Relationship Pricing

Price differentiation as a relationship marketing tactic

Alexandros Kossyvas February 2012

Introduction
The markets evolve and consumers tend to be more educated, involved & discerning:
Traditional concepts lose relevance & more customer-

oriented marketing concepts are adopted.

Relationship Marketing:

the emphasis is on: relations, mutuality & interaction

Relationship Pricing:

one of the most prominent applications & tools for a relationship marketing approach

The origins
Price Differentiation:

when sales of identical goods/services are transacted at different prices from the same provider.
Price Differentiation & Relationship Marketing:

when price differentiation tactics, rates or ranges are combined or based on customers background history in terms of relationship, loyalty & sharing.
Principle:

a relationship-based company should not charge everyone with the same average price.

Relationship Pricing
Conditions & Traits:

Vision: Long-Term orientation Scope: Profitability VS Profits Emphasis: Retention VS Acquisition

Barriers & Prerequisites:

Data: valid, adequate, precise, personalised Segmentation & Anticipation: attractiveness & potential Communication: customers should be educated, qualified & prepared to accept the differentiated offerings

Implementation & Examples

There are several examples of applied relationship pricing within the Greek services market:
Banking Industry: i.e. banks give to customers the ability to finance a mortgage at a lower rate based on their business relationship.
Hotel Tourism Industry:

i.e. Grecotel Hotel chain or Club Hotel Casino Loutraki differentiate their offerings based on the relationship of the customer:
Club Membership Gold & Silver Cards special-priced & exclusive offers

Implementation & Examples

Cinema Entertainment Industry:

i.e. AthinoramaClub & Odeon CineFriends are programs that offer to their loyal members a wide range of both differentiated pricing offerings & other exclusive services.
Odeon Cinema Theatres Pricing Policy:
MEMBERS 8 one 4,5 ticket for every 3 screenings GUESTS 9

Average Price Discount based on number of Guests

Implementation & Examples

Sports Entertainment Industry:

i.e. Olympiacos F.C. hybrid relationship pricing model for the teams seasonal tickets.
Olympiacos F.C. Pricing Policy for the Seasonal Tickets:
GATE 4,5,6,21 1,2,8,9,19,20 11,17 12,16 14,15 33 VIP Price for Renewals () 300 380 700 700 1000 2000 3500 Average Price for New () 320 400 700 850 1100 2500 3850

RBP: the Dynamic Approach

The majority of applications & actions are parts of a

generic loyal program or scheme.

Really few companies apply & invest on advanced,

pure & discernible relationship pricing models. but demands a new, more dynamic, vivid & adjusting approach of relationship pricing:

The new economic environment not only encourages

RBP

continuous programming for creating optimal RBP offerings; a series of adjusting discounts based on customers tenure.

RBP: the Dynamic Approach

Preconditions: Data: a wide, precise, measurable & actionable database for past, existing & ongoing situations is necessary. Segmentation & Evaluation: the decision related to which customers are attractive & why (criteria) must be efficient.

Components: 1. an integrated system for classifying customers based on background transaction & volume history. 2. a model to portray the link between the pricing & customers movement/migration across loyalty clusters. 3. a dynamic optimization process for managing all the possible transactions quickly & profitably.

RBP: the Dynamic Approach

Preconditions: Diffusion: effective communication across customers the values of mutuality, interaction & partnership. Satisfaction & Engagement: customers continuously ongoing satisfaction & willingness to maintain (2 dimensions of loyalty). Profitability: enhanced both the existing & the potential levels of profitability. Practice & Software Solutions:
Several pioneer CRM services providers have already develop

software applications that facilitate & conventionalize on this approach. SunTec Business Solutions
Zafin Labs & Dell conjoint

The Case
The Greek Mobile Telecommunications Market:
Pricing: the main axis/basis upon which brands compete
Focus: brands are primarily focused on customer acquisition Trend: due to the economic recession the market growth rates

are declining while the price-sensitivity levels are increasing.

Vodafone & Cosmote: Subzidization: a classic rewarding means that rewards the customer annually with a grant amount of money. The Initiative: the customer is now able to transfer this amount to his fixed monthly payments as a discount. RBP trails: this offering can be perceived as a latent/indirect RBP effort, since relationship/tenure determine the subsidy.

Vodafone Policy
Mobile Service Program
Unlimited 25 Unlimited 30 Unlimited 35 Unlimited 45 Unlimited 50 Unlimited 60 Unlimited 75 Unlimited 100 Unlimited 125 Unlimited 175

Average Monthly Cost

25,00 30,00 35,00 45,00 50,00 60,00 75,00 100,00 125,00 175,00

Cost after Discount

22,00 26,50 31,00 40,00 44,00 53,00 66,50 90,00 112,50 157,50

The discount applies for existing customers with minimum 1 year transaction record with the company who will renew their contract for 2 years. The discounts are fixed and do not change in the course based on further or greater loyalty or quantity customer performance. These are the maximum possible discount rates. The corresponding by Cosmote policy is exactly identical.

Critical Analysis
The opportunity:
This initiative can be described as the initial step towards a

more relationship-driven pricing policy. A real opportunity for evolution & integration has thusly aroused.
The facilitators:
Both companies possess & have access to adequate &

abundant data (past, present & potential behavior). Retention switch is now necessary, since the market shows low growth rates.

Integration
The O2 We call it Fair Deal example:

Blue

Silver

Gold

Platinum

dynamic continuum relationship development respective & proper rewarding