Cable Operators

Dodgeball: Big Payoff From Dropping Prices

1/20/2006 7:00 PM Eastern

Time Warner Cable’s Los Angeles operation was losing customers in droves to satellite services back in 2001, and executives there decided to take drastic measures. They actually dropped their rates.

“We were in freefall in terms of customer defections,” Time Warner vice president of marketing for the Los Angeles division Dawn Callahan says. “Our value proposition was just out of whack compared to the offerings of the satellite providers.”

Time Warner Cable rolled back its digital basic rates from almost $50 a month to $39.95. And it hasn’t raised them since. “It was a big gamble. But it paid off,” Callahan says.

Churn virtually stopped dead in it tracks when Time Warner rolled back its digital rates and “satellite penetration flat-lined,” she says. Moreover, sales of incremental services rose significantly. Time Warner Cable’s current price structure works well for subscriber Ivy Weiss.

“My bill is so reasonable that I was able to add all the pay channels at such a good price that it was basically a no-brainer for me,” Weiss says. “My next step will be to add a [digital video recorder]. I am the only on my block that doesn’t have one yet … I also want to add Road Runner.”

Today, Time Warner sports a 76% digital-to-basic penetration rate, and Callahan says the operator’s basic digital-cable package, which includes basic analog cable, is now $1 less than its basic-only service. The rollback was done in stages, she says.

The operator started in Orange, Calif., and was so successful the project became known as Operation Orange. Every customer was pitched the price change via phone, either when they called in or by outbound telemarketing calls conducted by 30 in-house reps. About 60% of those contacted ended up adding services and paying more than they did before the price drop, Callahan says.

Time Warner’s digital penetration is expected to drop to industry averages when it takes over Adelphia Communications Corp.’s and Comcast Corp.’s Los Angeles operations later this year. Price points and packages will eventually be integrated with all three operations, but it will take time, Callahan says.

“What our entry level digital package costs and what theirs costs can differ by as much as $18,” Callahan says.

That will disappoint Andi Figler, a current Adelphia customer and a former cable-industry trade magazine reporter. “I know that I could save money if I subscribed to Adelphia’s high-speed data product [versus AT&T Inc.’s digital subscriber line offering), but I think I’ll wait for Time Warner to take over.”

Indeed, Time Warner’s efforts at pumping up the value of its products and services have worked so well that one local satellite service retailer has taken its own drastic measures. LA Activations Inc. of Santa Ana, Calif., has been luring consumers to call with toll-free numbers under names similar to Time Warner. The system is now suing the retailer for false advertising.

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