This article is republished with permission from Dollars and Sense.
MyRepublic may not have won the bid to become Singapore’s 4th telco yet but the talk of their mere presence in the market has already caused the existing telcos to adjust their mobile plans and indirectly, screw up their own pricing strategies in the near future.
What Has Happened In The Telco Industry?
In case you are not aware, SingTel announced two days ago that they are offering a new add-on plan call DATAX2. What this add-on basically does is to allow users to double their monthly data allowance at a cost of $5.90 per month.
Less than 24 hours later, M1 follow suit by announcing that they will be launching a rather similar add-on for their customers as well. In case you are thinking of picking up the phone to call in for your add-on, hold it first. Only new customers or re-contracting customers (i.e. people who might be able to switch to MyRepublic) are allowed to pick up the add-on.
The purpose of SingTel in introducing this new add-on, and M1 in following suit to compete with SingTel is to ward off the competition caused by the new entrant in the market, MyRepublic. This reaction to competition may however cause the incumbents to screw up their own carefully created mobile data plans in the long run.
Weak Pricing Strategies
Anyone who has learnt marketing before would have known that price is one of the key elements of the Marketing Mix. Companies set different prices for different products to entice customers and maximise profits. Pricing strategies are one of the reasons why you can get a $2 McChicken burger and also a $6+ McSpicy Double burger at the McDonald’s outlet.
It becomes a little tricky when it comes to the different types of mobile plans. Unlike food, telcos can only differentiate mobile plans based on how much talk time and data they offer.
For example, SingTel currently offers 200 minutes and 2GB at $42.90 under Combo 2. M1 offers 200 minutes and 3GB for $42 under an equivalent plan call the Lite+. Both these telcos also have higher tier plans as well to cater for higher data users. SingTel Combo 3 ($62.90) provides 300 minutes and 3GB data while M1 Reg ($62) provides 300 minutes and 4GB worth of data.
With both companies announcing an add-on option that allow users to double their monthly data allowance for $5.90, the pricing strategy now sees rather weak.
Singtel Pricing Comparison
As you can see, a SingTel subscriber who wants more data would be better off choosing Combo 2 + DATAX2 rather than Combo 3. Not only do you get more data (4GB vs 3GB), you also pay about $14 less each month. You may get less talktime, but with the additional data, you can easily substitute it with WhatsApp calls instead.
Another way to see it would be to look at how much it used to cost ($82.90) for someone who wants a 4GB data monthly plan, compared to how much they now have to pay ($48.90) for the same amount of data.
M1 Pricing Comparison
|Lite + Upsized Data add-on
The same logic applies to M1 though their “Upsized Data add-on”. A user who uses Lite + along with the upsized data add-on would be able to enjoy more data (5GB vs 4GB) compared to someone on a Reg plan even though they pay less ($47.90 vs $62).
Penetration Pricing VS Predatory Pricing
Whenever a new entrant enters the market, penetration pricing is one of the strategies employed to attract new customers. In response to that, incumbents may sometimes roll out predatory pricing to try force out the competition before it can even gain any traction by retaining its customer base.
By allowing only new customers or re-contracting customers to enjoy the add-on data bundle at low cost, the idea may very well be to ensure that MyRepublic wouldn’t gain any traction in acquiring new customers.
Whether MyRepublic is employing a penetration pricing strategy by offering its services below cost, or that the incumbents are offering a predatory pricing strategy- we’ll leave it for you to do your own guessing.
However, it is fair to assume that the consumers in this case are the big winners thanks to the extra competition, at least for now.