Northlund cable Company (NCC) operated the cable television services available throughout three counties located to the north of the Chicago metropolitan area. The area consisted of residential communities, some farms and rural areas, and only a small amount of industry. NCC was the sole deliverer of cable TV services in the three counties. This situation was common in the industry because local governments typically granted cable distribution rights in their communities to only one company.
The basic cable television services offered by the company cost a household $ 15 per month. For this amount subscribers received programming from 18 stations that were not available ‘over the air’ in the area. Subscribers also received all local TV programming via the cable service. Available at extra cost to subscribers of the basic service were certain ‘movie’ or ‘premium’ channels such as Sports vision, the Disney channel HBO, and others. Subscribers who wished to have these channels available over their cable service were charged approximately $10 per month extra for each of the movie for premium channels they selected. NCC’s basic service was by far the company’s biggest revenue generator, with the movie and premium channels less widely subscribed.
About one half of all he households in the three counties were subscribers to NCC’s service, which was slightly more than the average for the industry. Company officials were looking for ways to increase their penetration into their present three county market. This was the only option available to them as geographic expansion was not a possibility for all of the surrounding counties were already being serviced by other cable companies.
One proposal being considered by management was a ‘Pay Only for What You Watch’ service or ‘Pay Only for short’. A subscriber to this service would have a small device attached to the TV set that would allow the set to receive the basic cable television service and all of the movie and premium channels. The device would monitor and record on which programs and channels were viewed. If in any given month, the subscriber did not watch any of the programs available on the movie and premium channels the subscriber would pay only the monthly charge for the basic service. However, there was a charge of approximately $ 1.00 for each program on a movie or premium channel watched during the month.
NCC managers thought that Pay-Only might attract potential customers who wanted access to movie and premium channels but felt that they wouldn’t watch any one channel frequently enough to justify paying the $10 per month per channel charge. The managers hoped that Pay-Only would entice many households not currently connected to the cable service to become subscribers. Pay-Only might also be attractive to present subscribers of the basic service who currently did not subscribe to the movie or premium channels.
NCC managers had calculated that the company would break even on the new Pay Only service if 20 percent of current non-subscribers signed up for the service. If as many as, 40 percent of current non-subscribers became subscribers the new service would be very profitable. If fewer than 10 percent of NCC’s present subscribers switched to the new service, it was estimated that profits would be unaffected by their doing so. However, if more than 10 percent of the present subscribers switched to Pay-Only profits were expected to be noticeably increased as a result of current subscribers viewing a wide selection of the movie and premium channel programs available to them.
A local marketing research firm was hired to carry out a telephone survey in a limited part of NCCs market area. The purpose was to determine whether or not conditions available to the success of Pay-Only existed within the limited test area. If the survey findings showed that future prospects for the Pay-Only service looked promising the survey would be expanded to cover the remainder of NCC’s three county markets.
A telephone was selected because it was estimated that more than 95 percent of the households in the three counties had telephones and that more than 90 percent of them were listed in their local directories. Copies of all the directories for the communities in the test area were obtained and a count of the listings led to the estimate that approximately 42,150 telephone listings were contained in all of the directories. It was further estimated that 95 percent of the listing were homes. The NCC managers wanted the survey results to be 3-5 percent accurate and at 90 to 95% confidence level.
The survey results were ultimately congenial to NCC and they could implement their plans to further increase their business even making some profits in the very first year itself. That is how MR helps the organizations in taking realistic decisions in their businesses.