How to Price Poorly & Alienate Customers – Sports Edition

It’s that time of the year – playoff fever has hit. Bars are full of sports fans drinking beer, eating wings and yelling at the TV. The anticipation is high while fans wait to see if their beloved team will make it to the next round.

Bar owners are also feeling a great deal of nervousness, but not for the same reason. Last month, Bell & Rogers sent out communication that they will be removing their sports networks – TSN (owned by Bell) & Sportsnet (owned by Rogers) from their existing packages and offering them as add-ons.

What we know so far are that the changes will only impact bars, restaurants & hotels with liquor licenses. Existing bundles (starting at $67/month) will no longer include TSN & Sporstnet (SN). These channels will be available as an add-on, pricing varies based on the establishment’s seating capacity (ranging from $135 to $675 per month).

What could have driven Rogers & Bell to abruptly restructure their packages?

1. Declining Market: Canadian Radio-television and Telecommunications (CRTC) verified these findings by reporting a 2% decrease in subscriptions in 2016. The impact of lost subscribers is estimated at over
$180M. 

2. Offset fewer customers with greater revenue per customer: Cable giants have been focused on this for a few years seeing success in 2015 when the average monthly bill went to $66.08 from $65.25 (+1.27%).  

3. Precedent: Residential packages already offer TSN & SN as add-on services.

They recognized that money was left on the table by providing TSN & SN indiscriminately to all liquor licensed establishments. Based on the knowledge that a sub-segment of customers value these channels above the rest, they restructured the package and created price fences to extract incremental revenue from this customer segment.

When Good Theory Met Terrible Execution

With five Canadian NHL teams plus the Raptors making it to the playoffs, a reasonable price increase would have met little resistance. But the execution by Rogers & Bell was flawed and came off as arrogant in its lack of empathy for customers’ needs. Issues include: 

1) Exorbitant Price Increase: Common sense would indicate that offering add-on pricing at 2 to 10 times the original cost of the base package would cause sticker shock. If value based pricing indicates that the two networks are worth $675 to a large venue, they would need to be taken over a series of price increases or via the introduction of a new package with premium offerings.

2) All or Nothing Approach: Since Rogers & Bell own these networks, third party providers claim they can
not impact pricing. In other words, if sports is central to your business model, you have no choice but to
accept these changes and pass it on by hiking beer and wings prices or finding cost savings elsewhere.

3) Appearance of collusion: Bell & Rogers own competing sports networks and are competing cable providers, the coincidence of them releasing changes simultaneously is not lost on the
public. An example of how similar the prices are between the competitors can be seen to the right.

4) Element of Surprise: Rogers & Bell had the ability to consult with partners such as Restaurants Canada to find common ground and gauge the market’s ability to absorb pricing. Instead they provided them less than 2 month’s notice during playoff season. In response Restaurants Canada have already
reached out to CRTC & Competition Bureau.

5) Highlighting oligopoly & inviting regulation: Recent public outcry has set the historically dormant CRTC on the warpath implementing regulations requiring “skinny” bundles be offered for less than $25, restricting license retailing wholesaler prices from suppliers and even suing Rogers, Bell & Telus for collusion.

With Rogers & Bell enjoying a privileged position as one of the big three, it is unnecessary to poke the bear, upset customers & burn alliances which is exactly what a 2-10 times price increase appears to have done

South of the Border Cable Providers Showcase how to Design Customer Centric Packages

Despite having greater variety of streaming options, Americans are cutting the cord at half the rate as Canadians. Experts have suggested that high prices in the Canadian market are to blame. To illustrate this point, below are the plans available to restaurants & bars by the US cable giant Comcast (~22%
market share).

The packages offered by Comcast adhere to revenue management best practices. They are built with a clear customer in mind as indicated by the “Target” section. There are a variety of price points available for entry and upsell. Specific to our discussion, there are three price points where sports channels can be accessed. As price increases, so does the variety and quality of content.

Final Thoughts:

Rogers & Bell would do well to learn from our neighbours in the south. It’s clear that they rushed through their homework and took a hasty one shot approach that enraged customers, partner associations & governing bodies. Given their history, they may very well get away with it. But in a world where cable TV is becoming increasingly irrelevant, they just made the case for regulation and alternative streaming services stronger. Talk about throwing fuel on the fire!


ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at [email protected]

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