Impact Pricing Blog

Why Verizon’s New Pricing Strategy Won’t Work

An article in the Philadelphia Inquirer was headlined as: “Verizon ditches hidden fees, cable bundles to lure cord cutters. Will Comcast, others follow?”

The article explains how the average “fee” for Verizon’s TV service is $37 above their advertised price. By removing these fees, they are hoping to stem the churn. I have mixed feelings.

First, I’m a huge fan of transparent pricing. I believe you should let people know what they are going to pay so they can make informed decisions. For that – I applaud them.

On the other hand, add-on fees are often “free money” to a seller. Buyers tend not to consider add-on fees as they make decisions, so having fees is a technique to boost profitability without affecting demand.

Back to the premise of the article.

Removing the fees will not stem the outflow of subscribers. The subscribers who are jumping ship are cord-cutters, going to the streaming video services like Netflix and Hulu. Verizon charges $50-$90 for TV services which even without additional fees is much higher than the streaming services. I’d guess that most people who leave Verizon were paying for both for a while and decided they didn’t need the Verizon TV service.

Lowering Prices to Appease Customers Won’t Increase Demand

So why is Verizon doing this?

I’m guessing of course, but it seems reasonable that they get tons of complaints from customers about their fees. The squeaky wheel gets the grease, so they want to satisfy their customers. This seems reasonable, but I don’t believe the fees are why people are leaving. More likely, it’s disruptive technology driving new and more attractive competition.

What lesson can you learn?

Don’t rely too heavily on customer complaints. Certainly listen to your customers, but think through and even research the likely outcomes of satisfying these customers. It doesn’t automatically mean more business.

Just my 1.9 cents.

Tags: pricing strategy, subscription, subscription pricing, value-based pricing

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