Home internet and media service providers face a unique opportunity to meet the unserved needs of an increasingly important and overlooked market segment — value-conscious consumers. The second annual EY report on the digital home is based on a survey of 5,000 U.S. households, with 43% representing the value-conscious Segment, defined as those with an annual household income between $10,000 and $50,000.
This is the cohort hit hardest by COVID-19, with 29% saying they have difficulty paying for their home internet service. As a result of the pandemic, this group is set to grow in both size and influence as value becomes an increasingly important driver within the digital home.
Here are five notable trends driving value-conscious consumers and some actionable recommendations on how providers can respond to their unique needs:
1. Leading the next wave of cord-cutting — putting mobile first. Value-conscious consumers are considering cutting their fixed internet connection in favor of mobile. Nearly a third (32%) of value-conscious consumers agreed they would be willing to drop their fixed home internet connection if a mobile option could meet all their needs, up seven percentage points from last year.
This reflects the finding that value-conscious customers tend to look to mobile first for connectivity, with 11% saying they use their mobile phone as their primary internet provider, compared to 3% for other income groups.
This preference is now being compounded by COVID-19. Of the households planning to switch their home internet providers as a result of the pandemic, 28% are planning to switch to mobile-only connectivity and cut their fixed internet services.
2. Unbundling the bundle — flexibility is crucial. Value-conscious consumers are increasingly unbundling from traditional pay TV packages in favor of streaming services. Forty-three percent of value-conscious consumers said that streaming is the primary way they watch TV/films at home, and 58% strongly agree it is a better value than pay TV. The value-conscious consumer prefers a la carte internet connectivity and entertainment to bundles — 40% do not purchase any other service from their home internet provider. Nearly half (46%) of value-conscious consumers said they are unlikely to bundle their home internet and wireless service. The top reasons for not wanting to bundle include: the discount is not large enough to warrant it (33%); customers don’t want to consolidate billing information for wireless and home internet (21%); and don’t want to pay for all communications services at the same time every month (16%).
This highlights two compelling drivers for this segment. First, they want to be able to add and drop services as their household finances change, rather than being tied to lengthy fixed-price schedules. They also require products that can adapt to a more transient lifestyle, preferring to access connectivity on-the-go rather than having it tied to a property address. This trend is underscored by data that shows value-conscious consumers are twice as likely to switch internet providers, compared to other households.
3. Low budgets do not mean low expectations — quality counts: While it’s tempting for providers to remove barriers to entry for this segment by offering low-cost, lower quality options, that would be short-sighted and unappealing for the value-conscious consumer. These customers don’t want the cheapest products, they want the ones that offer the best value. Nearly half (49%) of value-conscious respondents said the quality and functionality of the equipment that comes with an internet service played a significant role in choosing their provider. This is a crucial learning point for service providers, which have traditionally offered this segment stripped-down products and services.
4. New technology adoption is driven by value, not awareness: Value-conscious consumers own fewer smart-home devices than higher-income households, but this is due to a lack of perceived value rather than a lack of awareness. Only one in four value-conscious respondents said that the prices of smart products are reasonable. Although these consumers are not early adopters of new technology, they are not laggards either. They look for a strong value proposition before purchasing new technology and services.
It’s a similar story with 5G — 43% of value-conscious respondents said they are aware of the features and benefits of 5G mobile technology, not far behind high-income respondents at 47%. However, only 30% are interested in upgrading to a 5G mobile plan because they don’t see a tangible value-add for their needs.
5. Privacy and data security concerns are universal: Value-conscious households have similar adoption rates for data-protection tools as other income groups and are equally aware of the impacts of data privacy and security. Nearly a quarter (23%) of value-conscious households said data security/privacy products were an important factor when looking for a new internet provider — up 5 percentage points from the previous year and only just below high-income households (26%).
Providers have the opportunity to adjust their go-to-market approach and value proposition to meet the needs of the value-conscious consumer, and not just because of the pandemic. Such consumers are driving new consumption and adoption trends that are going mainstream. Thirty-three percent of respondents of all income levels said they are trying to pay less for their communications and content services during the COVID-19 crisis.
Instead of basic “budget” services, value-conscious consumers want services designed around their specific needs. Providers should also consider offering customized services and payment schedules that can adapt to changing household cash flows and lifestyles.
There’s no doubt that fully meeting these needs will be a challenge for service providers. However, those who embrace this growing segment and create products and services specifically tailored to them will be rewarded with a unique opportunity to capture market share, build brand affinity and generate new avenues to growth.
Vincent Douin is principal, business consulting at Ernst & Young LLP.
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