Expert sees dangers in promo pricing trend

Broadband and wireless service providers are too focused on courting new customers, often with promotional pricing offers, and need to instead work harder to keep their current customer base content, a leading global consultant on telecom pricing is advising. Andre Weber, partner at Simon-Kucher & Partners, warns that U.S. service providers, in particular, are training their customers to shop for the best deal by constantly offering promotions to lure new customers.

“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.”

In Europe, Weber pointed out, mobile service are approaching 100% penetration, “and even still they are looking to new customers first – service providers will come to realize it is more important to enrich existing customers and upsell them and make sure they are happy than it is to constantly court new customers.”

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.