Many telecommunications companies are banking on the fact that consumers want their long-distance, local, Internet, wireless and cable TV services-or some combination of these-bundled on one bill.
Regional Bell operating companies, as well as long-distance and wireless companies slowly are moving toward the process, offering some bundled services and seeing it as an important part of their corporate strategy.
Most are highly interested in the strategy because of expected competition throughout the telecommunications industry as a result the 1996 telecom act. Retaining customers is a key issue for most telecom providers, and they figure the more services a consumer is buying from them, the less likely they are to churn. RBOCs have their eyes on the long-distance market and see bundling as a way to penetrate that business. Long-distance providers aim to enter the local market. Others are trying to sell more of their core product and are offering bundles that encompass those services.
It still is a long road to true bundled services, and market researchers and carriers don’t know to what extent consumers want bundled services. Though many consumers indicate in surveys that they desire to purchase all telecommunications products from one carrier, when digging further into the attitudes of consumers, they’ve set some strict conditions under which they would purchase such services.
Consumers indicate a high interest in purchasing long-distance, local, Internet, wireless and cable TV service in some type of package, said Noel Dunivant, managing director of marketing research and consulting with Chapel Hill, N.C.-based FGI Inc. But it all comes down to convenience and price, he said. Dunivant has conducted numerous focus groups to study consumers’ attitudes toward bundling. He concludes that consumers expect a single point of contact for customer service and significantly lower prices on the packages they buy.
Dick Wolfe, senior partner at Driscoll/Wolfe Marketing & Research Consulting in Palos Verdes Estates, Calif., said of the consumers he has surveyed, the majority want flexibility and lower prices. Consumers have been predisposed to lower prices in the marketplace, he said.
These facts aren’t good news for many telecommunications carriers that are spending billions of dollars to integrate separate billing systems and operating units to come up with a seamless package of products to offer to the consumer. The growing pains for most carriers begin with developing billing systems capable of supporting the different services that spit them out on one bill. Incumbent RBOCs and other established carriers are at a disadvantage because most have old Legacy systems that are capable of billing for only one product. Many have to re-engineer the entire system, outsource or start from scratch. Training personnel and setting up one point of contact for customers, as well as integrating numerous business units, is expensive.
“It’s a challenge for carriers to reduce prices, which is what is required to meet consumer expectations … It’s not clear to me that in the long run, bundling is going to be a viable avenue of business for the carriers, primarily because of the expense involved in both billing and customer service,” said Dunivant.
In addition, market researchers believe how a carrier presents bundled services will significantly impact consumers’ take rates. And if carriers want to use bundling as a way to protect their core customer base, they will want to offer predetermined packages to consumers, which consumers may not want.
Wolfe says consumers hesitate to buy packaged services if they aren’t allowed to pick and choose from a menu.
“What customers are saying is that I’m willing to select certain services. If I like them, I’ll use them more and more, but I shouldn’t be forced to have those,” said Wolfe. “Many packages are designed to know what the pay back is going to be. What the consumer is saying is that they can only pay so much money, and they’re not going to do it unless the combination is right.”
According to Glynn Ingram, president and chief executive officer of Unity Communications Services, a startup one-stop shopping company that offers a menu of telecommunications services to business customers in Jackson, Miss., when companies focus on stimulating more purchases of their core product, like long-distance and local service, everything else is an add on. That translates into poor customer service execution because customer service representatives are given the incentive to push sales of that one product, he said.
Unity began reselling different telecommunications services seven months ago, targeting business users interested in picking and choosing different services like Internet, paging, cellular and long-distance. Based on his company’s success in Jackson, Ingram plans to expand service to other Southern markets this year. He said he offers competitive rates, but not significant discounts.
MCI Communications Corp., which claims to have built a successful business offering integrated services to business users, said it offers 25 different services customers can choose from, ranging from calling cards to Internet access and cellular telephones. Customers can choose any combination of services they want, and the more they use, the better the discount they receive. But these examples reflect the take rate of the business consumer. It’s also significant to note that MCI’s wireless business has suffered since the company stopped offering the service as a stand-alone product. Fourth-quarter revenues were down $4 million from the previous year and MCI’s number of customers increased by only 2.7 percent from the same period a year ago. MCI has said these results reflect its decision to reduce efforts to market wireless as a stand-alone service.
Segmentation may be a strategy for some carriers. A recent study from Business Research Group in Newton, Mass., indicates consumers are least satisfied with the services from the markets in which no competition exists yet-like cable TV and local phone service. It surveyed consumers, asking them which services they would like to purchase from wireless companies if they received discounts and charges on a single bill. Seventy-one percent said they would purchase cable TV service, while 61 percent said they would purchase local service. Fifty-four percent said they would purchase landline long-distance from a wireless carrier. BRG recommends that carriers structure bundled offerings based on these demands.
BRG’s research also shows that the likelihood of purchasing multiple services from one carrier increases if consumers use a cellular phone or pager or as household income increases. Carriers can use this information in advanced market segmentation, which will require knowing consumers habits in every area of telecommunications, said BRG.
“In order to identify a best-in-class customer profiling system, one would need to look beyond the traditional telephony business,” said BRG. “Telecommunications is transaction-intensive. Therefore, transaction processing-intensive markets including banking, financial services and travel-related services offer a good example of segmentation strategies. Visa International, for one, gathers more than 500 data points on each of its business and residential customers. Customer segmentation and profiling is paramount at the travel-related and financial services firm.”
BRG noted that segmentation is a significant priority among the top 28 global multimedia communications service providers. Some carriers have put in place “cafeteria-style” marketing strategies that require consultative sales skills while they ramp up segmentation marketing systems.
