A couple weeks ago I wrote a blog post about bundles. This week I saw the headline of an article in the Pittsburgh Post-Gazette Internet Providers Promote Bundle Deals, and I thought – “good timing”. Well, the article is not really about bundles, it is about different prices for different segments, but the timing is still good.
The article points out there are an average of 5.7 internet connected devices in each home in the country, and that is fueling a demand for more speed. However, the article also cited several ISPs in Western Pennsylvania who offer stand-alone internet access at relatively slow speeds for $19.99 per month. Why do they do that if the demand is for more speed?
The internet service providers are simply executing a classic segmentation strategy. Customers are not all the same. The ISPs have recognized that and created offerings that cater to common levels of needs and have prices that reflect the values of those needs. Some customers use their internet connections primarily for email (“Emailers”), and relatively slow speeds work just fine. While these customers might like a faster speed, it would have a negligible effect on email, and it would not be worth a higher price to get the additional speed.
At the other end of the spectrum are families that frequently stream video (“Streamers”). At slow bandwidth speeds, streaming can be very frustrating. The Streamers will gladly pay more for extra speed.
In the middle are people who do a mix of email, web surfing, and social media (“Social Surfers”). It is frustrating to wait long periods for web pages to load, and Social Surfers are willing to pay extra to speed that up. However, if the Social Surfers are not downloading huge files, they probably won’t be willing to pay for the fastest speeds. Something in the middle will do.
Of course there are more than just 3 groups, and the ISPs are trying to identify those different groups and offer packages that cater to their needs. For example, I would put myself in the group of “Get a Lifers”. I frequently work from home and download or upload large data files. I don’t stream much video, but I need bandwidth to handle the large files. And of course there is my neighbor who is a “Gadget Head”. He wants the fastest speed, just because it is available, and he will gladly pay for it.
The point of this post is not to come up with catchy names for the different groups (I hope you liked them), but to give an example of good segmentation. In all of our businesses, it is a huge error to assume all of our customers want the same thing. Customers have different sets of needs. The most effective companies are able to identify clusters of customer needs and create offerings that address those clusters. They also recognize that their customers will place more or less value on the offerings depending on how well the offerings match their needs, and they set prices that reflect those values. T hese companies make a lot more margin in the process.
Let’s think about the alternative, which is one price fits all. If we target the average customer, we will create an offering that meets that customer’s needs at a price the customer will pay. What about the high-end customer? If our single offering that meets the average customer needs does not have everything the high-end customer wants, we will never get the high-end customer. On the other hand, if our offering meets the high-end customer needs, but we sell it at a price the average customer will pay, we are likely to lose money. We get a much better answer if we segment our customers according to their needs, tailor our offerings to those different needs, and charge prices that reflect the different levels of value for each segment.
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