Thinking about the short term versus the long term

Unlimited plans offer a great way to penetrate the market if your competitors don't offer them. But why don't they offer them? It is possible they discovered early that the costs outweighed the short term gain

A good question to ask when you're considering implementing unlimited plans is this:

What's the underlying driver: A well thought-out business strategy OR an attempted shortcut?

The Value Question

The critical balance that exists between vendors and customers is build around the question of value.  Value is a nebulous thing -- primarily determined by the perception of the customer but influenced by key decisions by the company  If there's one thing companies don't want to do, it's undermine their perceived value via poor business decisions.

Unlimited service plans carry the risk of (indirectly) hurting the long term prospects of companies as they  pursue of short term competitive or sales advantage.

Price Sets Value

Whether your prospects agree or not, your pricing tells them what your company's perspective is on the value of your offering.  Most pricing experts will tell you that anchoring to value is a critical aspect of pricing and profitability.  One thing is for sure, your company doesn't want to be one driving down the perception of your offering's value.

Skipped Steps

It is extraordinary how many businesses have no clue where their customers' draw their "value lines".  Value lines refer to the points at which customers see justification (even if they don't like it) for higher pricing.  By setting up unlimited plans, many companies never face the challenge of figuring out those lines.

Knowing those lines is extremely valuable, especially as your company develops new products or services and starts packaging them in different ways to maximize revenues and profitability.

Nowhere to go but down

Would you ever want your business to have nowhere to go but down -- especially in the minds of customers? Sometimes, that is the position companies are putting themselves in -- by offering unlimited packages.

Companies need to be absolutely sure that they can sustain the underlying cost and business framework to support unlimited plans.  Whether it is investor pressure to increase margins or cost pressures from changing input costs, there are situations in which unlimited plans can leave companies with nowhere to go as customers refuse to accept pricing increases or service limitations.

Extraordinary vs unlimited value

What's the goal in providing an unlimited plan?  Usually it is to provide superior value and a better customer experience.  When there are no limits, customers can freely indulge themselves in your products or services without having daily or monthly limits on their mind.

The question is, over the longer term, does the perception of value sustain itself in the minds of customers?

In many cases: NO.  The reason is the fundamental disconnect between price and quantity.  Hence, price and value are no longer connected and in the mind of the customer a sense of entitlement develops along the same lines.

In essence, your company is relinquishing the right to charge more for more value -- dangerous if your cost structure or bottom line pressures change. Companies with unlimited plans often find themselves in competition with themselves -- or their former selves when they eliminate an unlimited plan.

In our minds, the right approach is by default to have a limit -- it can be set higher than competitors but should still have a connection between price and value.  In exceptional cases, where the company faces limited input/production cost risk and a less demanding set of investors, unlimited plans may be less of a risking maneuver.

Customers You Don't Want

Is there ever a customer you don't want?

Ask companies like Netflix and Starbucks, which find themselves trapped by a subset of their customers.

What was the critical factor that put them in that position -- unlimited service plans without a clear way to back away from it when required.

Those less than ideal customers don't just want value, they want a bargain.  They are not easy to glue to your brand and they put price first by a wide margin over any other attribute of the products they buy.

Example 1:  Netflix

Recently, when Netflix tried to raise prices, it ran into a particularly loud segment of its customers

Truth be told, those customers were gaining excessive benefits from the service (including some that were receiving 30+ DVD's a month and making perfect copies of them all for $12.99 per month or less)  Understandably, they couldn't believe their good fortune when Netflix came along, but equally were most upset when Netflix started to right that imbalance.  By offering an unlimited rentals plan, Netflix had lost its ability to maneuver with customers and was left with "nowhere to go but down".

Example 2: Starbucks

We've all seen them (or been them): Squatters -- sitting at Starbucks for 3 hours or all day after buying $2 worth of coffee.  Can you imaging what happened when Starbucks tried to put limits putting on people siitting at their stores for long periods.

All kinds of questions arise when you take a strategic view of the unlimited free seating at a coffee shop. The overall growth potential of a business has to be questioned when customers have to be given unreasonable benefits for buying a product.

In what context would anyone get a comfortable place to sit for several hours for buying a $2 cup of coffee? For a time, coffee shops pursued the rational limits on seating -- but the uproar from their customer bases (not just Starbucks') forced most back to the unlimited plans.

False sense of success

At a higher level, there is a false sense of success that unlimited plans create in business -- usually an unsustainable one.  Its like a disguised loss leader at a car dealership -- if all cars were sold on the same basis, then there would be very little money to be made in the business.  A key takeaway from this examination of unlimited plans is that while at first they are good for both the company and the customer, eventually both suffer when the company is forced to jeopardize its customer base by changing its unlimited plans and customers feel betrayed when an extraordinary value is taken from them.