Saturday, July 29, 2017

Value is What the Customer Says it Is

In the end, “value” is always what the customer says it is, even if suppliers spend lots of time trying to shape those perceptions. Consider “gigabit per second internet access.” That’s better than 40 Mbps or 100 Mbps, right?

As with all “you would rather?” or “which is better?” exercises, nothing much matters until price is part of the decision matrix. I would tell you a Tesla is better than a Hyundai, but that is an abstraction. The chances I’d actually buy a Tesla, compared to a Hyundai, are very low, because value is the issue, not only “quality.”

So it is that most Comcast customers, able to buy gigabit internet access service or lower speeds for less money, likely choose to buy the midrange speeds at the midrange price.

“Nearly 55 percent of our residential customers take speeds of 100 megabits per second or higher,” said Michael Cavanagh, Comcast CFO. All that one statistic tells you is that 45 percent of consumers buy speeds less than 100 Mbps.

It does not yet tell you what percentage of customers will shift to gigabit services, from all other speed tiers. One would predict that relatively few will do so.

Consider the behavior of Comcast’s initial Xfinity Mobile customer base. You would say these are the early adopters, and that might lead you to believe these early customers are the “high performance” segment of the audience. That does not seem to be the case.

“Most of our (mobile) customers are taking ‘by the gig’ (plans) versus unlimited,” said Dave Watson, Comcast Cable CEO. In other words, the lead adopters seem to be “value” segments, not “bleeding edge” segments of Comcast’s customer base.

Rarely, in consumer telecom markets, do most customers buy the “best” or “basic” packages of any product. Most buy the “better” or midrange packages, instead. The likely explanation is that customers see the best balance of features and price (“value”) in such packages. And suppliers likely anticipate that reaction and build their retail packages accordingly.

The point is that gigabit internet access is going to be a key marketing position, even if it does not represent the bulk of sales for firms about to offer basic-better-best packages. What gigabit does is shift the dynamic range of the potential offers, creating new “super-premium” tiers and also redefining “basic” and “better” tiers.

But consumers will still buy based on value, and for most, the midrange will still fit best.

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