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Pricing is critical to RCS success. If priced too low, it dilutes the medium and turns it into a source of spam. If priced too high, it stifles adoption. However, RCS is alive and thriving in countries like India, Brazil, Mexico, Spain, France, and the UK. In fact, India is one of the largest RCS markets by messaging volume. What lessons can we in North America learn from their experiences? More importantly, does new product pricing give us a pathway to better products and conversational use cases?
The Three Kinds of RCS Messages
But first, let’s just go over the three kinds of available RCS messages. Also, given the world is consolidating on the RBM platform, RCS and RBM will be used interchangeably. At this point it feels like a distinction without a difference.
There are three kinds of messages:
- Basic: This is text over RCS. It’s your standard 160 characters; however, you get delivery confirmation and RCS branding.
- Single: This is a full, feature-rich RCS message complete with carousels, PDF payloads, and action buttons.
- Session: A single message conversation that lasts 24 hours and allows unlimited messages within those 24 hours.
How US Carriers Could Price RCS
Like in the rest of the world, the Mobile Network Operators (MNOs) will set the base rate for the three message types. It can be expected that like SMS/MMS pass-thru fees, it will be set with no volume discounts.
Based on what has been billed in Spain, Brazil, Mexico, and the UK, one can expect something like the following:
- Basic: Price parity to whatever an SMS message is now. This would still be a significant value for money as built-in delivery confirmation, and caller ID branding is not currently available in SMS.
- Single: 40–60% more than a basic message.
- Session: 2–2.5x the cost of a basic message.
Internationally, the basic message is used to create pricing parity with the existing medium. This reduces switching costs. In the UK, Spain, Brazil, and Mexico, carriers implemented price parity from the start and saw near-immediate success in RCS adoption. France, despite starting with a 20% premium, too has seen success.
In India, where the real threat is WhatsApp business messaging, the carriers skipped the price parity play and went straight to enabling WhatsApp competing use cases. The Indian MNOs have been greatly successful with this approach, as India is now the largest RCS market in the world.
The Indian anomaly aside, it seems when price parity to the current dominant medium is implemented, there is successful RCS rollout. When it is not, there is a delay in adoption.
How Could Platforms Price RCS
These pricing guidelines are for carriers, but what about the CPaaS provider? Well, it turns out, there are two approaches platform providers could take.
The Simple Approach
The first approach would be to determine your desired margin and then multiply your carrier pass-thru fee (which likely constitutes about 80% of your COGS) by a factor that achieves that margin. For instance, if you’re targeting an 80% gross margin, you would take your COGS, multiply it by 5, and set your price accordingly. While this method is convenient and simple, it is flawed.
With this intellectual shortcut, you are bypassing product analysis, understanding user appetite, and possibly walking away from a great market-creating opportunity.
The Value Approach
The other, more strategic approach is value based. In the US, unlike other parts of the world, we primarily compete with our own top-selling service: SMS. This presents a classic innovator’s dilemma. It therefore makes sense to apply a pricing framework that Clayton Christensen popularized.
In the buying hierarchy of functionality, convenience, reliability, and price, it would be wise to price the basic RCS message as close to that of SMS as possible. This approach ensures convenience and cost neutrality. When it comes to single and session messages, which introduce functionalities previously unavailable, there is greater flexibility to price the product based on the value it offers.
In fact, for the first time ever, you have the opportunity to offer unlimited, subscription-based pricing that doesn’t break the bank. In the realm of SMS, even the so-called “unlimited” plans come with an asterisk because every subscription plan is, in reality, built around a transaction cost model. Conversational messaging would have finally arrived!
Finally
This ‘unlimited’ works only for conversational use cases, but I’d argue that’s still a major improvement. For years now, how to take a transactional cost model and fit it into a subscription plan has vexed many product organizations. In some cases, the fear of overages led to pricing schemes that over-indexed on spoilage than usage and created a poor user experience.
With the new RCS message segmentation, we have a chance to charge by the conversation. We can offer per-conversation or per-agent pricing without worrying about overages. This is the pricing reset, the rare opportunity thanks to a new technology cycle. Everyone involved, from the MNOs and aggregators to the CPaaS providers and martech platforms, has the chance to create new products that redefine the unit of economics.