Price Confusion as a Skimming Strategy

Slate posted an article recently that suggests that cellular carriers offer confusing plans to make extra money off people who aren’t willing to dig around for bargains, rebates, and better plans. There is a good deal of merit in the article, and phone companies have pushed obfuscation as a pricing strategy ever since the break-up of Ma Bell. Is it a good strategy? Treating customers poorly and giving them an incentive to leave or to game your system might seem clever in the short run, but it tends to be counterproductive in the long run. Companies that do this often spend more energy competing with their customers over price (see the airline industry) than adding value. Cellular carriers in the US have introduced a dizzying array of plans, but we lag behind Europe and Asia in cellular functionality– the kind of features that might add value and bring up price points. (US carriers also decided to build their own incompatible networks, driving up fixed costs, but that’s another story.)


  1. Scott Sehlhorst

    Hey Rubin,

    I’m not sure that it’s much different than a grocery store running coupons – it provides a way to price-segment the market without eroding profits.

    Some people are very cost sensitive, and will invest the time to get rebates, while others simply aren’t.

    The cell phone service provider can get a proportion of the coupon-cutters without eroding profits of the “I need a phone please” people.

    You may be right that it hurts in the long run, but only if there is a perceived alternative.

  2. Reuben Swartz

    Scott– you’re right that grocery stores and many other industries segment customers by their willingness to hunt for bargains. The difference with airlines and cell phones is that customers have the perception that some prices are “fair” and others are not. (Whether this perception is “fair” or not is another matter.)

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