|
The cable industry has long sought to push value over price when it comes to selling broadband service. Will that be the right strategy this year?
By Mavis Scanlon
Last August, Cox debuted a new animated commercial for its high-speed Internet service that was a departure from its typical advertising. Part of a new campaign called "Fast Is Beautiful," the ad's funky, retro graphics included the message: "Do more on the Internet than ever before." The new ads coincided with an increase in the download speed of Cox's highest data speed, to 5 megabits.
The marketing campaign was an important one for Cox. Investors thought the MSO's high-speed data numbers in the second quarter were mediocre; Cox needed to bolster their confidence that it could continue to bring in new broadband customers in the face of DSL price cuts.
"We obviously want to be maintaining our fair share of the broadband category growth," says Steve Gorman, Cox VP, high-speed data.
The campaign resonated with consumers, Gorman says. And he has the numbers to back up that claim.
 |
| "We obviously want to be maintaining our fair share of the broadband category growth," says Steve Gorman, Cox VP, high-speed data. |
During the third quarter, Cox added more than 184,000 data customers to bring its broadband penetration up to 23.4%, among the industry's highest. That was up from the 98,000 customers Cox added in the second quarter, and the 145,000 customers added in the third quarter of 2003. August was the company's best month ever for high-speed Internet customer additions, Gorman says.
Between June and September of last year, as DSL became more widely available and telcos pushed lower prices for the service, cable revved its own marketing engines to court high-speed data customers, new and old. Operators touted higher download speeds and beefed-up security and content packages. In some cases, they made the service available sans an accompanying video service. Perhaps most importantly, the biggest operators, Comcast and Time Warner Cable, aggressively pushed promotional pricing.
By now, most are familiar with the third-quarter results: The top cable operators added 1.28 million new high-speed customers, or 55% of the total new high-speed customers added during that those crucial back-to-school months. Those numbers represented a rebound compared with cable's slightly disappointing second quarter, when DSL captured the majority of new subscribers. The big numbers underscored another phenomenon as well--the number of consumers signing up for broadband appeared to be accelerating, not decelerating, as many industry observers had predicted.
For cable, protecting its current base of close to 19 million modem customers will grow in importance as DSL continues pushing its lower-priced product. A deeper look at some of the successful marketing tactics MSOs relied on the third quarter reveals how they plan to continue adding new customers--and retain current ones.
"As much as everybody focuses on acquisition, the real key now is retention," says Bruce Leichtman, principal of Leichtman Research Group.
MSOs view broadband service as a pipeline to sell other advanced services, such as voice over IP. Telcos, cable's biggest competitors in the HSD arena, are poised to fight harder than ever for those subscribers.
With more than 30 million Americans connected to the Internet via a cable modem or DSL, high-speed access has moved beyond the early adopter stage. There is still a lot of room for growth, however, especially as more consumers download music, play games, create personal websites and send and receive big photo files. Eventually, dial-up will become virtually obsolete. Bernstein Research estimates broadband will account for 77% of total Internet access subscriptions by 2008, and 85% by 2010. But as the service spreads to the mass market, price sensitivity will become more of an issue.
Cox's "Beautiful" Campaign
Cox's third-quarter Fast Is Beautiful high-speed marketing campaign was planned out well in advance of the commercial's debut and of the speed changes to the network. The engineering changes to the network were completed over a weekend in August. The following week, Cox launched the campaign. It e-mailed customers, telling them of the speed changes, and it even made an official announcement on DSL Reports, the Internet forum where users discuss minute details of most broadband service providers.
Cox hopes to build on that momentum by looking for ways to make an emotional connection with customers. "When customers have the opportunity [to sign up with] many different providers," Gorman says, "it's important to consider things beyond price."
Time Warner's Upsell Strategy
Time Warner Cable plans to use "a combination of many, many things" to ensure it keeps its market edge over DSL, says Greg DiPaolo, VP, marketing, for Road Runner. Applications, content and service always are being improved, he adds.
Currently, Road Runner includes virus protection, firewall and anti-spam software. This year, it will look to add more parental controls and spyware to bolster the security of the product. With a VoIP phone offering in every division, the MSO will focus more on bundling this year. It also will target what DiPaolo calls "transactional marketing"--upselling and cross-selling customers into different product lines.
"This is not glamorous stuff," says DiPaolo. "But we never rest on our laurels and the fact that we have this market share lead."
Telcos have made strides--the service is available throughout 80% of their footprint, compared to about 55% in early 2002. That wider availability is not something cable can fight, DiPaolo says. "But it certainly keeps you on your toes and forces you to stay on your game and forces you to be competitive," he says.
In addition to adding features to the service, Time Warner is giving existing customers higher speeds--in mid-December the MSO upgraded its 3-megabit service to 4 megabits for download speeds, and its 4-megabit service to 5 megabits. Video e-mail also was recently introduced.
As much as the company says it won't engage in a price war, it will continue to entice new customers by offering Road Runner at a rate of $29.95 for the first six months.
Time Warner Cable typically spends 5% to 10% more in marketing during the third quarter compared to the second quarter. This year's media budget could ramp up by another 5%.
"Obviously there is an intense focus on the data category," DiPaolo says. "The iron is as hot as it gets, and we certainly want to capitalize on that opportunity."
Comcast's Promotional Pricing Strategy
Although Comcast has the greatest number of high-speed data customers in the industry, it actually lags behind its peers when it comes to broadband penetration. Completing upgrades in systems acquired from AT&T Broadband slowed its data rollouts. Still, the record 549,000 new high-speed data customers Comcast added in the third quarter accounted for 44% of the industry's net adds--a huge number driven by an aggressive promotional offer of $19.99/month for six months in several markets.
"Part of their strength is they've got a lot of upside," says Leichtman. As much as it is pushing lower-priced introductory high-speed packages, it offers a service packed with features, from the recently introduced video mail to game packages to news, information and sports clips in its "Fan" media player.
Insight's Database Analysis Strategy
Better targeted marketing and database analysis are themes that ran through several interviews with high-speed data marketers. Insight, for example, still was implementing new data analysis techniques in December that would allow for more highly targeted marketing campaigns.
The cable operator also is working on improving the product. It has upped the download speeds and added webmail to its high-speed offering.
"That was the No. 1 requested service," Bryan Smith, Insight's VP broadband services, says of webmail.
Insight also started marketing the service to non-video customers in its service area, i.e., satellite customers. About 10% of the 37,600 new HSD customers the company added in the third quarter are high-speed-only customers, Smith estimates. That's where its targeted marketing strategy comes into play. Insight is working with database marketing vendor Cohorts to identify DBS customers and target them with an alluring HSD message.
"We're going to be real aggressive in the future going after those customers and putting out attractive offers," Smith says. "We're finding that we can actually drive our business and actually have broadband leading to pull in other services."
This year, Insight will focus on bundling its high-speed offering with telephony in the systems that have launched both. It also plans to use retention offers. It is talking to Internet music services to develop music offers and is also exploring video offers.
"We compete primarily against companies like SBC and BellSouth," Smith says. They "are going to all be able to outspend us on a dollar for dollar basis. So we've got to be a little bit more nimble, a little bit more savvy, and a little bit more guerrilla-like in our tactics."
Charter's Targeted Marketing Strategy
 |
| "We're getting smarter about how to talk to our customers," says Barbara Hedges, Charter VP, broadband marketing. |
Charter also is seeing a benefit in targeting non-video customers with high-speed data offerings. "The strategy was to get into some of those homes that we either, No. 1, have never been in, or, No. 2, that were previous video customers that we wanted to give Charter another look," says Barbara Hedges, VP, broadband marketing. "We thought of it as building a bundle the other way." In other words, once Charter established a relationship with the customer with its high-speed product, it could then try and sell them video and phone service where it is available.
In other areas where it offers a full bundle, Charter is highlighting the price of the high-speed product. Even though it's part of an overall bundle, the lower-priced message of the data service is what the MSO hopes will stick with customers. And, like other operators, Charter is using security packages as a selling point. In this case, Charter uses the fact that its security suite is included in its higher-speed HSD tier as a selling point for lower tier subs.
"We're getting smarter about how we talk to our customers," Hedges says. With the huge base of dial-up customers still out there, it's more important for Charter to move away from talking about technical specifications to talking about the benefits of high speed, she adds. If the cable industry wants to move the bar on high-speed data penetration and maintain its current lead over DSL, it will have to do a lot more of that.
Back to this issue
|
