Does Service Bundling Reduce Churn?
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ARTICLE SUMMARY
This study considers whether firms that sell telecommunications services as a bundle find it easier to retain customers. The data shows that bundling does reduce “churn” for pay television, broadband, and telephone service.
POLICY RELEVANCE
Bundling help firms maintain revenues from shrinking markets. Policymakers should not intervene with the decision to bundle.
KEY TAKEAWAYS
- “Bundling” occurs when a firm sells two or more services in a package for a single price. From 2007 to 2009, almost all cable television operators offered a bundle of telephone, broadband, and pay television service (satellite or cable) known as “triple play.”
- “Churn” is a customer’s abandonment of a service provider; this paper asks whether consumers that purchase a bundle of services are less likely to “churn.”
- If bundling reduces churn, bundling will affect competition in video markets.
- Firms could gain market power and raise prices.
- Bundling creates barriers to entry, as new entrants find it harder to attract customers.
- Bundling could help keep certain markets from shrinking.
- Firms could gain market power and raise prices.
- The data shows that bundling does reduce churn for telephone, broadband, and television service, however, the effect was not the same every year for every type of service.
- The effect of bundling was most noticeable for markets in turmoil, for example, when customers began to drop some kinds of service; the role of bundling in keeping certain markets from shrinking is very important.
- The purchase rate of pay television in 2009 was 2.2% higher for bundled households.
- By bundling, the cable companies saved about $259 million in revenue.
- The purchase rate of pay television in 2009 was 2.2% higher for bundled households.
- Consumers consider broadband a substitute for television; in 2009, as it became possible to stream more video online, many more households bought broadband but not pay television.
- Bundlers had lower income and education levels than those that purchase services separately.
- Whether bundling leaves consumers better or worse off overall depends on benefits that consumers obtain with the bundle; generally, policymakers should not intervene in firms’ bundling decisions.
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About Shane Greenstein
Shane Greenstein is the Martin Marshall Professor of Business Administration and co-chair of the HBS Digital Initiative. He teaches in the Technology, Operations and Management Unit. His areas of interest include: digital economy, information technology, networks, and technological innovation. Professor Greenstein is also co-director of the program on the economics of digitization at The National Bureau of Economic Research.
