by them. It would incorporate the subscription of USB devices, modems, e- mail, IM etc. mostly enjoyed by a single one (three.co.uk, 2010, p. 1- 7).
• Segmentation by product bundling: In this issue, the mobile company would prefer to segment the market in terms of bunched order, like- offering a parson with a compatible 3G cell for enjoying the benefits of charge free Skype calls which may not be a 3 phone. That person would also utilize 3 SIM for dialing and receiving free Skype- to- Skype calls and IM option (three.co.uk P. 1- 9). Flexible bundling also involves free voicemail, choosing additional free offers, free alerts for knowing the latest usage information, free IM and 300 free 3 to 3 minutes in UK per month etc. (Hutchison 3G UK Limited, 2002, p. 7).
• Segmentation by tie- ins and metering: It implies an implementation of price segmentation strategy based on forecasting or logical prediction through analyzing the past price performance record of the company (Hanna & Dodge, 1995 P. 10).
• Segmentation by product design: Since the company aims to roll on a competitive and fair pricing strategy which basically inspires it to keep a lower pricing through careful designing of news and info, sport, communication, meet and share, games, TV and entertainment, restricted and music and tunes options (Meyer, 2007) and (Hutchison 3G UK Limited, 2010 p. 15).

Importance of segment pricing

Segment pricing strategy has been proved greatly efficient, especially when 3 sells wide ranges of differentiated online communication options in mobile devices to different customers as that estimation has not been made upon costs. Since the projected segmented divisions are showing various degrees of actual and potential demand, there should be a conscious force of not encroaching total costs over the individual price revenues. Additionally, the price structure can understand the difference between customer divisions allowing for various customer evaluations and projected value perceptions. It will also allow in charging more price for one option for leaving another as full free in terms of competitive offers and subscribers perception in leaving value for that. It also assists the company with a cost effective incentive for people by sharing costs along with an assessment of low pricing strategy. Moreover, it is effective enough in keeping the company highly competitive enough than other players regarding technology, innovation and pricing module (Hanna & Dodge, 1995 p. 9- 11).

Third Assignment

Product importance

In this new edge of globalization, communication is becoming one of the basic needs of people throughout the world. 3 Company is running on the motive of satisfying such need of people in terms of combining online communication services within the handset by meeting the formal purpose of talking over mobile network. Thus, it can be said that the company is concentrating on two conditional bundled services which tend to be equally important to the modern generation regarding their traditional and upgraded communication needs. As mentioned earlier, along with the generalized features of conventional mobile phone services, 3 delivers some extra offers related with electronic media posing high demand potential. For estimating such demand, the company applies their described population coverage maps for investigating the network coverage in criteria affecting the subscribers, like- the living and working place. Moreover, the faster technical expertise per site at 7.2 MBPS and developing uplink and downlink act as High Speed Packet Access can meet the subscriber needs if data throughput. Introduction of LTE (Long Term Evaluation) technology is also altering pattern of cell phone utilization by emphasizing on customer preferences with the most potent demand of accessing high-speed mobile coverage (Hutchison 3G UK Limited, 2010 p. 3- 18).

Demand

Demand acts as the most influential factor for running any cycle of production or servicing. Since the demand for getting a bundle various integrated items including voice and video mail, fax calls, text messages and IM etc. is increasing at a continuous rate, 3 has planned for a structured pricing schedule for delivering different types of offerings to meet such rising demand (Hutchison 3G UK Limited, 2010 p. 7- 8), such as-

Some other demand related factors are:

The market and demand: Whereas costs set the lower limit of prices, the market and demand sets the upper limit. Since 3 is operating in an oligopoly market, the related nature of competition refers it to make an immediate price change as a response of other marketers pricing initiatives (Kotler and Armstrong, 2006 p. 315).

Consumer perceptions of price and value: The Company adopts its overall pricing decisions with a close concern of target audiences by understanding how much value are they willing to pay on the received benefits (Kotler and Armstrong, 2006 p. 316).

Analyzing the price- demand relationship: Measurement of such relationship refers to not consider other factors influencing the projected demand variation, which can be gauged by the demand curve below that depicts the number of units the market will consume in a specific time frame in terms of company’s effort in charging distinguished prices (Kotler and Armstrong, 2006 p. 317), as-

Price elasticity of demand: After understanding the service responsiveness or sensitivity to the change in price, the next question is related with the measurement of that degree of price responsiveness for changing. It is commonly known as price elasticity of demand. The type of communicative and technological offerings served by the company is basically elastic in nature. It means, according to the noted demand curve, a small fall in price from P2 to P1 creates a huge increase in subscription of 3’s telecommunication offers. The opposite position is known as inelastic demand (Kotler and Armstrong, 2006 P. 318). Price elasticity can be expressed by the following equation:

Ed = % Change in quantity demanded / % Change in price

Recession period

The factual analysis of recent economic downturn poses a major impact on most of the industrial growth while the telecommunication sector of UK has been gained a mixed experience from such incident. During the 1^st half of 2008, handset sales have been increased than 2007 and thus benefiting this company. In this regard, some mega industry associates of 3 including Nokia, Samsung and LG have experienced a higher revenue margin while Motorola was an exceptional case for lose shipment ratio of 40% (ITU, 2009). Although such volume of handset sales has enhanced the consumption ratio of 3’s offerings, price structure tends to be lower and lower in order to match featured benefits with public affordability. Thus, the comparison of lower costs and technological sophistication are pressuring the company to adopt aggressive pricing structures for beating this intense competition both in emerged and saturated market segments (Missphones, 2008).

Economic Value Estimation

The EVE is a model or structure that is generally used by a company in order to estimate prices for its offers for gaining maximum price without loosing money (Levy, 2010) as:

EVE = Competitor’s price + Positive discrimination value – Negative discrimination value

As, 3 Company has not yet actively implemented this model, it can do so by following several stages below:

• Understanding customer economies: 3 would realize business structure of subscribers since as the basic value drivers and hypothesis will be developed upon service essence (Levy, 2010, p.1)
• Quantify value drivers: After, 3 would quantify the financial importance of those drivers for testing hypothesis by providing core EVE input (Levy, 2010 p. 1).
• Estimation of differential value: It involves developing algorithms for quantifying value by considering subscriber ability, competitive dynamics, and different functional data (Levy, 2010 p. 1).

Conclusion

Finally, it can be concluded that the selected 3 Cell phone Company operator generally considers many factors in setting a sustainable pricing strategy by delivering differentiated services which are not available for any other networks regarding IM, email, social networking, Skype and maps. By tackling some constraint and challenging issues like- recession and price cut, the company would be more efficient.

References

Hanna, N., & Dodge, H. R., (1995) Pricing- Policies and procedures. 3^rd ed. Macmillan Press Limited.

Hutchison 3G UK Limited (2002) 3G Network Wholesale Voice Pricing. Web.

Hutchison 3G UK Limited (2010) The Real deal: Everything You Need To Know about Our Prices. Web.

ITU (2009) Western European Mobile Phone Market Now in Recession. Web.

Kotler, P., & Armstrong, G., (2006) Principles of Marketing. 11^th ed. Prentice-Hall of India Private Limited.

Levy, J. (2010) Economic Value Estimation: Evolution and Adaptation in Times of Rapid Change. Web.

Meyer, D. (2007) 3 gets rid of roaming charges. Web.

Missphones (2008) The Economic Recession and the Global Mobile Phone Market. Web.

Three.co.uk (2010) Big issues Mobile Termination Rates. Web.

Three.co.uk (2010) 3G Network Skype. Web.

Footnotes

1 – Three.co.uk (2010) 3G Network Skype. Web.