Predatory pricing of Airtel 4G, will it lead to differentiation or commoditisation?

By December 2nd, 2014 AT 5:22 PM

Airtel’s recent move to drop prices of its 4G services below the 3G prices can be seen as a predatory pricing move. Right now Airtel is the only player in the Indian market offering 4G, which is soon set to change. Having won the spectrum in 2010, RJIO is all geared up to launch 4G services by next year in the country.

While Reliance JIO is preparing to launch its services, Airtel is preparing for the competition. Airtel has reduced the price of its 4G services below its 3G services in a clear case of predatory pricing. With this move, while on one side, Airtel will try to acquire and retain subscribers for its 4G services thereby increasing its penetration within 4G, with dropped prices it will create barriers to entry for Reliance JIO.

Reliance JIO will now have to price its products similarly to match Airtel which will lead to fresh price wars. While many companies use price to differentiate themselves, can this strategy be sustained in the long run is a question?

airtel-pricing

Are price wars sustainable?

Airtel used price to create a differentiation in its offering but competition can always match this price and the differentiation will soon be lost. Hence this strategy is not at all sustainable. Price wars would also bring down the average revenues of 4G overall in the industry thereby making it difficult for all the players to become profitable. Playing excessively with pricing also leads to commoditisation of the service. Instead of playing with prices Airtel could have created a differentiated offering at a spectrum of price points for all kinds of customers.

While this temporarily benefits subscribers, with the low prices in market, in the long run customers stand at disadvantage since they lose out on higher Quality of Service (QoS) which could have otherwise been achieved due to different value-for-money and premium products.

How can Airtel create product differentiation in the Indian market?

  • While price and affordability will definitely be the key in 4G adoptions, unfaltering network coverage will play a very big role in deciding which operator gets picked or ported to once multiple 4G services are available in the market and the initial euphoria of new 4G launch has died down. If price is the initial appeal, Quality of Service (QoS) will act as the anchor for the 4G services.
  • Airtel could have looked at offering value added services which it could then bundle with the basic services there by creating a whole range at different price points from which subscribers could pick and choose. This way there could be something for every kind of customer.
  • Airtel could analyse the usage behaviour of its existing customers and create a more personalised offering for its customers. This would lead to unparalleled quality of experience which would be a highly differentiated offering and it would be difficult for the competition to copy.

Sonali is a Marketer by profession and a blogger by choice.

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