Question

Memo 5 To: Marketing Director, Residential Telephone Services From: Vice President, Residential Telephone Services Re: Customer Retention As you are aware, we are continuing to lose customers of our residential VolP telephone service. According to our recent marketing research report on the topic, many of our customers are dropping due to the expense of maintaining home phone service while also having wireless plans. I would like your team to consider whether we can take advantage of selective discounting to maintain higher retention. In practice, when customers call to cancel their service, we would offer them a significant discount (25 to 30 percent) off their current rate in order to retain their business. Customers would need to agree to maintain their service for at least three months in order to get the discounted price. Please put together a short response that states whether you think this plan would increase our economic profits, and whether there are any risks that we would lose money due to this plan.

Answer 1

Customers expect the best deal possible and so will surely welcome a discount.But discount will lessen profit margin.Profits will be more when VoIP sells its service at full price and will be less if the service is sold at a discount.So profit margin lost in discounting in order to retain customers,will have to be made up by putting more efforts in sale in future and making more deals at a higher price to compensate..

Discounting creates a number of problems for the service provider.These problems apart from squeezing profit margin , may affect customer satisfaction and also pose a threat to business.In order to maintain necessary margin of profit , the service provider will be tempted to find ways to lower cost.So the value of the service will deteriorate and business will be at risk.Customer dissatisfaction will make them look for other alternatives and they might leave . So business would lose money due to this plan.