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August 06, 2012

Sometimes, Unhappy Consumers Continue to Buy Products, But Not 'Forever'

By Gary Kim, Contributing Editor

There are two main lines of thought about consumer behavior when it comes to products that are consistently challenged in terms of customer satisfaction, but which continue to be purchased.

The first line of thought is that consumers sometimes “must” buy certain products, and will buy the “best out of a poor field of alternatives.” That implies that any particular product provider (airlines or video entertainment supplier, for example) only has to be “better than the other alternatives.”

The other implication is that even when significantly unhappy with the overall industry level of service or product quality, consumers will keep buying, if the product is needed. Consumers might switch suppliers, but won’t “stop buying.”

That puts some limits on the danger of customer defection. Customers switch suppliers, but if all suppliers offer relatively comparable products, the big problem is market share, not abandonment.

The second line of thought might be that massive levels of unhappiness, combined with the right technology and business enablers, can sometimes lead to the creation of entirely new rival products that can displace a whole earlier category of products.

For video service providers, that latter scenario is the truly dangerous possibility. It is one thing to fight tooth and nail over the tactical details of pricing, packaging and marketing. It’s another, however, to face substitute products offering an order of magnitude better user experience.So far, the subscription video entertainment business has not faced such competition. But the level of danger rises almost daily.

According to a new survey conducted by Alan Quayle, 88 percent of respondents say they pay more for service than they would prefer. Some 41 percent consider subscription TV "expensive" and 24 percent are evaluating options to lower their bills.

And yet, for decades, 90 percent of U.S. households have continued to buy subscription TV, a product that routinely scores among the worst of any U.S. products, on a consistent basis. Nor is it unusual for any survey to find a significant percentage of users contemplating a change, especially to over the top alternatives such as Netflix, Hulu (News - Alert) or YouTube. The most disliked companies in America once again include airlines, utilities and banks, according to the latest cycle of ratings from the American Customer Satisfaction Index.

Of the top-11 most disliked firms, cable companies followed two power companies in the index.Charter Communications (News - Alert) was ranked third, according to ACSI. Comcast ranked fourth for its video service. Time Warner Cable was ranked sixth.

Cox Communications ranked seventh for its video service. CenturyLink ranked 11th – the worst ranking for a telco. DirecTV (News - Alert) ranked 14th on the list.

Virtually all respondents to the Quayle survey watch shows or movies from the Internet, with 27 percent watching them on a standard TV using Roku, Smart TV, Apple TV, Boxee (News - Alert) or other devices such as game playing consoles.

Up to this point, most observers would say that over-the-top video viewing complements subscription video entertainment. The issue is how long it might take before the gradually increasing amount of professional video available online becomes a substantial percentage of the content people expect to see when buying cable, satellite or telco video.

On the technology front, with faster Internet connections and diffusion of smartphones, tablets and other devices, the ability to distribute video to massive audiences directly from the Internet is becoming possible.

Content providers will have to be convinced that doing so is at least no worse, financially, than what they already are doing, before any major switch occurs. Until that point is reached, unhappy video subscription buyers won’t have really compelling functional substitutes.

Of course, there is a third possibility, aside from unhappy consumers choosing rival suppliers or choosing new delivery methods. A growing percentage of consumers, though still a small minority, seem to have decided subscription entertainment video is not generally something they want to buy.

Of the dangers facing the subscription video business, the least danger comes from consumers choosing alternate suppliers (cable, satellite, telco). The more disruptive threat is a shift to online viewing. But the biggest danger of all is simple consumer disinterest in the whole category.

As with most major disruptions, we are likely to see small, continual, almost imperceptible changes that suddenly erupt, at some point, in major change.

The Quayle survey confirms, once again, high levels of dissatisfaction. The issue now is when a major break in the business will occur.

Want to learn more about the latest in communications and technology? Then be sure to attend
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Edited by Braden Becker
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