Value – Pricing Gap

How do you convince your customers to pay for additional products and services that are required to fix problems with the original product/service they bought from you? That is a challenge and a tough act. No marketer can charge for something that does not add net new value. While the marketer would like to position the new product in its own standing, customers view it as part of the whole. So the values and prices are treated additive. Unless the new product/service adds net new value it leaves no consumer surplus for the customers.

One such product is femtocells, which boost wireless signals indoors. The market projection for femotocells show a 200 times growth from their 2008 numbers by 2012. But the challenge is asking customers to pay for it so they can use their cellphones indoors. For one, customers may not be using their cellphones as much inside their homes and for the amount of time use they may not see value in paying $100 for a device.

How should the mobile phone service providers market femtocells? The first step is to augment the product, like Sprint did with additional data services that by themselves add net value to customers at the price point attractive to customers. The second step is realizing that the 20 million units market projections are just that and do not translate into revenues or profits. All these customers may have a true coverage problem at their homes but that does translate into willingness to pay for the device. Instead of looking at this as a product for the entire market, they should look at those segments that have a need for the product and willing to pay for it. For example, shopping malls and department stores that want to provide better coverage to their customers as a value added service. Looking at the market segment by segment reduces the market size as measured by number of units but drastically increases the size in dollars.