AT&T just enacted a new administrative fee of $.61 cents to the bills of its wireless subscribers. Most people won't even bat an eye at such a paltry price increase, and apparently AT&T is counting on that. At worst, when some folks see the fee they may have a twinge of frustration that a new fee has been added, but its small amount might not even get the attention of others. What is interesting is that this new fee will actually generate over $500 Million more dollars for the company, and there is no reason for it whatsoever. In fact, a research analyst recently commented that the only reason they are adding this fee is simply "because they can."
Joe Hoffman, principal analyst at ABI Research said, “Why would AT&T do this? Because they can, and it is all in the pricing strategy. Now that AT&T is comfortable with their shiny new pricing tools and flexibility that comes with them, looks like someone in the Executive MBA program has discovered Price Elasticity of Demand.” Furthermore, there is talk that they may even introduce slight increases to this fee over a period of six to nine months, just to gauge the reaction.
Mr. Hoffman elaborated,
What do you guys think? At what level would a price increase start sending you heading for another carrier?“Why 61¢, why not $1 or $5 or $10? Because AT&T understands price elasticity of demand. When AT&T raises the price by 61¢, they know hardly anyone is going to bail on them, and so can impose this with impunity. $1 or $5 or $10 is just too much to swallow all at once, but give them time. For now, $500 – $600 Million will flow right to the bottom line. Brilliant! No fancy software tools, no focus groups, no high priced engineers and programmers, and no iPhone subsidies. Just a raw, brute force price increase.”