A study on the market segmentation and the price effect for internet service providers(ISPs)

Abstract

ISPs in the Korean telecommunication market have difficulty in making a profit due to market saturation. Domestic broadnband Internet access service market take place intensive low-price competition to hold many subscribers. To solve their problems, price improvement can be suggested as one of the solutions. Therefore, this paper investigates the characteristics of the segments in the market using the attributes of broadband Internet access service, and then verifies that ISPs can make more profit according to increase monthly fee from the segmented markets. To implement the price improvement, this study examined: 1) possible service attributes through the prior study related to broadband Internet access service, 2) factors derived from the original 13 broadband service attributes, 3) segmentation of the market into similar characteristics groups based on derived service attributes factors, 4) comparision of the price elasticity of demands for each segment 5) analysis of each ISP``s characteristics of subscribers and estimate their profit when they increase monthly fees. Service attributes, which are derived from the preceding papers are classified into four groups through factor analysis: $\emph{transmission quality and service support, promotion, quality of opening service}$, and $\emph{service charge}$. Next, employing cluster analysis, the market is segmented into four segments for target marketing; Promotion sensitive users, $\emph{quality of opening service sensitive users, service charge sensitive users and transmission quality}$, and $\emph{service support sensitive users}$. Significant differences among the four groups were gender and education. Each group shows different price elasticities of demand and termination rates when ISPs raise the price. Each ISP shows price elasticity of demand less than 1 when increase of monthly fee is about 10%. It means that ISPs will get more profit if they increase monthly fee about 10% except segment market 3...