Broadband penetration is reaching saturation, prompting operators to explore new growth and profit strategies. As operators plan a path forward, they must expand beyond traditional approaches like sales-channel optimization, marketing and advertising.
A low-cost approach to fuel further growth is to focus most closely on download speeds and pricing. A 3% to 5% revenue bump is waiting for those operators that can strike the perfect balance.
It wasn’t until recently that the average subscriber began to understand the correlation between faster download speeds and a better broadband experience. This is largely what has made the initial rollout of tiered data plans a success. But when it comes to creating tiers and setting pricing, most operators aren’t optimizing their offerings for maximum return.
Whether pursuing profits, subscriber growth or a mixture of both, creating the right spacing between tiers is key when designing a portfolio. Product spacing is the distance between the speed and price of various tiers.
Most of today’s offerings are not spaced for maximum revenue and growth, and are largely reactionary to the competition versus consumer demand. For instance, sometimes the pricing gaps between tiers are too large or there is not enough of a speed boost from one tier to the next for consumers to justify upgrading.
Operators that want to optimize their broadband product tiers for maximum revenue and subscriber growth must understand the following:
• Subscriber Price Elasticity: Price remains the top deciding factor for many subscribers, but their sensitivity varies by tier, bundle, tenure and market. Understanding how different subscriber segments will react to price increases is critical to driving ARPU and minimizing churn.
• Speed Elasticity: Today, consumers better understand and are more aware of broadband speeds, especially as they relate to download performance. Similar to price, speed elasticity varies across subscriber segments. In the future, consumer demand for other features, such as upstream speed or Wi-Fi, will also likely increase.
• Price-Speed Tradeoff: Varying sensitivities to both speed and price mean operators must investigate optimum speeds and their associated prices in tandem. True optimization stems from understanding how this relationship varies by tier, bundle, tenure and market.
Operators should arm themselves with this knowledge and the ability to test product decisions flexibly. This will help increase growth and profits, and help give customerservice representatives what they need to retain subscribers that want to cancel due to performance or cost issues. It’s important also to consider what the competition is doing to further optimize offerings.
Product and marketing managers should expect the economics of high-speed data services and the competitive landscape to change. As operators continue increasing speeds, they will eventually face network infrastructure and modem upgrade costs that need to be factored into pricing. As consumers become more educated about buying broadband, they will associate value with off erings like faster upload speeds, cloud storage, outdoor Wi-Fi, and home networking services that will drive the next wave of optimization.
However, for the time being, increased profits are there for the taking and will largely be driven by smart spacing.
David Noonan is a principal with IBB Consulting, a Philadelphia-based consultant to cable, media, wireless and technology firms.
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