Linda Hardesty of Fierce Network recently quoted Verizon’s new CEO Dan Shulman as saying that the company is looking at market segmentation. He said that instead of pricing for a few market segments that Verizon might be considering hundreds of thousands of segments. ‘

Hardesty said this stunned her, because nobody has ever talked seriously about market segmentation to that extent before. What Verizon is thinking about doing is to develop multitudes of products and prices to fit small market niches, or even individuals.

This is not entirely a new idea. A few years ago, the public advocate from the California Public Service Commission conducted a detailed study and looked at broadband rates offered by Charter and other big ISPS across Los Angeles and a few other larger markets. They found that Charter prices varied by neighborhood, and surprisingly, the highest prices were in the poorest neighborhoods. Charter mostly did this through promotional and special rates, but there was a clear delineation of rates by the incomes of neighborhoods.

When Verizon talks about segmenting into hundreds of thousands of segments, they are talking about going far beyond what Charter was doing in California. Verizon is talking about profiling customers and making pricing offers specific to each customer.

You might wonder how they can do this. It’s well known that there are companies like Acxiom, Experian, and Epsilon that have created a detailed profile on families and individuals. These profiles are highly detailed and combine information about earnings and financial status, lifestyle, and buying habits. Verizon can combine this with what they know about every customer to be able to offer them the price or package they think will sell. This doesn’t just mean defining low rates, and ISPs might us the profiling to charge more to people they think will pay it.

It’s likely that any attempt to do this is going to be aided by AI. One of the axioms of the telecom industry over the years has been to keep pricing simple to make life easier for the customer service and billing process. But with AI tied to billing systems and customer service that may no longer be needed.

Shulman is oversimplifying when he says that Verizon will be expanding from four segments today, because the company surely has more than that. They company has offered varying special prices to land new customers and negotiates rates to keep existing customers, and probably has dozens of slightly different rates, if not more. But that’s a far cry from separating the market into hundreds of thousands of market segments.

There can only be two reasons why Verizon would do this. Hardesty suggests it’s to make more money by creating multiple tiers of customers, including a tier for those willing to pay premium rates for concierge service.

But I think there is an alternate possibility, which is to reduce churn. Cellular competition, in particular, has gotten fierce and the three big cellular carriers see about 1% of postpaid customers churn each month and 3-4% of prepaid customers. This high level of churn is what drives the gigantic advertising budget of each carrier, and perhaps tailoring custom plans to match the individual customer preference might increase loyalty, reduce churn, and reduce costs.

If Verizon implements this, I’m sure the rest of the industry will be watching closely. If extreme market segmentation is successful, then AT&T and T-Mobile will have to follow to keep even in the competition game. But if it’s unsuccessful, the other carriers will gleefully watch Verizon struggle. It’s going to be an interesting experiment to watch if the company really goes for it.