The U.S. telecom market is in a state of hyercompetition. With market growth slowing and network quality no longer enough to encourage customer acquisition; U.S. carriers are now in a race to the bottom on price.
Over the past few months, U.S. carriers have been enticing new customers by rolling out cheaper unlimited data plans. Verizon re-introduced its unlimited plan, now offering its customers unlimited HD video streaming for $80 per month. T-Mobile and AT&T both responded by dropping the price of their plans simultaneously. Sprint undercut the competition by first extending its introductory unlimited data promotion of $50 per month to 2018, and then by offering a free year of its unlimited data plan to switchers from rival carriers.
Yet such aggressive promotions appear to be having a negative impact on the marketplace. Sprint’s April financial update reported a dip in cents per share, despite acquiring over 40,000 new post-paid subscribers. Despite adding 127,000 cell phone and tablet customers in the second quarter, AT&T saw revenues from its wireless business fall by 2 percent as a result of the removal of data caps for unlimited plans – and therefore the fees charged by exceeding them. It seems that the marketplace is not rewarding the race to the bottom between stateside carriers, and by implication share prices are being squeezed.
This should be cause for concern for all four leading wireless providers. Driving down the price while relieving the restrictions on customer LTE data usage will only present more challenges. The ever-increasing data demand is sure to exceed what LTE can supply in the coming years. In fact, OpenSignal recently reported that AT&T and Verizon have already experienced a drop in 4G speeds since launching their unlimited data plans last February. What’s more, network densification and licensed spectrum acquisitions require intimidating levels of investment for carriers against the backdrop of falling ARPUs.
With competition fiercer than ever, carriers will need to start pulling back from aggressive unlimited deals and opt for ways to differentiate that have less of a negative financial implication. Put simply, carriers must instead aim to deliver a better customer experience than the competition. However, they must also realize that in order to secure a higher share of wallet, and greater loyalty and satisfaction from customers, those subscribers must feel as if they belong. That is where membership approaches are best applied.
Compete on emotion (not price) and drive more sales
The membership approach is a less aggressive form of competition. It’s not cheaper, but it does offer more exclusivity. The idea is that if people are treated as subscribers, their emotional connection with the service provider is likely to be very low and thus the relationship will be purely monetary. A membership approach instead stimulates the highest level of emotional engagement: ‘members’ feel that they are part of something bigger than themselves. They are more likely to be brand advocates and thus drive additional business to the company. In a membership-based model, things are done collectively between the members and the company. Initiatives work by adding value to both parties.
This ‘belongingness’ approach is still relatively rare in the U.S. telecoms market. While each of the U.S. carriers are offering customers rewards programs including access to Netflix or HBO Now and earned credits based on dollars spent every month, the individual is still treated as a customer. As a result while the relationship may be somewhat emotional, the subscriber is unlikely to feel part of something bigger. As U.S. carriers begin to recognize the limitations of their current methods of competitive differentiation, pursuing a membership approach will help them to focus on customer experience.
Their European counterparts, however, have been competing with a membership model for some time now. For example, both UK carrier O2 – part of the Telefonica group – and 3Plus in Ireland make customers feel special by offering “priority” access to major sporting, theatre and musical events as a benefit of being part of their “exclusive” membership groups. This comes at no extra cost to the customer, but does mean that they are always first in line to their favourite events.
One U.S. carrier that is seemingly adopting a similar membership approach to O2 is Virgin Mobile, recently launching “Inner Circle”. However, rather than making existing customers feel like they are ‘part of the club’, this membership approach asks iPhone users to switch tariffs in order to experience “member benefits”. While this tariff offers a year of service for $1, the price rises to $50 per month after that – again treating the individual as more of a customer than a member.
U.K. MVNO GiffGaff encourages its ‘members’ to contribute to upcoming projects. To become a member, customers must simply purchase a product – no contract is required. This gives them unlimited access to a community newsletter, discussion forums and discounts with relevant brands. As a result of its membership approach, the U.K.-based MVNO has experienced significant rise in market value, acquiring thousands of new subscribers on a weekly basis. In January 2017, it was even awarded “best U.K. service provider for customer satisfaction” by The Institute of Customer Service. While this community approach is slower to start and harder to keep running than the exclusive benefits approach, it is also much harder to copy. Other carriers could quite easily build or lease arenas and start offering exclusive events.
Would a membership-based approach work for your business?
There are several considerations. Would your customers respond well to a sense of belonging? Does it fit with the business model of the company and the strategy, whether that is to be a simple low-cost service provider, or to be to be a highly differentiated leader in the market for customer value?
‘Belonging’ is a concept that every carrier must explore. Adopting a membership approach that fosters belonging can help the business gain access to customers’ thoughts about their products and services – ‘members’ are always much more willing to give ideas and feedback than subscribers. It can save money by connecting customers with each other to help solve issues with devices, networks or SIM cards, helping to reduce customer service costs. And it can greatly strengthen customer loyalty and affinity, driving more sales through higher NPS and customer satisfaction scores.
The takeaway
U.S. carriers are in a race to the bottom on price – that much is clear. Yet, as share prices dip and ARPU continues to decline, it won’t be long until a new approach is needed.
The membership model is an unaggressive competitive approach that is proving successful for their European counterparts. Helping customers to belong not only strengthens loyalty, which can in return reduce churn, but can also benefits carriers in a number of other ways too. A stronger connection to your customers’ likes, wants, and needs can guide future product and service offerings, increase customer satisfaction, and drive sales simultaneously.
