Local clients locked in annual commitments with competitors
I'm planning on entering the local market in my town and there are 5 companies who provide web hosting in one capacity or another. All of these companies also provide web design. I'm also planning on providing a lot of web-related services however I will be using sub-contractors for design/development.
Now the thing is, most of these firms use their web design services as the main hook and web hosting is really just an ancillary service. However I'm trying to use hosting as the main hook. Basically you need a house first before you can paint it. Also most of these companies have annual commitments. The plans are paid monthly, however there are early termination fees.
As this is a local market, there are price premiums associated, but I will be entering the market with lower prices and more features. Please don't give me the cliched "don't compete on price, compete on value" argument. I am past that right now. My prices are still very high compared to what's out there, but I've purposely priced slightly lower than all of the local firms in order to penetrate the market. My pricing strategy is not up for critique unless you have an answer specifically pertaining to pricing.
Basically I'm wondering if anyone has had experience with trying to get customers locked in annual contracts. Obviously I will be targeting new businesses however how do you get someone to switch who's locked into an annual commitment? I mean, you can advertise better features, more services, more personal relationships, better design services, cheaper prices, etc. but when it comes down to it, it costs them money to switch. Do you keep marketing to them consistently until their contract expires? I'm even considering offering to pay up to a certain amount of the termination fee if they switch. Pretty much a customer acquisition cost to me.
I'd like to hear past experiences or any other feedback/advice. Thanks for reading.
We were in a similar situation when we started, we ended up giving them free hosting up to when their contract would have ended had they stayed with their current host ( non of them more than a few months fortunately, and I must point out that we had placed all these client with their hosting some years prior to starting our own hosting service ).
Once you have them and they see you are providing a quality service they will stick with you and usually be willing to buy premium services from you.
Originally posted by cbtrussell What range do your monthly hosting fees fall in, what are your competitors charging, and what are the termination fees assessed? That will help us evaluate your alternatives.
To keep it simple for the current analysis, I charge about $3.50 to $5.00 for each GB of data transfer in each plan based on payment period (monthly, quarterly, etc.). I have a 2, 5, 10, and 20 GB plans. For just the monthly payment schedules, my competitors charge anywhere from 5 dollars more to nearly 3 times as much as I charge for similar plans. A few of them have differing termination fee schemes. Some charge a flat fee and some charge a certain percentage of what's left in the contract.
Psihost, thank you for the great suggestion, it's much more cost-effective than a cash incentive plan and allows me to convince the client of greater value provided by my service.
How small is your city/town? If there is only 5 competitors, then don't worry about competing with a per gig price. Unless you are in a very small town, you should be able to find new customers (instead of trying to 'take' customers).
The thing to understand is that most new customers have no idea what a gig of bandwidth means. This is why your competitors are approaching it from the web design angle. New customers know they want a website ... and they are looking for someone they can trust (preferably, someone with existing clients or samples).
If you are looking for local customers, just look in your yellow pages and call people who don't have websites. Have some samples prepared and ready to show them. Don't start explaining or using words like bandwidth/transfer, megs of storage, linux, seo, cpanel, hackers/firewalls/ddos, etc .... these are all 'technical' terms to the customer. If the 'new' customer starts asking the questions about bandwidth/etc, compliment them on their knowledge and explain .... otherwise talk in the most simple of terms (email accounts with your own domain, customers finding you more easily, pictures of your products so your customers can see, explanation of your service, etc.)
Even most companies that don't have websites ... HAVE done some sort of advertising and have some sort of 'anlge'. Listen to what they say and help them build an internet strategy. Do an extreme job with every local customer and you will get referred.
Oshawa, you make very good points and I totally agree (you may have read my mind ). Actually I'm not pricing or promoting the hosting service as a $ per GB, I just used that estimate so it was easier to explain the approximate size and cost of my plans.
I know many of these consumers don't know the technical terms and I'm focusing on conveying the benefits of those features and not the features themselves. Also many of these customers aren't looking for hosting, but rather the complete website solution. That's why after research I decided that I have to provide web design and development. Originally I only wanted to provide hosting. So this all goes along the lines of what you discussed - thank your for your feedback.
But back to the population issue, I've never ventured into local markets, been online only - with the population info now do you still think there are enough "new" clients out there? My target market is definitely new businesses but my goal is to build a strong initial client base so that I can leverage word-of-mouth more effectively. I want strong organic growth after the first year with reduced marketing expenditures. I felt that I needed some strategy to acquire market share from my competitors. Additional input is greatly appreciated.
Also, have any of you conducted market research by simply calling up potential customers and asking questions about their IT needs and preferences? I'm not talking about soliciting them or promoting your service, I mean just conducting a phone survey to gain more consumer insight. What have your experiences been on this? I think if you're generally polite, honest, and don't take too much time it should be fine. Have you found that they get annoyed by this?
Originally posted by ph23man
A. I know many of these consumers don't know the technical terms and I'm focusing on conveying the benefits of those features and not the features themselves. Also many of these customers aren't looking for hosting, but rather the complete website solution.
B. But back to the population issue, I've never ventured into local markets, been online only - with the population info now do you still think there are enough "new" clients out there?
A - very good ... it sounds like you are thinking the right way
B - yes, there are tons of new customers ... i constantly have people calling me who want a website. They will often say something to the effect of "now that the internet is getting so popular, I think we need a website" ... I have been hearing that since 1997 but I just agree and carry on :-) Sometimes when I return someones call, they will 'thank me' for calling them back (because other webdesigners are too busy to even return calls).
Just make sure you do a really good job for every customer and you will be so busy you won't have to advertise much at all.
I think you will do well ... you seem like you are thinking it through and researching ahead of time ...
Also, have any of you conducted market research by simply calling up potential customers and asking questions about their IT needs and preferences? I'm not talking about soliciting them or promoting your service, I mean just conducting a phone survey to gain more consumer insight. What have your experiences been on this? I think if you're generally polite, honest, and don't take too much time it should be fine. Have you found that they get annoyed by this? [/B]
If itís a small local market beyond your reach you could reach them personally, that will be much better to get close interaction with them and meanwhile you will be able to build a relationship with them or even you can get a chance to guide them.
During a phone survey, you exactly don't aware that the customer is either busy or free also it is difficult to study the mood of the customers, whether he is interested to reply a query or not.
Secondly the customer may answer any thing just for the sake of reply.
You should also have something interesting and informative tools in your hand for the customers benefit if you are approaching direct to them for getting out the infrormation you want.