Re: Loss of basic video subscribers is a long term worry

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reply to Corydon
Re: Loss of basic video subscribers is a long term worry

said by Corydon

:

It does lead to an interesting question: is it better to have fewer customers with a fatter profit margin or more customers with a leaner one?

I'd guess that, from a customer service standpoint at least, the former is the better scenario (assuming everything else is equal—staffing, resources, capex, etc.)

It isn't a straightforward answer. There is a price that a service can be sold at that will maximize profit. Part of that calculation is the pure revenue curve( »www.netmba.com/econ/micro/demand/curve/ ) in marketing called the "Demand Curve". But that doesn't take in to account costs and how costs vary based on many factors. Usually costs shrink per unit the more units there are. But in some industries, costs/unit jumps in discrete steps based on the cost of the underlying infrastructure.

So the optimal number of customers is a complicated equation. Companies like Comcast have armies of accountants and analysts to identify where the most optimal profit points are.

But many, if not most, decisions a businesses' leadership makes is based on stock price(the basic way an exec is compensated) and NOT just on profit. So what may appear to be the best decision - one based purely on increasing profits - is not so straightforward.
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