Best of the ISP-Lists

Perception Versus Pricing

The community returns to an eternal dialup question: Why do customers subscribe to dialup service at prices as high as $19.95 when dialup is available for $9.95 or less?

[February 14, 2005]

On the ISP-Marketing list in January 2005 RS asked:

"I'm sure we've covered this topic before but I wanted to reignite the discussion from a different angle: Okay, I'm a consumer who received a new computer this holiday season. I need dialup Internet access. What would make me go to the $18.95 and up providers versus the $10.95 NetZeros and PC People Onlines?"

[JB responded] "Whether or not the provider had a local dialup number in my parent's rural home town. I travel for work, and sometimes you just can't get wireless in the airport either. You are subject to $3.00 per minute dialup to check your e-mail at the phone booth. I don't care what it costs, as long as I have access."

[JB added] "What goal are you trying to achieve with the question?"

RS fleshed out the question:

"We are working to refocus our dialup product. Currently for unlimited dial-up, we retail it at $18.95. With that you get the standard options, e-mails, personal webhosting, etc. plus free 24/7 technical support and friendly customer service and free e-mail virus and spam filter. However, some of these $10.95's are supplying the same, except for the free support."

[BC guessed] "I would venture a guess and say:

• You just saw an ad on TV as you were unpacking your PC.
• Your neighbors' kid who knows "all about" computers told you to.
• Your co-worker uses them.
• Name recognition.
• Your kids tell you about it."

[DM noted] "Just check them out carefully. They don't offer unlimited. I don't know if anyone actually does though."

[AR related] "We sell the same service (unlimited dial-up, email, personal hosting, spam+virus filtering), and free technical support for between $6.95/month and $14.95 month. The difference as we see it is the 'live-person' answering the phone when customers call for support. We hear the same thing from our customers over and over again: 'You just don't get that kind of service with NetZero'."

[BH detailed] "Perceived value. Look, people will pay a high price for something they want even if it's more than what they had wanted to pay. The $18.95 price must be justified in the mind of the potential customer, and it is the ISP's job to state why they are worth the price. AOL charges $22 (I think) and yet people continue to sign up because they perceive AOL as being somehow better.

The ISP must let the world know why they are better. Better tech support, friendly tech support, on-site service, Internet classes, free milk and cookies . . . whatever. AOL has managed to make the masses think they are better (you and I know different), and the independent ISP must demonstrate that they are better and worth the money.

If you can't figure out why you are better, try asking your customers—they will tell you why they like you. Then get permission to use the testimonials in your advertising because a testimonial from a customer is worth its weight in gold for marketing purposes. (If your customers can't tell you why you're worth the money then you have some very serious issues to resolve.)"

[BG replied] "Why use perceived value when you can use actual value? Why not cover several price points offering a progressive value chain—providing plans that offer upgradable features at progressive price points motivating more customers to upgrade? Why not offer a superior feature set to the "mass market" providers, i.e. usable web space, site building wizards, ecommerce store wizards, site templates, royalty free image libraries, anti-virus protection, blog building, self-serve management tools, etc...all bundled in with the access? Having a superior product can certainly justify a higher price—especially if you allow an end user to demo it before it they buy—without perception and will contribute to more appealing value, better objection handling, competitive differentiation, AND MORE SALES!!!"

[JG agreed with BG] "Perceived value is not enough. It only gets people in the door and if they learn your offerings are deficient relative to your advertising claims, they go away and don't come back. If asked after leaving they probably say unkind things about you to others.

The secret is offering a value that you can deliver. AOL offers EASY, CONTENT, SECURITY and NO. 1. AOL is losing customers because many of them are outgrowing the simplicity which attracted them in the first place. They have learned they don't need to be with Number One to be adequate. People have learned they don't need tons of content they don't use.

If you want to overprice what you offer, you lose in the middle and long run. Getting people to come back is tough and expensive.

Actual value is always some price relative to the market in its entirety. When the menu of options, features, image and all the rest that makes up a product or service 'value' is laid out next to its competitors in the market place, a real or actual value may be established. Actual value does not relate to cost, except that it must be greater than cost and allow for a profit if the seller is to survive.

Perceived value is arrived at by a customer, not a seller. If the customer has a good experience relative to what they thought they bought, their value quotient is high. If the customer's experience is lacking or unpleasant, or worse than what they had before, there is no perceived value at all, only dissonance."

[SK added] "What I would like to know is the technology part. Why would anyone think AOL has better technology? AOL have messed with dialup settings ever since I can remember. Even back to Windows 3.1 things were tweaked that just shouldn't have been. Netscape, something that was supposed to rescue AOL from its IE underpinnings never quite did that. In addition, I don't know many dialup users who sit there and download a 45 megabyte piece of software just to get online.

People don't leave a service just for the price, it's the service that keeps them there. Ever heard of brand loyalty? If I had a legacy ISP like that, I would have done much more to keep everyone there like better customer service, less advertising on the AOL page, and better cross-selling for the cable and DSL providers (Verizon has msn, etc.). I think AOL is offering Netscape dialup because they needed a brand that had recognition. AOL is a tarnished brand, and something has to invigorate them."

[TC reported] "There's approximately 120 million Internet users in the US. Over half have access to broadband but much less than that get it because of price (ignoring the areas not covered for the stat). The issues you all are raising are important: price, value, ease of use, etc. and should be considered. If the consumer already has access then most likely they'll have the new PC configured with their current access or use the one that comes with the PC—UNLESS someone they respect tells them otherwise and/or has some compelling reasons. Does your company have a compelling reason and is someone telling people to use your service?"

—End