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    Telstra's fast marketing move
    By Neil Shoebridge, managing editor
    Friday, November 29, 2002

    Telstra is not letting the grass grow. Less than three weeks after the Australian Competition & Consumer Commission approved the content-sharing deal between Foxtel, which is 50% owned by Telstra, and the pay-television division of SingTel Optus, Telstra has launched a new bundled product package, offering discounts to Foxtel and discounted phone calls if people buy both services.

    The speed with which Telstra has introduced its first pay TV-telephony marketing spiel - more will follow later this year and into 2003 - is not surprising. Bundling is the holy grail of marketing in many industries, including telecommunications. Marketers know that the more products a person buys through one company, the less likely they are to "churn", that is, shift to another company. That is why banks are obsessed with cross-selling different products to individual customers, and why Telstra has rushed to put Foxtel into its product bundles.

    Subscriber churn is a big problem for every pay-TV company in the world. They spend thousands of dollars attracting new subscribers and hooking them up, only to have a large chunk churn each year. Foxtel will not reveal its churn rate, but industry sources estimate that it is about 30%: based on its current subscriber base of 800,000 that means Foxtel has to find 240,000 new subscribers a year just to stand still.

    Telstra believes that bundling telephony and pay TV will reduce Foxtel's churn rate, and build customer loyalty to Telstra. History shows that it is probably right. When telecommunications and pay-TV companies in Britain started offering bundled packages in the late 1990s, their churn rates dropped dramatically. Consumers were lured with attractive sign-on deals, and once they were buying several services through one company many could not be bothered switching to another.

    Optus has offered pay TV-telephony packages since 2000, but its network coverage is limited compared with Telstra's coverage. Optus has about 600,000 pay-TV customers and it claims that 43% of them buy more than one service from it. Like Foxtel, Optus will not discuss its subscriber churn rate, but it is believed to also be about 30%.

    Telstra says that over the past two years, 850,000 people have bought its "reward packages", which bundle home phones, mobile phones and internet services. "That will grow," says Telstra's group managing director, retail, Ted Pretty. "Customers will churn less in this environment because they'll get rewards from a financial perspective."

    Foxtel's short-term subscriber target is one million, and it believes Telstra's new marketing push will help it get there. But a word of warning for Telstra and Foxtel: banks have been pushing hard on cross-selling for several years and are starting to meet some customer resistance. Not all customers want to buy several products or services from one company, preferring to spread their business around. And, as the banks are discovering, customers do not want to be asked constantly to buy a new product or service. Customers know the banks are trying to cross-sell - and many do not like it.

    *****************************************


    This is only my view ... read the red stuff.



 
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