SparkBackground: After a Commerce Commission review a determination has been made that Chorus is allowed to increase the price of cooper by $4 to the ISPs.  The ISPs have signaled they are going to pass this on to the end consumers.

I really like this pricing strategy from Spark. They have thought this through and maximized their yield based a market change.

Let look at what Spark are trying to do

As soon as the draft determination came out form the Commerce Commission came out. They signaled a price increase to the market and they saw a share price bump as a result. However they did not implement a blanket price increase they used the change to their advantage.

Spark have looked at their mix and ARPU (Average Revenue Per Customer) and identified that if they give a price decrease at the top end and increase at the middle and lower plans they will see a mix change and hopefully higher ARPU increase. The differential in price but increase in value in the smaller plans they figure that customers will trade up to the higher end plans. Therefore Spark will get a mix change and ARPU lift larger than the $4 increase.  The risk they run of course is their high value customers will benefit from the price decrease and there won’t be any trade up from the medium value customers but they have obviously modeled this.

The other benefit to Spark is their higher end plans were above market price this allows them to adjust it (it is still at the top end of the market) and use a market event to create some noise and customer traction

From a customer point of view,

  • Their high end customers are enjoying a discount
  • Their medium value customers have an option to get significantly greater value
  • Their low-end customers are in the same position as the rest of the market.

Compare this to Vodafone which has implemented a blanket increase – while un-doubly they will get an ARPU lift with the $4 increase they wont see a change in mix toward higher plans and have faced customer criticism for increasing the cost of plans for customers that aren’t on fiber (not subject to the price increase).


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