Cell Phone Carrier Customer Loyalty Programs to Reduce Churn

Wireless carriers in the U.S. are under pressure from the Feds and consumers to either eliminate or pro-rate early contract termination charges. Carriers argue they need to charge customers who break their contracts due to marketing and discounted handset costs, while wireless subscribers want the freedom to switch carriers at any time.

The major U.S. carriers--AT&T, Verizon, Sprint and T-Mobile--face class-action consumer lawsuits, a Federal Communications Commission investigation and Congressional action to trim or eliminate "lock-in" contracts preventing wireless subscribers from jumping ship. Meanwhile, Sprint/Nextel continues dealing with high monthly churn rates.

A recent BusinessWeek article --"Hanging Up on Early Exit Fees"--summarizes the carriers' dilemma. If they drop or pro-rate early termination fees, their profits drop. On the other hand, consumer demand for contract elimination--and class-action lawsuits--will cost carriers much more than simply dropping contracts entirely. Read my earlier post on the subject.

Unlike other industries that recover marketing and other customer acquisition costs during the initial purchase--say, a kitchen stove or audio system--mobile carriers in the U.S. recover some of their marketing costs on the back-end when customers break contracts and leave. Yet, carriers, like other businesses, lose money every time customers cancel service, requiring additional marketing costs to replace them.

Rather than punishing subscribers by charging early termination fees, the carriers should reward customers who choose to stay using customer loyalty programs.

For example, most credit card companies--including CitiBank via the "Thank You" program--offer points convertible into merchandise or cash. Internet companies, such as GoDaddy.Com continually reward customers with "15% off your next purchase." American and other airlines issue points redeemable for airfare discounts. Zappos.com, a successful online shoe e-tailer, thrills its loyal customers with guaranteed purchase satisfaction and free shipping on initial and returned purchases. Successful companies increase customer satisfaction by using the carrot--not the stick.

To avoid further consumer disaffection or Federal intervention, wireless carriers should build stronger customer relationships by rewarding loyalty, offering reasonable pricing and improving customer service levels.

The Elimination of Cell Phone Contracts & Early Termination Fees

AT&T, Sprint, Verizon, T-Mobile & Others: It's time. Get rid of your contracts and eliminate early termination fees. You're living in the pre-Mobispheric age.

AT&T announced recently that it would start reducing early termination fees by $5 per month ($60) per year off its current $175. Sprint apparently is (will) do the same and Verizon made similar changes in 2006.

Until recently, the wireless carriers told customers 1-2 year contracts were necessary to subsidize handset discounts. With the exception of higher-end mobile handsets--smartphones and PDA's--this is deceptive and untrue. Carriers who supply a cheap flip phone handset pay virtually nothing at wholesale from their suppliers. And customers, who choose higher-end smartphones and PDA's, amply reimburse carriers for handsets in less than six months based on over-priced data plans. Moreover, increasing numbers of customers now purchase their own unlocked GSM or CDMA phones on the Internet. Read my MarketingBeyond post for background on cell phone pricing strategies.

Carriers lock customers into contracts for only one reason--the guaranteed revenue stream. The average cell phone customer in the U.S. pays about $55 per month. A two-year contract, based on that price, generates a minimum of $1,320 over a 24 month term. While customer acquisition, marketing and operational costs eat into carrier gross profits, locking customers via contracts is unethical and a poor pricing strategy to recover these costs. (Satellite TV companies, such as DirecTV, whose upfront installation costs for dishes and receivers, have a legitimate reason for contracts.)

Carriers, realizing that the U.S. cell phone market is saturated (250 million active handsets, mostly used for voice services) recently introduced unlimited voice plans at $99 (Verizon and AT&T Mobility) for two reasons. First, average individual or family plan contract customers rarely exceed the 400-1,400 maximum minutes and, if they do, carriers usually write-off the excess minute charges when customers threaten to change carriers. As long as carriers' networks can handle the additional traffic, they don't incur higher fixed costs.

Encouraging customers who primarily use their mobile handsets for voice to buy data plans is the main reason for the change to unlimited voice plans. Monthly data plan charges vary from Sprint's $15 basic Internet package to Verizon and AT&T's $50 for Enterprise-level BlackBerry service, producing an additional $360 to $1,200 over a 24 month contract.

To ensure continued profitability, carriers are marketing data plans to consumers, predicting enough users will opt-in, as mobile customers in Asia, Europe and the U.K. have done for years. "On-Deck" data applications and Web access--the news, weather, sports, horoscope and applications provided by carriers and their partners--produce the highest profits. "Off-Deck" applications, encouraged by the Google Android initiative and accessed through the mobile Web, bypasses carrier control and is less profitable. Carriers only charge for data usage. As innovative off-deck applications reach the mobile market, carriers will compete for application revenues to increase profitability.

Download my ideal Android phone PDF on MarketingBeyond for a glimpse into the future of mobile telephony.

Mobile Information Privacy: Are We Willing to Pay the Price?

Verizon's recent letter to its customers about sharing call information raises unresolved mobile privacy issues. A New York Times article summarizes Verizon's Opt-Out policy on sharing call and service activity information wtih Verizon's "affiliates, vendors or third parties." Per the Times , "...the information would not include a customer's name, address or phone number, and would be aggregated so that specific records could not be traced back to an individual." Verizon's 60 million customers have 30 days to opt-out by calling a toll-free number (800-333-9956). Read the rest of the story on MarketingBeyond.

Mobile Direct Marketing in a Wireless World

Let's say you're walking down a city street looking for your bank's nearest ATM machine. Using speech recognition and GPS, you ask your cell phone to call your bank and, without touching a button, an IVR (Interactive Voice Response system), interfacing with your GPS-equipped mobile phone gives you turn-by-turn directions. Along the route, up pops a colorful $1 Starbucks' coupon on your mobile device's display and then, guess what, Starbucks is near your bank's ATM? Your smartphone contains technology supporting speech recognition, GPS and a graphical HTML display. Mobile carriers' profitability increasingly relies on customers purchasing higher-end mobile devices with Internet data services, whether to browse the Web, check your email or post to your blog. As mobile broadband 3G networks represented in the U.S. by AT&T/Cingular, and EVDO, deployed by Sprint and Verizon, proliferate, phone manufacturers and the mobile carriers will encourage you to purchase Web-enabled devices to run on their broadband networks supporting quick webpage loading including video streaming. Other technology companies, such as Apptera, already offer tailored nteractive "natural" sounding voice interaction. Other companies provide GPS integration and faster processors for loading larger graphical displays. Internet technology and mobile device manufacturers, jointly partner cellular providers who deploy these new technologies to deliver multi-media marketing content and applications appearing on your mobile device. The Northern California division of the Direct Marketing Association is devoting its August 15th meeting to direct marketing in the mobile space. If you're in the San Francisco Bay Area, I highly recommend you attend. Meanwhile, I invite you to post your comments here about how expanding mobile technologies impacti global marketing.