Friday, January 11, 2008

Stross dissects cell phone schemes: lessons in pricing strategy

In an ideal world, mobile phone contracts and pricing would be freely accessible. In that world a few people would figure out the best deals, and would publicize them on ad supported web sites.

In that utopia phone companies wouldn't be able to pay pricing games.

In the real world mobile phone contracts are top secret. I tried to get just one from Sprint a year ago -- not possible.

Cell phone companies also change their new plans and pricing schemes every few weeks, so anyone trying to decrypt them will be foiled.

This is what's known as an asymmetric business relationship. They have immense resources to game us, and we can't really play in their league. All we can do is save up our enmity for the phone companies, waiting for the day Google takes 'em down.

In the meantime, geeks like Charles Stross occasionally try to figure out today'sgame played by Vodafone in the UK (where handsets are more switchable than here):
Charlie's Diary: Marketing Musings

... the sweet spot on Vodafone's tariff curve (in the Anytime business packages) seems to be Anytime 500 on a 18 month contract. (By the time you hit Anytime 500 on 12 month contract, costs are beginning to rise; and anything less than Anytime 500 on the 18 month contract is in the "soak the trend-follower" category.)

And there's my second point: 12 month tariffs are weighted on the assumption that you're a trend-follower and may be part of the general customer churn. They invariably have a much higher total cost of ownership than the 18 month tariffs...

... the total cost of a twelve month contract costs nearly 90% of the price of an eighteen month contract. If you take the twelve month contract and stay on it for eighteen months, you'd be paying a whisker under £800. The mark-up for going for a short contract is huge; they're counting on your natural reluctance to be locked in for an extra six months to lead you to pay hugely over the odds.

(Want a twelve month contract? You might as well buy an eighteen month contract — if you decide to switch telco, the break-even point is thirteen months. At that point you might as well buy a new phone, set call divert on your old number, take the old sim out and cut it up so you can't run up any additional charges, and get going: you're still ahead of the game. The system is loaded insofar as it relies on customers fixating on the contract lock-in period and not realizing that they can "buy themselves out" at any point by cutting up a SIM and making a note on their calendar to remind them to close the account when the lock-in expires. And on most people not running the total cost of ownership through a spreasheet before they buy.)..

...The TCO per minute for a phone purchased on the superficially cheap-looking Talk 75 tariff turns out to be two and a half times higher than the TCO per minute for Talk 200, and a ridiculous seven times higher than on Talk 500...
I don't have anywhere near the patience to play this game here, but I think the mid-length contract and mid-range phone ideas might be a good rule of thumb to follow.

1 comment:

Anonymous said...

I wouldn't hold out promise that the 'do no evil' company will come to our rescue. But competition is the key. I would love to have an open iPhone for example.