5 Price-Related Factors to Size Sales Potential
Shortly after the last episode of The Sopranos, we pulled the plug on HBO since most of its offering made infomercials look entertaining. Why pay incremental monthly fees when second tier cable regularly presents enjoyable new alternatives?
Fast forward, while scanning the on-demand stations for new movies, we came across a number of HBO options. When we tried ordering one, a screen appeared instructing us to call our cable provider, Time Warner Cable. My husband did so and was told that we had to add HBO’s service to our cable package. He tried explaining to Time Warner Cable’s agent that ordering HBO’s entire package wasn’t an on-demand service.
Why doesn’t a premium cable network like HBO use on-demand services as they were intended? As prospective customers, we were willing to pay a fee to sample their show but we weren’t willing to sign up for a pricy, on-going monthly subscription. HBO missed an opportunity to let us try their product for a fee and make some revenue on the transaction. Instead, they made nothing and we found an alternative.
5 Price-related factors to size sales potential
If HBO solely offers monthly subscriptions because they’re concerned that unbundling their service will yield less revenue, they should reassess their offering. To help determine the potential of your revenue opportunities, here are five factors and the questions to ask.
- Pricing. How are competitive products priced? How are similar products priced? What is the current product price? Can we bundle different options to appeal to various audience groups?
- Product. Which products do customers buy most? In HBO’s case, which of their shows and movies are most popular? What usage do you project for your new products? Is additional functionality needed to deliver these products differently?
- Audience. Are you missing potential market segments that would be interested in your product? For HBO, there are prospects like my husband and I would who pay for downloads but not a subscription. What’s the size of this market?
- Revenues. Will offering different pricing/product options cannibalize your current sales? If so, what’s the magnitude of this potential loss? If you only offer by-the-use pricing, how much do you need to sell to maintain profitability?
- Expenses. What’s the current cost structure? Are there incremental costs associated with changing product delivery? Is additional headcount needed?
In tough economic times, when consumers examine every purchase decision for value, it’s a good idea to try multiple ways to win over new customers and at least get some portion of their spending budget.
Photo credit: Tim Parkinson via Flicker