Today's Telecom Brand Promises and Customer Segments

Tier 1 operators may be missing an opportunity to understand and target their customers

In March 2013, T-Mobile cut contracts with "Un-Carrier," a brand vision designed to appeal to value buyers, its target market. T-Mobile CEO John Legere promoted this offering by saying it’s a result of 'listening to the customers' and 'treating them fairly.'  

Since then, all major cell phone carriers have cut new contract plan offerings.

The US wireless telecom industry, a once highly differentiated marketplace, is transforming into a sea of beige, making it more and more difficult for customers to differentiate between providers.

A self-funded study from Market Strategies International titled "Brand Love" confirms there are millions of customers who prefer cell phone contracts. Premium providers like Verizon and AT&T may be missing an opportunity to understand and target their customers' generational and lifetime value differences now that they have both jumped on the no-contract, one-size-fits-all bandwagon.

Owning Your Brand Promise

It is surprising that AT&T and Verizon would move away from contract pricing plans, considering that the majority of their customers are currently under contracts. In fact, our Brand Love research shows that the target premium customers for AT&T and Verizon, those with high-lifetime values and high average revenue per user, overwhelmingly prefer contracts.

By cutting contract plan offerings, Verizon diminished the differentiation between providers. When AT&T announced in January it was also discontinuing contracts for both new and existing customers, the industry took a step towards complete commoditization.

However, AT&T took its approach one-step further by announcing the same week that it would bring back unlimited data plans for wireless customers who also were DirecTV customers, giving those customers incentive to stay.

With this move, AT&T carved out a strategic niche claiming connectivity across all screens in all locations as its unique brand promise. To survive and, hopefully, thrive, carriers need to follow AT&T's lead and resist the urge to follow a one-size-fits-all strategy and ultimately stay true to their own brand promise.

Exploring Plan Trends by Customer Segment

To help providers inform and deliver on unique brand promises, the recent wave of Market Strategies' Brand Love study looked at what kinds of cell phone plans customers want.

From a carrier preference standpoint:

  • T-Mobile customers overwhelmingly prefer no-contract plans, regardless of cost or limits.
  • Verizon customers overwhelmingly prefer contract plans, regardless of costs or limits.
  • AT&T customers, like Verizon's, are more likely to prefer contract plans. The more expensive the plan, the greater preference for a contract, which leads to more contract sign-ups than not.
  • Sprint customers, on the other hand, are slightly more inclined to want no-contract plans when these plans are inexpensive. However, as the plans get more expensive, their preferences shift toward signing up for a contract and getting a free/discounted phone.

From a generational standpoint:

  • Young Millennials (18-29) are most likely to want to ditch their contracts and pay in full for their phones (or finance them with $0 down payment), regardless of the price of the plan.
  • Prime Earners (30-64) prefer no contract as long as they are getting an inexpensive plan. As the price of the plan increases, so does their tendency to want contracts (and the free/discounted devices that go along with them).
  • Seniors (65+) are the most interesting segment, as they don’t have much of a preference between contracts and no contracts so long as the associated plan is inexpensive. However, as soon as they are looking at mid-tier or expensive plans, their preference overwhelmingly tilts towards the no-contract model.

The study’s findings are intuitive. Young Millennials are most likely to be swayed by T-Mobile's bold style. No-contract plans allow them to "vote with their feet" if a carrier disappoints them. With the myriad of financing and leasing plans that are available, Millennials can be early adopters of the latest devices without paying a large sum upfront.

While Seniors are financially stronger than Young Millennials, they are facing the reality of fixed incomes, which can lead them to prefer a model with lower, fixed monthly rates. Likewise, seniors are typically not early adopters of technology, making their desire to purchase the latest "must-have" device less likely.

Conversely, Prime Earners are less likely to be swayed by T-Mobile's bold messaging. These customers are at the peak of their careers and are more likely to have the discretionary income to purchase an expensive smartphone every two years. The discounted devices offered with carrier contracts allow these customers to do so without perceived sticker shock.

Debunking a Contract Plan Myth

T-Mobile's financial reports demonstrate how successful it has been in acquiring customers from competitors with the lure of "simplicity" and no contracts. However, if so many AT&T and Verizon customers like contracts, and the majority of these customers are currently on contracts, then why would AT&T and Verizon move to eliminate contract plans?

One theory is that contract plans make less money, but this simply is not true. In virtually every scenario we analyzed, the carrier makes more money when the customer chooses a contract plan.

Over the past many decades, the single most powerful feature to reduce churn has been the contract. And, most importantly, when something goes wrong with the customer's experience, carriers know that the customer will be around long enough to try to resolve the issue and regain their loyalty. Without contracts, it becomes much easier for a customer to drop their carrier at the first sign of trouble.

Comparing Plan Structures

There can be no argument that T-Mobile has set an expectation of simplicity in offerings. Verizon recently created a S-M-L-XL-XXL plan structure and eliminated all contracts for new customers. Likewise, AT&T is simplifying its plan portfolio by replacing its individual and family plans with Mobile Shared Value plans to new customers.  

What's interesting is that T-Mobile has actually been doing the exact opposite.

While T-Mobile offers a simplified plan portfolio under the T-Mobile brand, they have adopted a business model with 29 different wholly-owned and joint-venture brands, each with unique offerings and brandings. T-Mobile seems to realize that one size does not fit all. But, despite this diverse plan portfolio, they have stayed true to their brand promise across this diversity, and all of these sub-brands reinforce T-Mobile's position as the value leader.

What Are Carriers to Do?

The most obvious advice is that carriers should understand their own brand and their own brand promise, and look for solutions that enhance this promise instead of abandoning it.

It seems clear customers are looking for carriers' terms to be more transparent and for the offerings to be easier to understand. But, there is a difference between simplicity and lack of choice. Bottom line? Assuming that all customers want the same thing is ill advised and not supported by our research.

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Gregory Mishkin is a Vice President of Telecommunications for Market Strategies International. He is known for turning extremely complex data into actionable insights and providing competitive advantages for his clients. Greg currently has five patents pending related to data-focused market research methodologies.

Mishkin earned a master's degree in business administration from Kennesaw State University in Kennesaw, GA; a master's degree in clinical psychology from University of Hartford in Hartford, CT and a bachelor's degree in psychology from Union College in Schenectady, NY.

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