Wednesday, August 20, 2008

Promo Pricing Unwise

Well, the "experts" have weighed in, and according to an article in Telephony Online the sort of promotional pricing that we've seen from the local incumbents and especially Cox are said to be unwise:
“I personally think the U.S. broadband industry and U.S. mobile industry need some sort of mindset change – which is the hardest to achieve – to get away from thinking that new customer acquisition will solve all your problems,” Weber said. “At the end of the day, it is the existing customers that provide 80% of the profit but they only get 20% of attention.”
And, of course, it is the good, solid customers who pay for promo pricing. If a company has to have its 30% margin it simply figures out how much it has to charge the 80% of its loyal customers to offer a raft of deals to the 20% that aren't going to stick with them anyway.

One of LUS' long-time commitments is that it isn't going to float a raft confusing, 6 month package super specials that entice people to buy more than they really want and lock them into much higher costs down the road. That's a strategy that carries risks when you're trying to break into a nearly saturated market but the promotional strategy creates real problems of its own as this article notes. To wit:
The typical approach is to offer new customers a special price on a triple play bundle or a new phone for free or at low cost in exchange for a service contract. When the promotional price expires, and regular prices kick in, customers have incentive to look elsewhere for the next new deal. Service providers may not like this price-shopping behavior – which was the death knell of the long-distance voice business in the 1990s – but “they have educated their customers to behave like that, so they can’t complain now,” Weber said.
Of course what will happen in Lafayette, or so I anticipate, is that as people hit the end of their promotional period they'll be hit that sudden big bill and suddenly LUS' 20% cheaper price will look good. Moving over will make sense and the trick then will be to keep 'em with real local support and great services. I don't think that will be all that hard. But the "expert" in the article makes one more suggestive remark re keeping those loyal, revenue producing customers:
One more intelligent possibility is to offer existing profitable customers special promotions or price breaks on new services . . .
Hey now, that would be cool. Offer your loyal customers the extras other companies charge for (ridiculously, I might add). The way that LUS has talked about its services is to offer a simple solid set of base tiers in the phone, cable, and internet sides and then let folks choose to add on from a menu the set of, say, three "extras" they want (e.g. call waiting, caller ID, etc.) These are dirt cheap in truth. At the end of the first six months the loyal customer could be offered an extra service. And after a year, another. For being a good customer. For helping the community succeed.

I think it'd go over big. And would draw a bright line in the sand.

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