If you want some good examples of how to optimise your company’s revenue, you only have to look as far as mobile phone operators and low cost airlines. I recently had the pleasure of experiencing both during a brief business trip to the UK.

Having booked my Ryanair flight at the last minute I ended up paying roughly three or four times what I would have normally paid if I’d just booked a few weeks in advance. The problem was, I didn’t know a few weeks in advance that I needed to travel. Even at this inflated price though, Ryanair were cheaper than the competition and won my business on price based on when I wanted to travel.

Then, when I arrived in the UK, I got the following text from O2 Ireland:

Data abroad costs €4.98 per MB. Each day you are charged for what you use up to 4MB and then usage to 50MB is free

I stared at the message in amazement. At home I buy my mobile data for €10 per GB but for the privilege of using data a mere 350 miles away they were going to charge me roughly 5,000 times the price. What I did next is even more amazing. I promptly switched over to my email application and blithely checked my email.

Why Pay More?

In this instance it wasn’t the price that mattered to me. Sure, the price matters to O2 – it’s their revenue after all – but what matters to me is the value. As long as the value exceeds price and there aren’t any easily available alternatives then I’m likely going to pay it. In this case being able to check my email with no other access to the internet was worth paying 5,000 times what it costs at home.

It was only later that I took the time to analyse the care and attention to detail that O2 had taken when coming up with this pricing plan, which no doubt maximises revenue but doesn’t exactly achieve price transparency.

O2 Ireland Data Roaming Pricing

Let’s take a look at how O2 arrange their pricing for data roaming. Even though the data is priced per KB, this pricing model encourages you to keep using it once you’ve started; otherwise you never get to the “free” data between 4MB and 50MB. Go over this magical 50MB limit, and you’re back to €4.98 per MB all the way up!

So why have O2 decided that the price / value dynamics tap out at €19.92? I reckon there are two reasons for this:

  1. Reducing Sticker Shock. When customers come home and get a €59.76 charge for three days of roaming data they get what is called sticker shock. This typically results in an angry customer ringing the support desk and shouting at an innocent operator. This ends in two ways. Either the operator has to swallow the cost or the customer is further enraged and switches provider at the first available opportunity. Either way it is in O2 Ireland’s interest to minimise the occurrence of sticker shock. By setting their normal daily ceiling at €19.92 they think they have achieved this.
  2. Front Loading Charges. The rather obvious reason that O2 engage in front loading is to get as much of the money as possible as quickly as possible. In this case O2 reckons €19.92 a day is most of the money. The think that most people will only use a small amount of data, so they make the first chunk as expensive as they think the market can bear. Then they “reward” heavier users who have already incurred a €19.92 charge with some “free” data. Finally, they really milk the heavy business users who go over the 50MB daily limit.

There are things to learn from both Ryanair’s constantly increasing prices as the day of departure arrives, and from O2 Ireland’s data roaming pricing structure depending on how they apply to your business. If you know that people are going to have to use your product at some point, making it cheap to buy in advance but expensive to buy on the day makes a lot of sense. If you have a large user base that only pay small amounts each, front loading can be an effective way of maximising revenue from this group, and there are usually a small number of heavy users at the other extreme who will pay a lot more than the average each.

Have you ever been caught out by last minute ticket prices? Have you ever paid €4.98 per MB for data abroad? Most importantly, what pricing models did you learn from when you set your prices?