North Pittsburgh Telephone Co Essay, Research Paper

Main Issue

What pricing strategy should North Pittsburgh Telephone Company use and how will it be created?

Related Issues

What is North Pittsburgh’s performance to date?

What is the nature of the industry?

What is NPT’s competitive positioning in the market place?

What type of communication/media is needed to attract customers to the new services?

What types of implications are there for pricing?

Alternatives

1. Do nothing and offer CLASS Features on subscription rates charged monthly.

2. Offer CLASS Features on a usage sensitive pricing basis to customers.

3. Offer CLASS Features on a usage sensitive pricing along with subscription rates.

Analysis

As of 1992, North Pittsburgh Telephone Company had about 49,000 subscribers predominately North of Pittsburgh. This number includes 36,453 residential lines and 12,671 business lines. The expected growth of the company for the next five years was estimated to be 13.75 percent. Since this industry is at a regulated state, it could be considered a mature market. The total number of new lines would be 6755 new line (36,453 + 12,671 * .1375) over this five year period. NPT offers a reasonable price for their current services, and must stay competitive with the industry in the area, because the telephone industry is regulated. If NPT were to do something drastic, Sprint/United, to the north or Bell Atlantic, to the south, will here about this and file a claim to the PUC. The PUC is the regulating body for the telephone companies.

The current marketing communications used by North Pittsburgh Telephone Company are very scarce. In the case, it explains there are no types of media that affect all of their customers. There are local newspapers and cable outputs that are spoken of. In addition, Greg stated that the reason that so many customers know of other features is because their competitors advertise heavily. Customers call up with expectations, given from competitors advertising which makes NPT have to stay one step ahead on technology and offerings. They do hold technology seminars and have speakers come out to talk about NPT and the services that are offered. This is good, because the highest response rate comes from direct contact with a customer involving the understanding of the services. Customers will stay loyal if a company emphasizes customer service quality.

The biggest issue for pricing, if you are in a competitive pricing market, is to make sure that you stay relatively close to your competitors. The current strategy for NPT was to have each feature charged at a monthly rate. The list of features is shown below along with the cost per month:

Features: Cost per Month

Return Call (*69) $3.75

Select Forward (*63) $3.50

Select Accept (*64) $3.50

Call Block (*60) $5.00

Priority Call (*61) $2.75

Repeat Call $2.75

Call Trace (*57) This is used for threatening calls, free of charge

These are considered all of the CLASS features available from NPT. If customers subscribed to two or more of these services per month, there was a subscription discount given, on a monthly basis, ranging from 15% to 30%, depending on the number of features that were selected.

For the rates, I would choose to charge a flat monthly rate for each service. The average amount of these services is $3.54, so charge $3.50 per service. Also, since the company does not have much research supporting the usage sensitive cost per feature used, I would choose $.50 initially, and then from there increase or decrease the rate accordingly. The number of uses per month per line is expected to increase over the five-year period, but is initially estimated to be eight activations per month per line. This would equate to a $4.00 cost per month per line.

The first alternative for NPT is to do nothing and continue to subscription rates as a monthly charge. Customers would be charged a single rate payable each month and could be allowed to use unlimited services. Under this method, NPT will know what they are going to be making on these services per month. The disadvantage of this is that they may not realize that if people are using these services a lot, there can be more revenue produced, versus charging a monthly rate. In Exhibit 1, page 521, it shows that the projected percent of lines using CLASS on a usage sensitive basis is much greater than the projected number of lines subscribing to CLASS on a flat rate or a subscription basis. The overall percentage difference over the five years is equal to 91% more lines using the usage sensitive basis. The main advantage is that this creates higher customer service value, because customers know what they are going to be paying for.

The second alternative is to offer CLASS features on a usage sensitive pricing basis only. This method is considered a per use service. Everytime a customer uses one of these services, the customer is charged a given rate. The main advantage of this is that NPT will gain more incremental revenue, based on the increase in the number of lines using the CLASS features on a usage sensitive basis. Also, the number of activations (Exhibit 1) per month per line is expected to increase over this same five year period. Another advantage for using this alternative is that the customers that don’t use these services very often are going to e paying for what they use, not paying for an amount that they did not use, the monthly rate. A disadvantage of this is that the customers who use the CLASS features a lot are going to be charged for every single time that they use the service. This can be rather costly and can turn customers away from using this company as its local carrier. Customers also have the ability to use the features immediately, meaning that all they have to do is type the correct code to activate the feature. They do not have to call up the telephone company and waste time waiting on hold just to change the features that they want.

The third alternative is to offer CLASS features on a usage sensitive pricing along with subscription rates. This alternative can give the most elasticity, by combining the two advantages of the previous two alternatives. The advantages include better customer loyalty, better offerings, ease of use, and better use of time. Customers that use these features a lot could stay with the subscription rate and the customers that use the features infrequently can use the usage sensitive pricing. The down side, on the customers’ side is that customers may not realize the new alternative right away and may be paying too much for the features. This is an advantage for NPT. The $35,000 to $50,000 over five years for training would be in the best interest of the customer, and may increase customer service value.

Decision

After creating a decision matrix, I concluded that the best alternative would be to offer CLASS features on a usage sensitive pricing along with subscription rates. The rate for subscriptions would be $3.50 per month per line, and the cost per use would be $.50 per month per line.