1. The Pricing of mobile products
Simon-Kucher & Partners
London Office
5th Floor, 233 High Holborn,
London WC1V 7DN, UK
Tel: +44 20 7841-5750, Fax: +44 20 7841-5751
Presented by Mark Billige E-Mail: mark.billige@simon-kucher.com
Managing Partner, London Internet: www.simon-kucher.com

2. Scope and reputation of Simon-Kucher
Global presence since 1986 Competence ranking "Marketing & Sales"
25 offices worldwide 625 associates Rank Consultancy Average Score*
Amsterdam Miami
Beijing Milan 1 Simon-Kucher & Partners 395
Bonn Munich
Boston New York
Brussels Paris
2 Boston Consulting Group 379
Cologne San Francisco
Copenhagen Singapore 3 McKinsey & Company
Dubai Sydney
359
Frankfurt Tokyo
Istanbul Vienna 4 Bain & Company 347
London Warsaw
Luxembourg Zurich
Madrid 5 Roland Berger 342
Revenue 2011: £105m
Deep media industry experience World market leader in pricing
"world leader in giving
advice to companies on how "…the world's leading
to price their products" pricing consultancy…"
Peter Drucker
"pricing strategy "... in pricing you offer some-
specialists" thing nobody else does."
-1-

3. Pricing power
Pricing power is the ability
of a company to get the
price it deserves for the
value it delivers
-2-

4. Pricing power: The single most important lever
"The single most
important decision in
evaluating a business
is pricing power."
"If you've got the power to raise
prices without losing business to
a competitor, you've got a very
good business. And if you have to
have a prayer session before
raising the price by 10 percent,
then you've got a terrible
business."
Warren Buffett, 2011
Source: www.bloomberg.com/news/2011-02-18
-3-

5. 64% of media companies believe they have low pricing power
% Companies with low pricing power
Chemicals 86%
Transport/logistics 81%
Telecommunications 74%
Automotive 73%
Travel/hospitality 70%
Financial services 70%
Media/entertainment 64%
Retail 63%
Energy/utilities 57%
Industrial goods/machinery 55%
Consumer goods 53%
Construction 51% Simon-Kucher
Pharma, biotech/medtech 47% Global Pricing Study 2011
Source: Simon-Kucher & Partners Global Pricing Study 2011
n= 3,904; % respondents who are C-level executives = 31%
* High pricing power is the ability of a company to fully/almost get the money it deserves. Low pricing power means the company lacks the ability to fully/almost get the money it deserves
-4-

6. Pricing does not receive the management attention it
deserves…
"Not long ago, a guy here did an analysis of our pricing in appliances and found out that
about $5 billion of it is discretionary. Given all the decisions that sales reps can make
on their own, that's how much is in play. We would never allow something like that on
the cost side. When it comes to the prices we pay, we study them, we map them, we
work on them. But with the prices we charge, we're too sloppy." Jeffrey Immelt
-5-

7. …particularly in the media industry
Share of companies with pricing as a boardroom topic
Energy/utilities 47%
Chemicals 31%
Retail 28%
Indust. goods/ machinery 21%
Consumer goods 21%
Pharma, biotech/ medtech 18%
Transport/ logistics 17%
Travel/ hospitality 12%
Financial services 9%
Construction 8%
Media/ entertainment 7%
Telecommunications 7% Simon-Kucher
Automotive 6% Global Pricing Study 2011
Source: Simon-Kucher & Partners Global Pricing Study 2011
n= 3,904; % respondents who are c-level executives = 31%
-6-

8. Why is pricing power so important?
Profit
Price Variable Costs Volume Fixed Costs
-7-

9. In the short run, price is every company's most powerful profit driver
Example Resulting improvement of
profit & loss structure operating income*
Sales
Price = 1, Volume = 100 5% improvement in 13%
100 variable cost ...
Variable Price can do more for
cost 5% improvement in fixed
cost ... your bottom line than
40
cost control alone
Fixed cost 5% improvement in
45 volume ...
Operating income improvement 33%
15 5% in price ...
Little / no upfront investment
Quick implementation
Rapid profit improvement effects
Source: Simon-Kucher & Partners; * Assuming all other variables are constant
-8-

10. Top 5 reasons for low pricing in media
1. "Our content is a commodity"
2. "The web gives so much price transparency that we
cannot charge what we would like to”
3. "Products sold on the web have to be cheap(er)… don’t
they?"
4. "If I give away content really cheap I can monetise more
eyeballs"
5. "We would like to charge more, but to be honest our
competitors are stupid (really?)"
-9-

11. 1 "We are a commodity"… so?
Other industries show how a premium can be commanded even through artificial
differentiation
£0.01/litre £0.50/litre £1.55/litre £4.52/litre
Source: Simon-Kucher & Partners research
- 10 -

12. 1 Case study: Premium pencils
Own
Brand
8p
Staedtler £1.14
Faber
Castell
£2.00
"Perfect
£38.00
Pencil"
5 design awards
Anti-break system
Prices 25x own brand
Staedtelr / Faber market share c. 45%
"In places where labour is expensive, the ideas simply have to be greater."
Source: Simon-Kucher & Partners research
- 11 -

13. Top 5 reasons for low pricing in media
1. "Our content is a commodity"
2. "The web gives so much price transparency that we
cannot charge what we would like to”
3. "Products sold on the web have to be cheap(er)… don’t
they?"
4. "If I give away content really cheap I can monetise more
eyeballs"
5. "We would like to charge more, but to be honest our
competitors are stupid (really?)"
- 12 -

14. The future of online prices is not about lower prices ….
2 … it’s about more prices!
GE microwave oven price: Amazon vs Best Buy
Price ($)
Best Buy
$900
$810
Amazon
$745
So what is the price
of a microwave?
12am 6am 12pm 6pm
Source: Wall Street Journal article 6 September 2012, "Don’t like this price? Wait a minute"
- 13 -

15. 2 Remember: Price transparency ≠ value transparency
1.25L
1L
750ml
£1.79 £1.89 £2.65
(£2.39/L) 26% up (£1.89/L) 12% up (£2.12/L)
Source: Simon-Kucher & Partners research
- 14 -

16. Top 5 reasons for low pricing in media
1. "Our content is a commodity"
2. "The web gives so much price transparency that we
cannot charge what we would like to”
3. "Products sold on the web have to be cheap(er)…
don’t they?"
4. "If I give away content really cheap I can monetise more
eyeballs"
5. "We would like to charge more, but to be honest our
competitors are stupid (really?)"
- 15 -

17. Risk: We offer digital cheaper because we can …
3 ….not because we should !
Illustrative
Value
Cost plus
based
mentality
mentality
Profit
Profit Profit
Profit
Cost
Cost Cost
Print Digital: Cost Plus Digital: Value Minus
- 16 -

18. 3 Problem 1: We have created false hope
Simon-Kucher Survey
-Newspapers-
At a price of £1/day, the value for
The main reason is …
digital compared to print is…
LOWER 56%
EQUAL 16% 54% 46%
HIGHER 13%
"It costs newspapers less to produce digital
content. It should therefore be cheaper"
I don’t know 15%
Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815)
- 17 -

19. 3 But there is good news - perceptions can be changed
Simon-Kucher Survey
-Newspapers-
Argumentation
Newspapers have traditionally depended on
advertising for 70-80% of their revenue. However,
UK newspapers' online and print advertising
revenues are currently weak (down 21% in
2008). 22%
Therefore there is a pressure to develop new
revenue streams in order to keep operating, of readers who originally stated
thereby ensuring quality and plurality in the
news available to you. that it was fair not to pay for
News Corporation (e.g. The Times, the Sunday newspaper content online
Times and the Sun), started charging online
customers for news content across all its websites changed their minds
after recording a net loss of £2bn in 2009 amid
advertising slump and Internet losses.
Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815)
- 18 -

20. 3 Problem 2: We are focused on the wrong segment
Simon-Kucher Survey
% that find £9.99 pm prohibitively expensive who…. -Newspapers-
…do not own a tablet pc / e-book …own a tablet pc / e-book
32%
20%
Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815)
- 19 -

21. Top 5 reasons for low pricing in media
1. "Our content is a commodity"
2. "The web gives so much price transparency that we
cannot charge what we would like to”
3. "Products sold on the web have to be cheap(er)… don’t
they?"
4. "If I give away content really cheap I can monetise
more eyeballs"
5. "We would like to charge more, but to be honest our
competitors are stupid (really?)"
- 20 -

22. If you believe that….
… more eyeballs means greater
monetisation potential (advertising) …
…and lower prices means more eyeballs...
- 21 -

23. …then you must believe that demand is elastic…
Newspaper cover price and circulation
Price 54% Price 43%
(000's) £1 (000's) £1 £1
2,500 90p 2,500
Circ. 24% 80p Circ. 21%
2,000 65p 70p 2,000 70p
1,500 1,500
1,000
ELASTIC? 1,000
ELASTIC?
Elasticity = 0.4 Elasticity = 0.5
500 500
-24% -21%
0 0
2007 2008 2009 2010 NO 2007 2008 2009 2010 NO
Price 43% Price 43%
(000's) £1 (000's) £1
2,500 90p 2,500 90p
80p Circ. 19% 80p Circ. 25%
2,000 70p 2,000 70p
1,500 1,500 -25%
1,000
ELASTIC? 1,000
ELASTIC?
-19%
Elasticity = 0.4 Elasticity = 0.6
500 500
0 0
2007 2008 2009 2010 NO 2007 2008 2009 2010 NO
Source: Simon-Kucher & Partners newspaper study, August 2011 (n=815), National readership survey, and The Times research July 2011 Circulation
- 22 -

24. Top 5 reasons for low pricing in media
1. "Our content is a commodity"
2. "The web gives so much price transparency that we
cannot charge what we would like to”
3. "Products sold on the web have to be cheap(er)… don’t
they?"
4. "If I give away content really cheap I can monetise more
eyeballs"
5. "We would like to charge more, but to be honest our
competitors are stupid (really?)"
- 23 -

25. Are aggressive competitors a reason for low pricing power?
Simon-Kucher
Global Pricing Study
Reason for low pricing power in media 2011
29%
71%
"We operate in a very price-aggressive
competitive environment"
Source: Simon-Kucher & Partners Global Pricing Study 2011
n= 3,904; % respondents who are C-level executives = 31%
* High pricing power is the ability of a company to fully/almost get the money it
- 24 -

26. 5 Who is responsible for price wars in digital media?
Simon-Kucher
Global Pricing Study
2011
Companies in price war Price war was initiated by…
"Us – by
accident"
8% "Us – on
purpose"
9%
Without With
price
wars
price
51% wars "the
49% others"
83%
Source: Simon-Kucher Global Pricing Study 2011
n= 3,904; % respondents who are C-level executives = 31%
- 25 -

27. 5 It is always the others! – Really?
Take control
1 Focus on margin
over market share
2 Lead the market
- 26 -

28. 5 Volume focus never works: Case study - Telecom incumbents
Both incumbents were former monopolies and had to face massive and inevitable
loss of market share. Where they differ is how they manage the decline
Telco incumbent 1 Telco incumbent 2
100% 100%
ARPU
90% 90%
80% 80%
20% gap
70% 70%
Market share
60% 60%
50% 50%
Q4 1998 – Q2 2004 Q4 1998 – Q2 2004
ARPU – Average revenue per user
Source : Simon-Kucher & Partners projects
- 27 -

29. 5 Lead the market – Airbus A380 example
Le Monde, 5th of July 2005
Source: Simon-Kucher & Partners research
- 28 -

30. What have we learned?
Pricing power means getting the price you deserve for
the value you deliver
1. "Even commoditised products can command a premium"
2. "Online pricing is not about lower prices but about more
prices!"
3. “Digital should be priced on value, not on marginal cost.
It’s time to change readers perceptions”
4. "Lowering price is a very expensive way to attract more
eyeballs. Focus on product quality and content before
low(er) prices"
5. “It cannot always be the others. Take responsibility to lead
the market to better pricing"
- 29 -

31. All this is easy to say… It’s much harder to do….
Costs are a
matter of fact –
Pricing is a
matter of guts!
Jack Welch
- 30 -