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.
– Percentage pricing (assuming a fixed percentage) is more cost-effective than competitive offerings for small amounts, but much less so for large amounts. However, unless there is a “minimum fee,” commissions on small transactions for agents may be more of an irritation than a bonus. It can also be difficult for customers to understand and calculate, which can put them off using the product.
– Tiered pricing (also called slab-based pricing) has been adopted by a number of mobile money services, including M-Pesa. The structure of this form of pricing may mean that an agent may be tempted (for example) to process a cash-in of 1000 as two separate transactions of 500 each, to take advantage of a pricing break – the net result being that you get the same amount of float but lose more in commission. M-Paisa in Afghanistan decided to switch from tiered to flat pricing after both agents and customers complained they found it confusing.
One of the considerations for how you set your pricing can therefore be what type of behaviour you want to encourage – i.e. on what premise your business model is based. Are you depending on cash-out commissions? Is the float more relevant? Are you trying to attract new customers to your existing business and/or hold on to the customers you have? Do you want to reduce overheads whilst maintaining or expanding your existing service? If you set pricing without the end point in mind, you may find that either people don’t use the service, don’t use the service in the way you intended, or even move away from you and towards someone else.
In my next article, I’ll be looking at how pricing for a mobile wallet solution affects the behavior of someone in the real world, and how flying in the face of conventional thinking can sometimes reap benefits for all concerned.