Reliance Jio’s New Plans An Attempt At Decoy Pricing, Says Jefferies
Analysts say the new plans are Jio’s attempt at decoy pricing, a strategy that helps drive sales of a high-value target product.
By launching five new prepaid plans with no daily usage limits, India’s largest telecom operator by subscribers is attempting decoy pricing—or a strategy that influences customer’s choice—Jefferies said.
Reliance Jio Infocomm Ltd.’s plans range from Rs 127 for 15-day validity and 12 GB data allowance to Rs 2,397 for 365-day validity and 365 GB data allowance. They’re priced around 6-7% lower than those with 2 GB per day data limits.
Analysts at the research house expect the new plans to help drive sales of a designated high-value target product by introducing a low-priced decoy. “Jio’s monthly plans offering 1.5 GB a day and 2 GB a day are priced at Rs 216 per month and Rs 270 per month, respectively. Jio’s new monthly plan offering 25 GB (0.8 GB a day) is the third item introduced at Rs 250 per month,” equity analyst Akshat Agarwal and equity associate Ankur Pant wrote in the report.
“By paying an additional Rs 20 per month, subscribers can get 2 GB a day instead of 25 GB month, making 2 GB per day plan relatively more attractive.”
The analysts also termed introduction of these plans as “a step in the right direction”, as its adoption could drive a 55-108% jump in revenue per GB, compared to its 1.5 GB per day plans driving margins at present. “While this premium may be adjusted in the future, the pricing premium on no daily data limit plans versus plans with daily data limits offers a way to raise ARPUs and margins.”
Jefferies also thinks the plans are aimed at subscribers who tend to hit their daily data limits more often on weekends given higher data usage. “Its peers, Bharti Airtel Ltd. and Vodafone Idea Ltd., are yet to launch similar plans,” the report said.
The report said the plans also gives further insights on Jio. “Firstly, the relaxation of daily data limits under new plans implies Jio has surplus network capacity to handle traffic surges over the weekends. Second, Jio is looking to boost average revenue per user in the smartphone segment through uptrading rather than tariff hikes.”
Shares of Reliance Industries Ltd., Jio’s parent, rose 0.20% on June 15, compared with the BSE Sensex’s 0.42% gain.