Stop throwing smartphones at customers!

So when does your service provider finally start taking notice of you?

In most cases, it’s only when you’ve told them you’re about to leave them and move to a rival operator. All of a sudden, you have their attention – and a number of tempting offers to consider, particularly in terms of subsidized smartphone upgrades.

On the other hand, new and loyal customers receive the short end of the stick, according to a recent Amdocs-Informa Telecoms and Media survey into service providers’ customer retention strategy.

But this is a mistake, and some service providers are beginning to realize this. As Aaron Souppouris from The Verge reported, AT&T is presently trialing a new pilot loyalty program called AT&T Plus, with the hope of keeping its most important customers loyal by showering them with special offers and preferential service.

There’s a sound reason behind looking for different ways to retain customers – it’s becoming “difficult and costly” to try to hold on to potential churners by offering them an expensive  subsidized smartphone, according to PricewaterhouseCoopers in their 2011 survey of North American wireless carriers:

“ Several major operators have recently warned that increased subsidies from the introduction of popular smartphones will cause material financial changes”

In fact, it’s so costly, that some service providers are already beginning to wish they hadn’t started dishing out subsidized handsets. Andy Patrizio in Brighthand explains that on average, carriers pay $450 for a phone, and sell it for only $200. It then takes them several months to make that money back through the cost of the monthly package to the subscriber, leading operators to lose their profit margin.

And more significantly, these subsidies are not necessarily even helping to keep the customer loyal. PwC’s report  No wires attached: 2011 North American wireless industry survey  points out that customer loyalty is on the wane, with the average length of postpaid customer relationships dropping to 48 months in the 2011 survey, from 59 months the year before.

The decline in customer loyalty can be arrested, but only if service providers succeed in creating an emotional bond with the subscriber, based on an excellent customer experience throughout the customer lifecycle, and not just in its final days. 

In fact, customer loyalty programs can become a new center of growth, provided that operators understand what their customers really want and act on this immediately, all the way through the contract period.

Simply throwing a subsidized smartphone at a churning customer is not the best way to grow.



  1. Posted April 2, 2012 at 3:16 am | Permalink

    I couldn’t agree more with the comment that “customer loyalty programs can become a new center of growth”. In fact, I believe there is a real opportunity for operators to integrate their loyalty programs much more closely with their tariffs in a way that can drive both churn reduction and incremental spend. My blog on the subject goes into more depth and might be worth a read:

  2. Jeff Barak
    Posted April 2, 2012 at 4:34 am | Permalink

    Thanks for the comment Thomas and enjoyed reading your blog. But when talking about customer loyalty, I don’t think service providers necessarily need to follow the airline example. The introduction of value-based pricing for example, such as offering a single data plan per family, divided up among the individual family memmbers’ devices, can go a long way in promoting customer loyalty. My colleague Rafi Kretchmer wrote an interesting blog on this last year:

  3. Posted April 2, 2012 at 9:06 am | Permalink

    The link below is a fantastic example of the direction I believe operators need to take when it comes to their pricing direction.

    Having just spent time with Du, I know they are pleased with the ways things are going with this new proposition.

    Operators are getting more creative and helping to transition the customer buying behaviour away from a straight unit-price comparison. This can only be good news for the long-term profitability of mobile data.

    I agree that shared plans are a key part of a wider move towards more value-centric pricing. I am looking forward to seeing more operators get creative on their pricing front.

    The view that mobile data prices are inevitably racing to the bottom is fundamentally flawed. There is a sustainable and profitable future ahead for operators that get their pricing right.

  4. Jeff Barak
    Posted April 2, 2012 at 9:41 am | Permalink

    You’re absolutely right, operators need to become more creative on the pricing front. Most consumers have no idea how much data they’re consuming; they need pricing plans they can intuitively understand. That way, they will feel more comfortable about using their devices and more accepting of the resulting charges.

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