Tuesday, April 3, 2007

Buying Decisions Hinge on Marginal Value

There's a curious paradox about user perception of value and the actual triggers that push a buyer towards one offering, compared to another. Consider all of the value any user gets from a mobile or fixed line phone, VoIP service, a broadband connection or Web service. When you get right down to it, a phone has to reliably make and receive calls. Perhaps half to 90 percent of the total value is there. The incremental value is provided by all the other attributes of the phone and its features, the calling plan and so forth.

To the extent that "voice" consumed as a standalone subscription service is a commodity, the discrete buying decision still will hinge on other differentiators at the margin. The point is that even a commodity service is not sold as a commodity.

Yes, all phones need to work. But then there's phone color, fit and finish, form factor, keyboard support, push or pull email functions, ease of navigation, screen size, multimedia support and so forth. Some brands are worth more to some buyers. Some users prefer candy bar form factors, others clam shells. Ability to customize is important to some users, not at all to others.

The presence or absence of just one feature can tip a decision for or against a particular service, provider or device.

Part of the buying decision may be based on relative strengths of a family plan, or the way text messages are billed (flat fee, by the message) or packaged (unlimited use, fixed number of messages or a la carte).

So consider commodity broadband access. Comcast is rolling out its upstream Powerboost feature now in Denver, and expects to have it available in all markets in May. The service offers 6M bps cable broadband customers 1 Mbps upstream speeds for the first 5 megabytes of a large upload, and 8 Mbps customers 2 Mbps upstream speeds for the first 10 megabytes of a large upload.

The point is that Powerboost is one way to differentiate what would otherwise be a plain vanilla access service. Raw bandwidth matters. The degree of bandwidth sharing therefore matters. But so does pricing, packaging and features such as Powerboost. Lots of mass market end users I talk to really believe cable modem service is superior to Digital Subscriber Line. Some even question the value of fiber to home access services such as Verizon's FiOS, which seems to be experiencing at least some deployment glitches.

Communications might be a commodity in many ways. Its purchase almost never seems to resemble a true commodity, though.

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