How price guarantees can backfire

14Apr10

Phone and cable companies love to advertise ultra-low prices, only to raise rates considerably after the first 6 months or so. Apparently, some consumers are starting to catch on to these tricks, because I saw an AT&T commercial the other day that proclaimed their prices are “guaranteed for 12 months”.

It’s nice that AT&T is acknowledging the issue and trying to beat the cable providers, many of whom probably limit their promo pricing to the initial 6 months of service. But there’s a downside to this approach: when you focus on how long prices are good for, and it’s not a very long time at all, you’re encouraging customers to think about what happens after the initial promo period. In most cases, that means calling attention to price increases that are going to hit right afterwards.

In a perfect world, customers would be guaranteed fixed pricing for as long as their contract lasts. (Indeed, many cell phone contracts let you cancel without penalty if the carrier changes the pricing.) But if you aren’t willing to commit to consistent pricing for a reasonable period of time, like keeping prices the same for the first 24 months or limiting increases to 5% per year, it’s probably better not to focus on that issue in your advertising. The typical consumer probably keeps their phone service a lot longer than 6-12 months. Thus, promising them that rates won’t change for a year doesn’t sound like a particularly great deal to me.



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