Matching Big ISP Tactics

There are three billing practices that are routine for large internet service providers (ISP) that smart competitors avoid. First is offering special low prices to attract new customers. The second is bundling, which means giving a discount to customers buying multiple products. Third is what has become known as hidden fees, where there are routine monthly fees that are not included in the online advertised price offers to customers. A lot of smaller ISPs wonder if they should match these same tactics. The argument for copying the tactic is that it allows advertising rates that can be compared to what the big companies advertise. The main argument against matching these tactics is that the practices are deceptive, and customers have made it clear that they don’t like these tactics. I’ve seen ISPs that start with the simple, fair rate philosophy and get sucked into offering discounts to try to win new customers. Their marketing folks become convinced that matching the big company techniques is the only way to get new customers. I’ll grant that mimicking the big guys is probably the easiest sales technique, but acting like the big ISPs is a poor long-term tactic for the following reasons:

• Promotional rates tell customers that rates are negotiable, and once an ISP goes down that path, customers will ask for breaks forever. Many consumers are used to negotiating with the big ISPs and will do so with the small ISP as well.
• These tactics tell customers that your rates are too high and that the real rate is the discounted rate. Customers who are too timid to negotiate for lower rates feel cheated.
• Unplanned discounts can be devasting to cash flows and meeting financial objectives. If your business plan and budgets are based upon a specific set of rates, then giving discounts lowers the average revenue per customer. Do the math and consider what happens if the average revenue for all of your customers drops by $5 or $10.
• Matching the big ISP tactics also attracts customers who will drop an ISP for a small discount elsewhere. Every few years, they will compare you against the competition and will take the best offer. ISPs with fair rates tell me that they rarely lose a customer to special rates – and that might be because they don’t attract customers who get a thrill out of bartering.
• Finally, special discounts complicate your dealing with customers. The ISP now has to track when special promotions are finished and notify customers that rates will increase. This likely means having to talk with most of your customers, and calls to the call center will skyrocket. It’s important to remember that most customers view the perfect ISP as one they never need to talk with.