1, 2, 3, 4, who’s gonna start a price war? Not us.

Posted on February 8th, 2010 by Cheyne | Linked in Opinion

The chattering on Whirlpool in recent hours has made me smile, with the suggestion that another web hosts’ ingenious plan to “slash prices” would somehow start a price war with us. Boy were they mistaken.

What many people fail to understand is that we don’t make a decision without it first being discussed among our Management team, which consists of four people who have more combined Management experience in this industry then almost any other Australian web host, nor do we simply “slash prices” to compete with a company who has less than 200 customers in total.

If they’ve made the choice to “smash and grab” for new customers then good on them, but that’s not a strategy we employ.

Prices on our Economy cPanel web hosting plans is based on having 98% business automation through the VIPControl system, running our own network, customer feedback which highlighted the fact that some customers don’t need phone support and other services (but were willing to pay additional for it if and when they needed it), and here comes that word again.. experience.

Last week we released a special offer called the “Deal of the Decade”, which gave customers a cPanel web hosting account at just $39.00 for 2 years. Crazy? Maybe, but as promised, I’m going to explain my methodology behind this plan.

When we were discussing how the web hosting industry is very similar to the airline industry, I came to the realisation that a segment of the airline industry was not yet represented in web hosting form. You see, there are the “Qantas” web hosts like NetRegistry and MelbourneIT, who offer a business grade service with all the trimmings, and then there are the “Virgin Blue” web hosts like SmartyHost and Hostess, who offer a consumer grade service with optional extras and addons. But where are the Tiger’s and AirAsia’s of the web hosting industry?

Ultra low cost carriers exist for the sole purpose of generating revenue for their parent company, and for increasing buying power when negotiating the purchase of new aircraft with suppliers, which has an overall positive effect on the business, providing they continue to get bums on seats.

And they do (get bums on seats that is), simply because of the price. How many times have you considered flying away in recent times simply because you’ve been able to access $29 airfares?

So the question I asked was: If we offered $39 web hosting accounts with 2 years of service, would people buy it simply because it was a bargain? The answer is a resounding “yes”. In just one week, we sold all 500 plans at $39, netting us $19,500 in additional revenue. You may be forgiven for thinking that a plan like this is unsustainable, and to most cPanel web hosts it would be, but when our customers have access to VIPControl, the “cost” of supporting these additional customers shrinks to almost nothing.

Think about it a different way. Imagine you have 500 customers who all want to enable SSH access, fix the permissions of their account, and enable temporary URL access. To every other cPanel web host in the world, they would need to call up or submit an email/ticket to the support desk in order to have a persona manually activate the services on their account. Our customers simply login to VIPControl, choose the options and enable or disable them.

So, we apply the same methodology as the ULCC’s and ask ourselves, if this offer was available every month, would we be able to sell 500 plans (one full 1RU server) each month for 24 months, giving us a total increase of 12,000 customers (after 24 months) and an additional $19,500 of ongoing monthly revenue?

Well, we want to find out.

Later today, we will be re-releasing our “Deal of the Decade” plans with another 500 plans available, to see if the initial reaction was simply a one-off, or whether there truly is an untapped market waiting to be explored. If there is, we’ll consider releasing the service as a permanent item under a separate brand name.

The moral of the story is that competing on price is one thing, but being able to back up those prices with a quality product and market-leading customer service is another. We’ve proven our model works with more than 18 months of constant growth behind us, and our customers have never been happier with the service we deliver, both through VIPControl and our friendly and experienced staff.

Can your web host do that?