By David Werdiger

Telstra’s managing director for innovation, Kate McKenzie, recently made some important statements about possible changes to pricing policy for data at Telstra. With the top one percent of users guzzling over 25% of data traffic, something is clearly wrong.

Such a system is inequitable, and surely must mean that the majority of customers cross-subsidising the power users. What is her solution? Smart pricing.

There are many examples of how “dumb” pricing often propagates through the supply chain. Take pay TV, for example. Foxtel offers a number of channel packages, always at a fixed cost per month for unlimited access. Is this customer-friendly? There is certainly a category of customers who rarely watch a particular channel, but might do so occasionally. In those instances, rather than subscribing to the channel, they may only want to watch a movie for two hours once in a few months. But Foxtel does not offer such a product. They don’t even offer something in between – say a lower monthly fee that offers limited access to a channel with a variable cost per hour watched – that would be suitable for low usage customers.

Why is this so? Two reasons: firstly, they probably don’t have the ability to charge or bill in this way. Secondly, it’s because they have simply passed through the pricing model from up the supply chain. The studios and content aggregators also want to keep things simple, so they price access “per subscriber, per month”. And so it goes all the way up the supply chain. What holds things back is (a) an inability to measure usage in a way that facilitates other forms of pricing and (b) a lack of desire to take any pricing risk or innovate in pricing. Instead, it’s just “back to back” all the way to Hollywood.

Now, in the content business, with high gross margins, this is less of an issue. There is enough there for everyone. In addition, high usage on the part of some categories of customer has no impact on other customers. Certainly, there are missed opportunities in the retail market, but obviously they don’t care enough about it to make serious changes to pricing.

Not so in the data business, where the carriers need to keep investing more and more in infrastructure as usage skyrockets, and where there are sophisticated traffic monitoring and shaping systems in place that don’t constrain smart metering and therefore pricing. Here is where a “user pays” regime as suggested can lead to greater equity in the market, and give infrastructure owners a better and more certain return on their investment.

Of course, pricing structure moves through the supply chain whether it’s “dumb” pricing or “smart” pricing. The implications for companies who sit between the infrastructure and the end-customer is that they must be ready to cope with all the things that come with smart pricing: drastic increases in the number of usage records, and the requirement to bill these up the supply chain.

As usual, a good billing system is essential.

If you would like any information on how Billing Bureau can help your business, please contact us now.

By David Werdiger

The subscription economy is all the rage at the moment, and we’re getting very excited talking to our customers about it.

“The what economy?” you ask.

Of course the first thing you will do when seeing a new term like that is Google it, and expect to see an informative Wikipedia entry at the top. But as of the time this article was written (early 2013), there was none. In fact, all you will find is evangelism and whitepapers about the topic from billing companies like ours.

The subscription economy is a term used to describe a new way of buying things – often things that in the past were sold in a more traditional way. One of the great examples of this – razor blades – is now coming to Australia, and is a great way to understand what it is, and more importantly its potential impact.

For an industry hardly known for disruptive innovation, this is a something special. A service called Dollar Shave Club will, for a small monthly charge, deliver a fresh razor to you every month. For a regular customer, this is a compelling proposition: you know that you need to replace your razor regularly anyway, so for less than you usually spend, you get them delivered to your door!

What really intrigues me about this is when we turn around and look at how this simple change has impacted the traditional marketing processes associated with FMCG (fast moving consumer goods).

Here is what usually happens:
•    Customer goes to the retail outlet, and purchases razor blades for the first time.
•    At some time in the future, the razor in possession stops being useful but the customer still needs it (i.e. has not chosen to grow a beard or switch to electric shaver), so the customer chooses to make a repeat purchase.
•    Customer goes to the retail outlet, and based on their previous experience and what is on offer, makes a repeat purchase.

The subscription economy turns this process upside down, and particularly has a huge benefit to the incumbent supplier.

Firstly, the timing of the repeat purchase is now in the hands of the supplier, not the customer. Some customers might find a razor lasts them 6 weeks. But if a new razor shows up after just a month, they’re not going to horde – they will throw out the one they are currently using.

Secondly, the repeat purchase is taken out of the customer’s hands because it happens automatically. They don’t have to actively choose to either buy the same brand again or select a new brand that might offer them a promotion – another one shows up on the doorstep for them to use. The default action has changed from “beard keeps growing until customer buys a replacement razor” to “customer keeps buying until he tells us to stop” which is exactly what the vendor wants.

The subscription economy vendor has taken choice and control away from the customer, and has also put themselves at an advantage with respect to their competitors. Because the customer has made a one-off subscription purchase, they don’t make repeat purchases, so they don’t even consider alternative razors. They just walk straight past that section in the supermarket thinking “there’s one less thing I have to bother buying – wouldn’t it be great if I could purchase more things this way”. There is much more effort required on the part of competitors to convince the customer to “churn” – to switch their regular supplier. Indeed, if the competitor is not also a subscription economy vendor, they also need to convince the customer that this wonderful new service isn’t the best thing for them after all.

This significant power shift is cleverly couched as an advantage for the buyer – the subscription vendor is “looking after them” by making sure they always have a fresh new razor when they need it, and saving them the time and effort of repurchase.

One of the biggest impacts of the subscription economy is not on customers, but on changes in marketing vendors must adopt to combat the implicit power shifts between customers and vendors.

And this is only the beginning.

By David Werdiger

Bill shock is quite simply the shock when you receive a bill. It’s a term that has become more commonly used in the telecommunications industry. It derives from the notion of “sticker shock” – when you go into a shop and see something you like, you develop in your mind a sense of what that product might be worth. Then, when you see the price sticker, you may get a shock if this is very different to what you expect.

Post-paid telecommunications services are essentially a line of credit. Service providers give their customers rope, and every month work out how much rope they have used, and send them a bill for the usage. It’s largely the same with utilities like water, electricity and gas. Until you receive the bill, you may have no idea how much you actually used, and therefore when you receive the bill there is potential for some nasty surprises. In addition, because you receive the bill some time after usage finishes (say, several days after a monthly billing period completes), you may lose a sense of what you did during that month to suddenly run up such a huge bill. It’s not as if you’re at a supermarket with a trolley full of goods, and you can look at it and say – “this is around $150 worth”. The time gap between being invoiced and using the service is a big contributor to sticker shock.

Bill shock is not a good thing, for a couple of reasons. Firstly, it does not manage customer expectations well. It’s very important to give the customer at least as much as what they expect to be getting. It doesn’t matter if they expect a lot or a little, only that the service provider deliver as much or more than they are expecting. When you expect a bill of $50 and get a bill of $100, then immediately the customer is not happy, and becomes suspicious of the service offering. Secondly, when faced with bill shock like this, there is a risk that the customer will dispute the bill, and may not pay it. Both of these are a customer service nightmare, with both the cost in dealing with the issue, and the potential to lose revenue.

So, what can be done about it?

Well, in a post-paid billing environment, the key is:
(a) for the service provider themselves to monitor and find out in advance if the customer’s bill may exceed what they expect to pay.
(b) to communicate this proactively to the customer.

Once you do (a), then (b) is relatively easy. Part (a) depends on the timing of the service provider’s wholesale charges. If they come in daily and are processed daily, you can accrue the amount of unbilled against each customer, and use analytics to determine whether there is a spike in usage or if it will exceed what the customer expects to pay. This information can feed into exception reporting, which can in turn result in either an e-mail, letter or phone call to the customer advising of what will happen. That is managing customer expectations well.

To implement this, the service provider will need to work with their wholesale suppliers (to ensure the charge usage records come in a timely fashion), and their billing system or billing provider. This may not be simple to implement (if it was, everyone will have done it), and as at the time of writing there has been resistance on the part of the industry to comply.

However, it is a case of an ounce of prevention being better than a pound of cure.

It’s logical right? The country’s leading payment and billing process outsourcer working with Australia’s leading tailored debtor finance specialist, to ensure you get paid faster.

Part of the Bendigo and Adelaide Bank Group, Oxford Funding’s debtor finance enables growing businesses to access their cash otherwise tied up in unpaid sales invoices.

What could your business achieve if up to 80% of all outstanding invoices were paid into your bank account in 24 hours, without the need for real estate security?

If your business sells to other businesses on credit terms, debtor finance could provide increased access to funding as your sales grow and because of the credibility that comes from working with Billing Bureau we can make sure its avaliable at the right price.

For more information, call 1800 850 509, visit www.oxfordfunding.com.au or contact Billing Bureau via our contact page here.

Welcome to our new website!

We are excited about our new home on the internet and am sure that you will find a heap more information about our products and solutions.

We are also pleased to annouce the release of Genex which is the 4th Generation of our billing platform along with a supporting knowledge base which we call The Source.

There is more to come over the coming months as we work to further extend functionality for Genex and a range of new services to compliment it so stay tuned!

The Billing Bureau Team…