The pricing war in the consumer broadband market continues apace with lower and lower headline costs being announced every week. It’s becoming increasingly difficult for smaller ISPs to compete within this market, if you plan to compete based on price alone, that is. Realistically, only the big providers with large scale customer volumes can succeed with this strategy, and even then it’s not necessarily viable in the long term. With such a price sensitive market, is bargain broadband pricing driving customer churn and if so, how do we beat this to successfully retain customers?
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How does pricing affect churn?
It’s generally agreed that it costs more to attract and recruit new customers than it does to retain existing ones. Forrester Research suggests it could cost up to 5 times more! So, it makes sense to aim to retain customers and reduce your churn. Not to mention the ongoing marketing and general business benefits gained from having a happy, long-term, ‘sticky’ customer base.
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When a market gets involved in a price war, like residential broadband has, the market becomes increasingly sensitive to price changes. The focus becomes all about price – from the customers through to the suppliers; and often at the expense of other important factors such as service quality, resilience, reliability, customer experience and support.
Market competition becomes more and more reliant on providing the lowest price. When a supplier announces a new price cut or special offer, the highly price sensitised customers are attracted to this offer as opposed to having loyalty to their existing provider and simply (once out of contract) switch to get the best ‘cost based’ deal.
However, at the end of the day – you get what you pay for and this can often lead to customers receiving a less satisfactory service, which in turn breeds dissatisfaction and generates even more churn. It can easily become a vicious cycle for suppliers who will inevitably find themselves struggling to compete with ever diminishing margins.
Less margin means less money for investment into networks to ensure the resiliency and quality of the service, less training and staff resources to ensure the quality of customer support and less money for innovation and the development of new technologies for the future.
How do we change things?
The broadband market has not reached that stage yet but it is becoming increasingly price sensitive and we are concerned by the potentially destructive antics of price-focused consumer focused providers.
The truth is, broadband isn’t all about price. It is not (yet, at least) a commodity service and other factors such as reliability, good quality support and a robust network still have a major part to play. That’s why we advise all of our resellers against entering the price war- it’s just not viable in the long term. Instead, we suggest ISPs focus on differentiating themselves and adding value to their offering. There will always be some customers that just want the cheapest deal on the market, but there are plenty more that want more than that and are willing to pay for it.
These customers want a superior level of service, higher quality support and/or more added benefits (e.g. additional services, IT consultancy, etc). Perhaps these are customers that have previously had a bad experience from a cheaper solution or perhaps they are just more aware of the potential benefits of using a ‘quality’ focused supplier.
By targeting these customers you can not only attract them based on more than just price but they are more likely to become ‘sticky’ customers if you deliver your promised quality of service, generating recurring revenues and potentially even becoming advocates of your company. Win-win for the customer and the supplier!
You can find out more about the importance of ‘sticky’ customers in our eBook “5 ways to make sticky customers”.
Have your say!
Have you found it difficult to compete based on price? Are you successfully differentiating yourself in the broadband market? Share your experiences and opinions by leaving us a comment below.
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