Behavio(u)ral Economics and Telecommunications

The telco is getting personal.  Finally.

Every time I walk through Tesco‘s, I get angry.  Maybe it’s because I’m a numbers guy, but I hate when they have a chocolate bar for a buck one week, and the following week it’s two for the price of one, at $1.10.  It’s clearly not free.  And Coca-cola, so productized you could probably buy ten cokes for different prices in one store.  Two bottles for the price of one.  a twin pack “economy rate”.  A slab of cans.  A six pack of small bottles.  And what freaks me out is where they put these things.  How many times to you go to the biscuit aisle and find stray packets of bourbon cremes from the promotions stack near the cured ham counter, dumped on top of the custard cremes when a wandering shopper realises that the offer ain’t all it’s cracked up to be when they analyse the other offers that were not beside the bourbon cremes (near the cured ham).  Humbug.

Of course, what this shows is that retailer have thought about this stuff.  They don’t stack shelves in order of price, because like on any good wine list in a restaurant, no one buys the most expensive stuff, and few people buy the cheapest stuff, but many buy the second cheapest option.  This is what academics call behavioural economics, an understanding that the psychology of buying is important in considering how to structure offers, and – generally speaking – how to price stuff.

Ten years ago a large service provider in Australia ( :-) ) decided that dial-up internet access needed a new price plan.  So they decided that all calls to the ISP would be a flat rate ten cents.  What happened?  No one hung up until they wanted to make a phone call.  The network crashed.  What did we learn?  Build proper incentives to drive the behaviour you want!

Understanding the customer, their needs, wants and desires, and their likely reaction to incentives and campaigns, will help service providers to get out of the quasi-mess they find themselves in today.  I say quasi-mess because I know of no other industry with such skyrocketing demand, the level of which is equaled only by the industry executives’ propensity to complain about it.  Understanding consumers a little better (they’re not just nodes on the network, they’re not just devices…) will make all the difference.

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