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giffgaff standard rates discussion

Started by: vincent
On: 24/08/2011 | 13:55
Replies: 1532
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by: vincent
on: 24/08/2011 | 13:55 edited: 01/09/2011 | 18:34

Hi everyone,

 

As we’re run by you, when possible we always try to run ideas or changes by you – in this case we’ve got an important point of business that we’d really appreciate your feedback on. This post is a little bit of a Wall of Text, however please bear with me, there is a lot of information for you to absorb.

 

We’ve been running almost 2 years, and as every business does we review our product range/ spend budgets and profitability regularly. We’ve identified an area which is costing us, and we need to take measures to improve it.

 

As you can see from the title, we need to discuss our standard price rates over the following days. The meat of it being that there will be a need for a price increase on our standard call and text rates. In this topic I will attempt to explain the reasoning behind it, open the discussion and collate your feedback for the following two weeks after which we will announce the decision we will have made together and then waiting another 4 weeks before implementing a price change.

 

In order to explain the reasons for us having to do this I will have to explain as frank as possible where we come from, where we together, through your ideas and feedback, have moved to and what is happening in the market.

 

Back when giffgaff was but a wee little community, without even a product, calls being 8p and texts being 4p was our headline.

8p, 4p was the shout and we asked our first few members if this was the right way to go. Although initially it was certainly welcomed, we found that just 8p, 4p did not gain any traction in the market. No one talked about us and new members did not knock our doors down.

 

Then together with the community we came up with the concept of goodybags. And as we tinkered with them they became more and more successful. Up to the point where we moved to 250 minutes in our £10 goodybag.

 

That’s when we saw a real turn around and the business took off and we finally gained some momentum.

 

Since then we have continued to enrich our existing goodybags with more and more minutes and these are what we call the real acquisition drivers. The special feature of giffgaff that is getting the new members in.

 

In fact 86% of the people who used their phone in July were on a goodybag or would have been better off on one.

 

As some of you know as of the start of 2011 the mobile termination rates have gone down and will continue to do so throughout 2012 as part of an EU initiative.

 

This has impacted and will continue to impact our profitability more and more. And this impacts our standard rates as well as our goodybags.

 

However because we can clearly see that our existing base and any new members clearly like our goodybags, we have invested there by adding in more minutes.

 

Now the way giffgaff works, and the way the company is set up, with principles of trying to ensure people don’t waste money and ensuring people are using what for them is the right tariff through the use of our balance notifications and our best plan advise, we’ve found that people are very, very good at using the exact amount of minutes in their goodybags. In other words, most of you use exactly what is in your goodybags Smiley Happy

 

This is good in terms of our principles, and certainly means we were on the right track when we implemented these ideas. But realistically companies normally make quite a tidy bit of revenue through unused minutes on the bundles they sell. We however do not.

 

We’ve also noticed that data usage on giffgaff is very high, but again, we’ve invested here in terms of member feedback and keeping the data on our goodybags unlimited.

 

What has also scored very highly in terms of what our members appreciate is free giffgaff to giffgaff calls. And although we will continue to keep that, we do get hammered on usage there as well (at the moment we don’t even enforce the redial policy after 60 minutes, but will do so soon to try and prevent some abuse we’re seeing there).

 

On top of that we also see our unlimited text bundles being used very extensively which brings with it more cost.

Acquiring any new members costs a lot of money as well of course. And this cost can be divided into many different areas, ranging from producing and sending out the actual SIM cards, through to marketing, running the actual network, investing in and implementing new functionality, all the way through to Payback Points for the community.

 

It is also important to understand the stage of development giffgaff is in as a business. We’ve invested tens of millions of pounds so far to set up and run giffgaff and like many start ups we haven’t yet broken even on that investment. So it’s very important that we regularly review our costs, revenues and hence profitability, because by moving towards profitability we ensure the long term viability (and existence) of giffgaff.

 

The problem is, if we can’t make enough money we can’t continue to invest, in the community, in new product developments and in marketing. Which means we don’t get enough new members, because no one hears about us, we don’t have the right products on offer, or the community to support us. So we don’t grow enough, which in turn impacts the money we make aaaaaaand we’re back to the beginning, with not being able to invest…

 

When we look at our products and prices we can quite clearly see what everyone likes and what is driving our growth. Our goodybags, giffgaff to giffgaff free calls and our payback scheme come out on top. I think we can all agree that we’ve hit the right mark with these, so we don’t want to make any changes in these areas. But rather continue to invest here, in terms of marketing these products, development of potential new goodybags and services, as well as keeping the current ones as they are or even improving them, and moving forward with community led initiatives. But at the same time we have be realistic and look at ways to pay for the costs of providing these services, whilst also understanding the impact termination rate reductions have, as well as marketing and development costs and obviously simply running the business.

 

I hope this has all explained the tough choices that have to be made. Which is why the spotlight is on our standard rates and we’d like to get your help and advice about how we change them.

 

So in order to do that and get a clear view, let’s take a look at where the rest of the market is in comparison to giffgaff. We will specifically focus on PAYG only companies which offer standard rates as well as big bundles of calls and texts on a PAYG basis.

 

To properly compare we need to look at companies which have both of these elements in place as we can’t compete with company A doing one part of our business(standard rate prices exclusively for example)  and company B doing the other part (bundles only for example). Seeing as the difficulty is in the mix of being able to offer value on both aspects at the same time.

 

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 As you can see from the table above we are at the moment far, far below any of our competitors and this is, as explained, hurting us. So to be frank, we will need to move more inline with what our competitors are doing, however we want to get your views on how far we should go.

 

Please take into account, the total package including our goodybags, the offer of unlimited texts, free giffgaff to giffgaff calls on our goodybags as well as on a top up, free 0800 numbers, data, etc. etc. when you put forward your decision on where you feel it would be right for us to set the price on our standard rates.

 

Bear in mind we are not looking for two different prices as some companies do, with out of bundle rates being more expensive. An example of this would be charging people extraordinarily high amounts on calls and texts as soon as they’ve used up the minutes in their goodybag, and having another separate rate for those who only topped up but never bought a goodybag.

We hope the reasoning is clear and understandable and look forward to your suggestions. And of course we’re happy to chip in where needed.

 

In order for us to make the best use of the time (2 weeks) I’d like to put some reminders in to keep things focused:

 

  • On topic: please keep the discussion going about Standard Pricing for calls and texts only
  • Apples for apples: as we’re only able to compete with companies that offer standard rates + bundles on a PAYG basis, please keep comparisons to these companies (excluding companies that just offer standard rates without bundles for higher users on a PAYG basis, or comparisons with termed contracts).
  • Consider the whole: It isn’t possible to unpick pricing, getting one bit from here and another from there, when discussing please consider the whole packaged offering.
  • Please be aware this discussion is about the pricing for calls and texts, not the costs or spending in other areas of giffgaff.
  • giffgaff is a business: We want to continue offering our members the best overall value, in order for us to continue doing that, we need to make a profit, it isn’t possible to run a business at a loss.

[Update August 26]: During this discussion we've been asked what our bare minimum increase has to be and if we are looking for a flat rate increase only:

 

The answer to that is: Yes we are only considering a flat rate increase as we feel anything else would move away from us trying to keep things simple.

 

And part of this is indeed the termination rates, but that is not the whole story. You have to also include giffgaff needing to make a profit as it is a business and we need to money to invest further in marketing to get more members, and to invest in more development of products, more investment in innovation, investment for us to be able to support community led initiatives, development of features the community requests, etc. etc. etc.

 

The less money we have, the less we can invest. This is that circle I have been talking about before. If we don't grow, we're not viable as a business, if we're not viable as a business we don't have money to invest, if we don't invest, we don't grow.

 

As for having to re-open this discussion later again, then yes, that might need to happen is we go for the bare minimum increase now. And as I said, the bare minimum increase will also have an impact on all the things I mentioned above.

 

And so the bare minimum increase for us would take us to 10p/5p.

 

[Update 01 September]:

 

Hi all,

 

Right, pfew, 135 pages later and we've had quite a bit of discussion. Today we sat down with the team and discussed the feedback we've seen so far and there has been rather a lot of it Smiley Happy

 

We looked at all the suggestions everyone has made, and especially listened to your feedback, your worries and your fears. We have seen quite a lot of feedback on ASDA and your worries around going above that price point in regards to recommending the network and as as a general guideline.

 

Although we feel that our offer is much richer than theirs when we consider our goodybags, free giffgaff to giffgaff calls, free 0800 numbers, etc. etc. and the ability to switch between standard rates and goodybags, we have taken your feedback on board, and we feel we will meet your expectations if we set the price rise to go inline with that and set it at 10p for calls and 6p for texts.

 

We then looked at our business plans for 2011 and 2012 and we've run the prices through our models and if our current trading performance continues we don't think we'll need to review the prices again any time soon.

 

However going for this rate may mean we won't be able to do everything we wanted to do, but so be it.

 

We will look at all of the other recommendations everyone has made during this consultation on cost savings etc. and it may be that we will open up discussions on this in the future.

 

But for now, we think that with your feedback the price point of 10p for calls and 6p for texts should suit everyone.

 

Please let me know your thoughts and if nothing crazy happens we will make the final announcement this Tuesday.

Cheers,

 

Vincent

Follow me on Twitter: http://twitter.com/VincentBoon
Message 1 of 1,533
by: bitgeek
on: 24/08/2011 | 14:02

If pricing is to raise then I think it's important that prices stay below the main competitors. Would 9p for calls be viabable for giffgaff - Or are you looking for big price hikes?

 

I know a lot of users here moved from Asda when they kiked their prices and have a bad feeling about this..

Message 2 of 1,533
by: heathercharters
on: 24/08/2011 | 14:07

I think that if changes were to be implemented then a number on the amount of text the goodybags have would suit most members like myself who see the unlimited internet as a huge factor for choosing giffgaff in the first place

Message 3 of 1,533
by: moogl3s
on: 24/08/2011 | 14:10

bitgeek wrote:

I know a lot of users here moved from Asda when they kiked their prices and have a bad feeling about this..



I'd be one of them, I moved specifically because of the rates and it'd be sad if they're hiked up as well.

Message 4 of 1,533
by: pinkcalculator
on: 24/08/2011 | 14:10
People will come and go depending on what suits them, if I'm going to be paying out loads more then it's economically best for me to move. I will move the family it's going to be uneconomical for us if not then we stay. Will depend on the final pricing structure.
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Message 5 of 1,533
by: megapix99
on: 24/08/2011 | 14:27 edited: 24/08/2011 | 14:29

Lots of gg members migrated from ASDA the moment they announced increasing prices: 4p texts to 6p (a 50% increase which is marketing suicide) and 8p to 10p for calls (25% which for many was just as hard to swallow)

 

So here we are! Still enjoying (old) ASDA PAYG rates plus the luxury of goodybags and payback.

 

5p per text & 9p/min calls seems a 'fair' but more importantly reasonable price increase.

 

It shouldn't scare away too many PAYG users, yet provide the necessary increase in revenue to keep the business model going, enabling giffgaff to tap into more innovative and lucrative mobile markets where other networks don't have the imagination to tread.

 

 

 

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Message 6 of 1,533
by: boblog
on: 24/08/2011 | 14:34
How about differentiating between mobile calls and landline calls? Profit on land line calls is much higher than mobile calls due to landline's very low (if not free) termination rates. Vectone do this - ie 5p for landline calls, 10p for mobile calls.
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Message 7 of 1,533
by: vincent
on: 24/08/2011 | 14:37
Hi megapix99,

As I've tried to explain in the post above, it really is about comparing the complete offer, with another complete offer. I understand where you are coming from, but please also consider the bundles ASDA are offering and compare them to the ones we offer.

I hope that makes sense,

Vincent
Follow me on Twitter: http://twitter.com/VincentBoon
Message 8 of 1,533
by: rong42
on: 24/08/2011 | 14:39

one of the main things that attracted me to giffgaff was the good PAYG prices for calls and texts. as a fairly low usage user, this was quite important to me, therefore I wouldn't want to see a big rise. though i can accept that giffgaff need to increase the prices

 

i think that the recent Asda price-rise is going to be mentioned a lot on this thread, and I think giffgaff should look into the consequences that came of that (not just financially, but reputation, user satisfaction, etc)

 

might it be a good idea to create a seperate thread for people who want to discuss costs / spending in other areas ? I know you are only wanting to dicuss the standard calls and texts here, but I'm sure people will have opinions on other things, and some of the feedback might be useful?

 

also, i'd also just like to say thanks for putting up such a detailed post, and giving us fair warning of the change (just to check I have the timeframe right, we have: 2 weeks discussion on this thread. then gg makes a decision and announces the price change. then gg will implement the decision 4 weeks after annoucement) after the whole data roaming fiasco I was feeling somewhat disheartened and disappointed with gg's communication skills. will all users be sent a text and/or email alerting them to this thread, so they can take part in the discussion (after all, not everyone goes on the forum regularly)?

Message 9 of 1,533
by: sadesman
on: 24/08/2011 | 14:40

I am sure we all appreciate the open and extensive presentation which Vincent has offered to the GiffGaff members.

 

The one question that does not seem to have been addressed is whether the GG model of “goodie bags” is sustainable at present prices and present numbers of customers?

 

I appreciate Vincent has requested that we keep the debate to a discussion about PAYG pricing.

 

However logically increasing PAYG pricing may well

 

  1. increase take-up of goodie bags; and

  2. decrease the amount of PAYG used.

 

And the higher the PAYG charges the likelihood is that there will be a greater conversion from PAYG to goodie bags.

 

Without some sense of the split of revenues between PAYG and “goodie bags” and the costs of providing such services, which understandably GG may well be reluctant to disclose publicly, the “elephant in the room” question has to be whether an increase in PAYG fees will turnaround GG's business model?

 

Unless GG can give its members an assurance that a proposed PAYG increase will solve their revenue problems there is a likelihood that GG may return to its customers in a few months time seeking a further increase, perhaps in goodie bag prices.

 

I have suggestions for increases in goodie bag prices, however these would be offset by customers signing up for say 6 or 12 months, similar to the model used by Skype in their subscriptions. However I will not offer more detail now as that is way off topic.

 

Message 10 of 1,533