Everyone has their gripes with Comcast, so let's examine their horrendous pricing strategy and discuss why your business shouldn't use their tactics.
It’s no secret that Comcast blows. Many of us are forced to pay top dollar for Comcast’s unbreakable cable TV and internet bundles because there seems to be a lack of competitive alternatives, and the prices continue to rise month after month. My roommate recently purchased a digital antenna for watching network TV in the hopes of reducing our Comcast needs to internet access exclusively (no other internet service provider has a license to operate in the city of Cambridge), but unbundling our basic cable/internet package deal wasn’t an option. She was told our bundle, priced at $72 per month, is $12 cheaper than simply leasing a cable modem and paying for internet access.
I won’t bore you with further details regarding our failed attempts to reduce Comcast’s monthly charges, and I’m sure many of you have your own gripes with the almighty cable giant. I find it incredibly ridiculous that it’s nearly impossible to receive internet service at a flat rate in my area (I don’t even care about watching TV, I stream Netflix with a Roku like a boss), but a lack of a la carte pricing is just one of many good reasons why the company sucks. Heck, there are entire blogs out there devoted to hating on the corporation and providing evidence of their evil strategies.
Is There Any Stopping Them?
However, while many out there think Comcast’s customer service and monopolistic tactics are horrendous, few believe that bad PR and continued price hikes will lead to their downfall. The latest financial reports definitely support the assumption that Comcast is unstoppable. Their total revenue during the second quarter of this year grew 7% to 16.3 billion, thanks in no small part to the acquisition of General Electrics 49% stake in NBCUniversal.
But if the company doesn’t change with the marketplace or increase customer satisfaction, innovative competitors entering the market will bring about the decline of the Comcast empire. There are already softspots in the market, and numerous companies are finding ways to fill the needs of dissatisfied customers while avoiding the heavy fixed costs of running a cable network. Before we delve into some examples of competitors who strive to challenge Comcast’s dominance, let’s take a look at what makes Comcast’s pricing strategies such bad business.
Price Discrimination Can Infuriate Consumers
Comcast has a very unique and annoying way of practicing price discrimination, which is the strategy of selling the same product at different prices to different groups of consumers based on the maximum they are willing to pay. While charging individual customer segments differently through product differentiation and bundling is usually acceptable, the way Comcast does it and their failure to communicate any valid reasoning makes them look like Darth Vader in the eyes of consumers.
When you purchase any of Comcast’s confusing cable TV and internet packages, they offer a limited promotion at a rate well below the profit maximizing price, then continue to raise rates until you complain or threaten to cancel. Then, and only then, will they offer another promotion or a small discount to keep you onboard (Tim Lee has two awesome articles explaining this irritating process, here and here). The problem is that customers are required to consistently hassle Comcast to keep prices down, and their efforts don’t necessarily ensure rates won’t continue to rise. In this way, Comcast can get the most out of consumers who give up trying to keep their cable bill from climbing or never attempt to contest price hikes in the first place.
This is the kind of strategy that makes your customers want to throw a brick through your office window, but the lack of regulation and competition (at least in many parts of the Greater Boston area) leave many customers with no choice but to comply. It would be nice if a utility regulator would step in and force Comcast to charge everyone a flat rate, but as Matthew Yglesias pointed out in his insightful post on Comcast’s price discrimination practices, “appointing good cable regulators is probably not a top priority for the median voter while appointing company-friendly cable regulators is a very high priority for Comcast’s lobbyists.” In other words, the use of regulation to smash cable monopolies might be great in theory, but Comcast will look for ways to get around it.
Forced Bundling & the Absence of Price Transparency
Move to Boston, call up Comcast, and try to get internet without paying an arm and a leg for something else. I dare you. As I mentioned before, my roommate couldn’t get rid of cable TV without paying twelve bucks more a month, and there’s further proof all over the web that customers are frustrated by Comcast’s severe lack of a la carte pricing. The seemingly endless list of equipment leases, add-ons, and upgrades is less about choices and more about requirements, and nothing enrages consumers more than paying for service features they could care less about. Most major cable companies utilize this practice of forced bundling, but the fact that this strategy is implemented almost universally by the big guys doesn’t make it any easier to swallow.
In addition, the endless amount of promotional offers and subsequent price hikes makes it extremely difficult for customers to know what they’re paying for and what services they’re actually receiving. Comcast’s complex pricing schemes make it almost impossible for consumers to figure out how much any of the bundles and offerings actually cost, especially once a promotion is over. The absence of simple, transparent pricing further reduces consumer confidence while increasing distrust, but Comcast’s monopoly status ensures they can deny customers the benefits of simpler pricing, fewer plans, and greater transparency.
Competition is on the Horizon
Even though these strategies are currently helping Comcast stay at the top of the heap, competitors are increasingly emerging and looking to challenge Comcast’s dominance in specific markets. If Comcast continues to lazily capitalize on existing cable infrastructure and offer mediocre internet speeds for high prices, then projects like Google Fiber that offer blazing download speeds at flat rates will eventually grow and attract dissatisfied consumers.
Smaller businesses are looking to give big corporations like Comcast a run for their money. One company called Karma has created a very appealing concept around a great looking, simple piece of hotspot hardware. The pocket-sized Wi-Fi router costs $80 upfront with 1GB of data included, and then you pay-as-you-go at $14 per GB. The karma part involves the use of social bandwidth to receive data bonuses. The network is accessible to anyone, but each user who signs in (via Facebook) gets the owner of the hotspot 100MB of free data. In addition, each new user gets a 100MB of free data too. Combined with the transparent, reasonable pricing and complete lack of contracts, the ability to share your connection and earn free data gives Karma an awesome competitive edge.
But nascent internet services aren’t the only source of competition. Many companies are sprouting up and using the surge in online television consumption to their advantage. While obvious ones like Netflix are attempting to revolutionize TV with their streaming network services and engaging original content, there are others that simply want to help consumers bypass purchasing basic cable packages just to watch network TV.
One such example is Aereo, which allows subscribers to stream over-the-air channels via tiny antennas located offsite in an Aereo warehouse. Pricing starts at just $8 per month, and the stream is attached to a DVR service that enables you to watch TV live or fast-forward and rewind. Unlike cable and satellite companies, Aereo doesn’t have to pay fees to the networks because streaming a broadcast doesn’t constitute copyright infringement.
Summary: Comcast's Monopolistic Tactics Might Work for Them, But They Won't Work for Your Business
Comcast has their hands in a bunch of different cookie jars, and competitors will have to attack multiple markets to fully take them down. Yet if a company’s success routinely sacrifices the satisfaction of its customers, it inevitably becomes more difficult to sustain growth and generate revenue. Comcast is so big that it may take decades for it to fall, but it’s more likely that they’ll be persuaded to can their current strategies before they lose the majority of their business to competitors.
If enough consumers hate the way you do business, other services will come up through the cracks and alleviate their pain points. Price discrimination, horrible service, and complex pricing schemes don’t pay off in the long run, and the only reason it works for Comcast is because they have dibs on such a large portion of the existing cable infrastructure. If more and more businesses like Karma and Aereo use innovative methods to bypass the old ways of doing things, and Comcast doesn’t attempt to change and improve how customers perceive the company, then the future isn’t as bright as it seems.
We’ve said it countless times, but your business exists to provide value, and the value your service delivers has to justify your price. Otherwise, you’ll persuade customers to look for alternatives or invent their own. No business can leave customer value and satisfaction out of the picture forever, not even a beast like Comcast.