Harvard Case - M-Pesa and Mobile Money in Kenya: Pricing for Success
"M-Pesa and Mobile Money in Kenya: Pricing for Success" Harvard business case study is written by Sarit Markovich, Charlotte Snyder. It deals with the challenges in the field of Strategy. The case study is 17 page(s) long and it was first published on : Dec 4, 2013
At Fern Fort University, we recommend that M-Pesa, the leading mobile money service in Kenya, should implement a comprehensive pricing strategy that balances revenue generation with user accessibility and social impact. This strategy should leverage M-Pesa's existing strengths in innovation, technology, and customer relationships, while adapting to the evolving mobile money landscape.
2. Background
The case study focuses on M-Pesa, a mobile money service launched in Kenya in 2007 by Safaricom, a subsidiary of Vodafone. M-Pesa revolutionized financial inclusion in Kenya, enabling millions of unbanked individuals to access financial services through their mobile phones. The case study explores the challenges M-Pesa faces in maintaining its market dominance amidst increasing competition and evolving customer needs.The main protagonists are:
- Safaricom: The parent company of M-Pesa, responsible for its strategic direction and operations.
- M-Pesa: The mobile money service itself, facing the challenge of optimizing its pricing strategy.
- Customers: The diverse user base of M-Pesa, ranging from individuals to businesses, with varying needs and expectations.
- Competitors: Other mobile money services and financial institutions vying for market share.
3. Analysis of the Case Study
To analyze M-Pesa's pricing strategy, we can apply the following frameworks:
Porter's Five Forces:
- Threat of new entrants: High, as the mobile money market is attractive and entry barriers are relatively low.
- Bargaining power of buyers: Moderate, as customers have alternative mobile money options, but M-Pesa holds a significant market share.
- Bargaining power of suppliers: Low, as M-Pesa relies on technology and infrastructure providers, which are readily available.
- Threat of substitute products: High, as customers can use traditional banking services or other mobile money platforms.
- Rivalry among existing competitors: High, as the mobile money market is increasingly competitive, with new players entering the market.
Ansoff Matrix:
- Market penetration: M-Pesa can further penetrate the existing market by targeting new customer segments and increasing usage among existing customers.
- Market development: M-Pesa can expand into new geographic markets within Kenya and beyond.
- Product development: M-Pesa can introduce new services and features to enhance its value proposition and appeal to different customer needs.
- Diversification: M-Pesa can explore diversification into related industries, such as financial services or e-commerce.
BCG Matrix:
- Stars: M-Pesa's core services, such as sending and receiving money, are considered stars due to their high market share and growth potential.
- Cash cows: M-Pesa's established services, such as bill payments and airtime top-up, are cash cows, generating significant revenue with moderate growth.
- Question marks: New services and features, such as micro-loans and insurance, are question marks, requiring investment to determine their viability.
- Dogs: Services with low market share and growth potential may be considered dogs and require strategic review or discontinuation.
Value Proposition:
M-Pesa's value proposition is based on its convenience, affordability, and accessibility. It provides a range of financial services through mobile phones, enabling users to send and receive money, pay bills, purchase goods, and access micro-loans.
Competitive Advantage:
M-Pesa's competitive advantage lies in its first-mover advantage, brand recognition, extensive network, and strong customer relationships. It has established itself as the leading mobile money service in Kenya, with a vast user base and a trusted brand.
Challenges:
M-Pesa faces challenges from increasing competition, regulatory changes, and evolving customer needs. New players are entering the mobile money market, offering innovative services and competitive pricing. Regulatory changes may impact M-Pesa's operations and pricing strategy. Customers are demanding more sophisticated services and personalized experiences.
4. Recommendations
To address these challenges and maintain its market leadership, M-Pesa should implement the following pricing strategy:
- Tiered Pricing: Implement a tiered pricing structure based on transaction volume and value. This allows M-Pesa to offer competitive rates for high-volume transactions, while maintaining profitability on smaller transactions.
- Value-Based Pricing: Differentiate pricing based on the value of services offered. For example, premium services like micro-loans and insurance could be priced higher than basic services like sending and receiving money.
- Dynamic Pricing: Utilize dynamic pricing models to adjust prices based on real-time market conditions, demand fluctuations, and competitor pricing.
- Bundled Packages: Offer bundled packages that combine multiple services at discounted rates, attracting customers with diverse needs.
- Loyalty Programs: Implement loyalty programs to reward frequent users with discounts and exclusive benefits, fostering customer retention.
- Social Impact Pricing: Offer subsidized services to low-income customers and vulnerable groups, promoting financial inclusion and social impact.
- Data-Driven Pricing: Leverage data analytics to understand customer behavior, market trends, and competitor pricing, informing pricing decisions.
- Transparency and Communication: Communicate pricing clearly and transparently to customers, ensuring they understand the value they receive for their money.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: M-Pesa's core competencies lie in its technology, network, and customer relationships. The recommended pricing strategy leverages these strengths to deliver value to customers while maintaining profitability.
- External customers and internal clients: The pricing strategy considers the diverse needs of M-Pesa's customer base, from individuals to businesses, and aims to provide value for all.
- Competitors: The recommended pricing strategy considers the competitive landscape and aims to differentiate M-Pesa's offerings while remaining competitive.
- Attractiveness ' quantitative measures if applicable: The pricing strategy aims to balance revenue generation with user accessibility and social impact, considering factors such as cost structure, market demand, and competitive pricing.
6. Conclusion
By implementing a comprehensive pricing strategy that balances revenue generation with user accessibility and social impact, M-Pesa can maintain its market leadership in the evolving mobile money landscape. This strategy should leverage M-Pesa's existing strengths in innovation, technology, and customer relationships, while adapting to the changing needs of its customers and the competitive environment.
7. Discussion
Other alternatives not selected include:
- Flat pricing: This would simplify pricing but may not be optimal for all customers.
- Cost-plus pricing: This would ensure profitability but could lead to higher prices than competitors.
- Premium pricing: This would target high-end customers but could limit market reach.
Risks and key assumptions:
- Customer acceptance: Customers may not be receptive to tiered pricing or dynamic pricing models.
- Competitive response: Competitors may react to M-Pesa's pricing changes, leading to a price war.
- Regulatory changes: Regulatory changes could impact M-Pesa's pricing strategy.
8. Next Steps
To implement the recommended pricing strategy, M-Pesa should:
- Conduct market research: Gather data on customer needs, competitor pricing, and market trends.
- Develop pricing models: Design tiered pricing, value-based pricing, and dynamic pricing models.
- Test pricing strategies: Pilot test different pricing models to evaluate their effectiveness.
- Communicate pricing changes: Clearly communicate pricing changes to customers.
- Monitor performance: Track key performance indicators (KPIs) such as revenue, customer acquisition, and customer satisfaction.
By taking these steps, M-Pesa can successfully implement its pricing strategy and maintain its position as the leading mobile money service in Kenya.
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Case Description
The Kenyan government's announcement of a new 10 percent tax in March 2013 threatened the future prospects of M-Pesa, Safaricom's mobile money transfer service, which had revolutionized the way money moved in Kenya. The new tax would be levied on all cash transfers but was largely targeted at M-Pesa, which controlled around 80 percent of the cash transfer market. In response to the new tax, Safaricom, the mobile communications market leader, announced a 10 percent price increase. The case presents the structure Safaricom established in order to develop a mobile money transfer service in Kenya. As a concept, M-Pesa was unprecedented in Kenya: prospective customers had to get comfortable with the idea that a mobile communications company could provide a payment system, that transactions could be initiated through a mobile phone, and that nonbank outlets could provide cash-in/cash-out services. Even when the concept was accepted, however, customers needed a convenient network of agents to handle transactions, and stores needed to see demand from customers in order to be motivated to become agent outlets. Thus, in order to grow, M-Pesa needed to aggressively pursue and acquire both customers and agents in this two-sided market.
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