Tag Archives: psychology

The psychology of pricing, Part 2

This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh.

Photo credit: Cengage Learning

We talked in the previous article about how pricing can encourage customer behavior to develop in a certain way – and that most people are able to spot a good deal (or a dummy) when they see one.

When we’re talking about mobile money, there are generally 3 price “events” – at cash-in, when one person transfers to another, and at cash-out. If you’re aiming to offer a true mobile wallet (a virtual “current account” as opposed to purely a money transfer service), I would argue for making person-to-person fees a very, very low, flat fee (something in the order of one US cent or its equivalent). Here’s a small scenario that explains this:

Nazmal is a security guard in Dhaka. He sends money home to his parents every month – a lump sum when he gets his salary. His parents spend the money on rent (a monthly payment); food (daily); school fees for their youngest child (weekly) and try to save a small amount in case of emergencies.

Nazmal deposits the amount he’s sending into his mobile wallet, and transfers it to his parents’ mobile wallet. They have a choice now of what to do with it, which will be driven by how the pricing you have established works best for them:

  1. They can withdraw the whole amount and keep it under the bed. They are more likely to do this if cash-out fees are structured on a flat or slab basis, as it works out cheaper for them to withdraw one larger amount than a number of smaller amounts.
  2. They can withdraw some now and some later, when they need it – this would be more expensive for them than option 1 with flat or slab pricing. If you have percentage pricing there’s no difference for them either way, except for the additional costs/time involved in visiting the cash-out agent more often.
  3. They can pay their expenses directly to the landlord/grocery store/school using the person-to-person feature on an ad-hoc basis, “save” the rest, and only withdraw cash when it’s necessary. Continue reading →

The Psychology of Pricing

This post is written by Debbie Watkins, SBI’s Resident Advisor in Dhaka, Bangladesh

A customer’s propensity to acquire or use a product is in part driven by pricing – combined with convenience, trust and accessibility. ADC implementations around the world have experimented with a number of different pricing options, which (hopefully!) have been calculated using a combination of different factors, including pricing of competitive products in their market, relative convenience and accessibility over the formal or informal channels people are using right now.

The important part of this sentence is “are using right now.” If you remember back in my second article, “Adding constituent value,” I stated that it must be remembered that whatever you’re offering is not “new” to them; it’s an alternative to what they’re using already, and you have to improve on that. I also mentioned that low-income people are pretty savvy when it comes to determining the true value of something, and if your pricing doesn’t cut it, they’ll just vote with their feet.

Pricing can also motivate people to behave in different ways. Here are a few possible scenarios to consider:

-          Flat pricing encourages fewer, larger transactions. This can result in liquidity problems for agents if they are dealing with infrequent but significant deposits or withdrawals. It also may mean the client is keeping the money in cash under the mattress until they have a lump sum to send, and the sender is then withdrawing the whole amount in one go and keeping it under THEIR mattress. Continue reading →