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Marketing and Competing

Fortnightly Magazine - April 15 1997

can be performed, it is clear switching grows rapidly in the range of 10 percent price differentials, while 20 percent price differentials do not seem to cause commensurate increases (see Table 4). Additional research would increase the accuracy of these results, but these price points effectively outline the impact of price differentials on market share changes between long-distance providers, addressing the dual issues of price as a tool to gain market share, and being able to retain market share and sustain a significant price premium over time.

For example, with no discount offered, the 10-Cents-a-Dance group has comparatively high loyalty to electric service providers than the cable TV or local phone company. However, 95 percent of them are willing to switch electric providers with a 10-percent discount. With no discount, 18.5 percent of the respondents in the Middle-of-the-Road group would switch their local telephone service provider. That number jumps to more than 50 percent when a 10-percent discount is offered. As might be expected, the Stuck-in-the-Mud group is unlikely to move from their current telephone company: Less than 2 percent would switch despite a 20-percent discount.

The willingness to switch long-distance companies shows some interesting differences. The most notable shift is the markedly decreased interest in switching by all groups, especially the 10-Cents-a-Dance group. When asked why they switched long-distance telephone providers, the most popular reason (em price (em accounted for about one in ten households responding to the survey (9.26 percent). For one in every fifteen responding households (6.92 percent), inducements offered by a competitor were enough to make people change. Quality and the opportunity to enhance quality account for less than one household in twenty (2.94 percent), while advertisements accounted for even fewer potential switches (1.97 percent). Some households switched because another carrier offered additional services (1.87 percent).

Cable has a poor perception in the marketplace, a result verified by analyzing the switching clusters. Cable scores significantly worse in terms of good value and overall feelings. Almost every group is highly likely to switch its cable company given the opportunity, with the exception of the Stuck-in-the-Mud group. At a 10-percent discount, more than one-half of the respondents in the other groups would switch and at 20 percent almost all the 10-Cents-a-Dance group would switch.

Seizing the Opportunity

While most electric utilities view neighboring power suppliers as their primary competition, in fact, competition may be more broad. Consider that consumers already subscribing to cable TV, long-distance and local telephone may be willing to buy electricity from these vendors as well.

Deregulation is, of course, a two-sided coin. Customers in other regions may be willing to buy electricity from a non-native utility. Customers may be willing to buy other services, cable, natural gas or telecommunications from their existing electric provider. Bundling, the provision of multiple levels of service, may offer valuable opportunities to retain desirable customers.

Categorizing customers into segmented clusters can help providers gauge consumers' likelihood for switching and the reasons behind electing to change. This information is critical for developing programs and services focusing on customer attraction and retention.

Segmenting