NEW YORK-Once upon a time in the United Kingdom, cellular service was so difficult to obtain that carrier marketing was unnecessary because each customer could resell his service connection to another consumer for $10,000 in the gray market, said Keith Mallinson, executive vice president of research for The Yankee Group.
Times, technologies and promotional strategies have changed markedly over the intervening years, starting with two seminal events that occurred in the 1980s, according to Mallinson and Herschel Shosteck, president and chairman of The Shosteck Group. On the regulatory front, governments began letting competitors enter what had been a sanctioned monopoly or duopoly. In the technology arena, wireless began to use cells so that available bandwidth was divided geographically and frequencies could be reused.
“In 1985, AT&T announced that its network in Chicago, which had 20,000 subs, had reached capacity. The first of the religious wars was between Motorola and AT&T over whether wireless should be uni-directional or sectorized,” Shosteck said.
“Back then, virtually all sales were through agents because phones were in-car mobiles. A good installer could do two or three a day, but there were stories about them piercing the gas tanks of Mercedes.”
A unified brand
A lobbying effort broadened the number of wireless operators in major American markets to include independents in addition to wireline incumbents. The Washington Post, a major investor in one of the A-band independents licensed for the Baltimore-Washington, D.C., market “came up with CellularOne, for lack of a better name,” said William M. Mounger, chairman of TeleCorp PCS, AT&T Wireless’ largest affiliate. At one time, Mounger chaired the CellularOne Advisory Council.
“Vanguard Cellular, which I was involved in, used it. Pretty soon it became a national brand. Even Craig McCaw used it. In the late 1980s, when McCaw sold to AT&T, an advisory board was set up to standardize the brand.
“It had been kind of a cowboy, Wild West thing, with all different color logos. … We hired a national marketing firm to do national brand studies, and initially decided on a red and white logo, which was very well recognized. This was long before Cingular and Verizon.”
By the mid-1990s, with the advent of personal communications services, AT&T Wireless and other carriers began to use their own brands, Mounger said.
“The miracle of digital is not so much that it’s more efficient, because it’s maybe two times more efficient, but it allows smaller, cost efficient sexy equipment and ubiquitous coverage,” Shosteck said.
“Only when phones became smaller and idiot proof was there a shift to a mass market, but the analog, three-watt car phone that Motorola still sells is its most profitable unit.”
Marketing missteps
Although carrier marketing has become more sophisticated over time in some ways, Shosteck, The Yankee Group’s Mallinson and Jack Rooney, president and chief executive officer of U.S. Cellular Corp., questioned whether it has truly been professional.
Rooney, who ran the Bridgestone Firestone Inc. MasterCare stores before entering the wireless industry in 1992, said he is aghast at the state of affairs.
“In the early days, people would get their bills and choke, and this caused a lot of customer dissatisfaction. Today, wireless rates are comparable to landline, and wireless is becoming more and more a part of the fabric of everyday life,” Rooney said.
“But I have never seen an industry this delighted to put out products before they are ready. It over-promises and under-delivers, and it spoils customers by giving services away. Companies tolerate 35 percent of their customers … sampling a product they should be proud of and firing them.”
Shosteck attributed “horrendous hyperbole” to the “disaster with 3G, WAP and GPRS.” In his view, there is a vicious circle at work that warrants attention by the Securities and Exchange Commission.
“It’s the principle of the first lie. The salesman from the manufacturer lies to the network operators, who want to be seduced by the manufacturer. There is a universal failure at upper management levels (of carriers) to have engineers talk to marketing people and rein them in. And the Wall Street guys are getting 2-to-3 percent of the gross when they sell the deals,” he said.
“Digital One Rate introduced by Dan Hesse, head of AT&T Wireless until last year, was an interesting landmark because he was the first person to tell Wall Street he is not interested in subscriber numbers but in net revenues. Digital One Rate was structured to appeal to higher-end users. Hesse also recognized that lowering costs will increase minutes of use and displace landline.”
Mallinson called annual churn rates “appalling,” and said carriers have been their “own worst enemies” in terms of losing customers.
“One of the worst things you can do with any service is to launch prematurely. If it gets a bad name with customers, they turn off and may never return,” he said.
“With wireless data, the industry has shot itself in the foot because wireless surfing was a marketing mistake.”
Shosteck said the person who came up with the marketing idea of wireless data as “the Internet in your hand needs a psychiatric exam.”
The handset subsidy, designed to increase market penetration, also has proven a catalyst for churn “by distorting the signal” to customers, each of which costs the carrier several hundred dollars to gain, Mallinson said. A good deal of churn is caused by customers seeking handset upgrades, and this has forced carriers to subsidize new handsets for existing customers in order to keep them.
Shosteck criticized the domestic wireless industry today for “being short on marketing strategy and long on marketing reactivity.
“Carriers think they are competing with each other. They’re not. They’re competing with Old Navy, McDonald’s or whatever is the hot item of the month.”
In today’s stage of wireless marketing evolution, carriers are reaching out increasingly to the youth market, but also to all generations of consumers with conceptual advertising, Mallinson said.
“Certainly the style of advertising is changing, as in the case of Cingular Wireless, which is promoting freedom of self-expression. There is a migration of the mobile-phone industry from the early uptake stage, which explains specific technical features, to a mature market, which promotes what wireless says about you and your image,” he said.
The paging perspective
A similar progression has taken place in paging, which began in the 1990s to promote itself “as a badge, a status symbol, to teenagers,” said Steve Gross, executive vice president of sales and marketing for Arch Wireless Inc. In reaching out to youth, third-party distributors like Best Buy, Circuit City and AOL Time Warner, have broadened the marketing reach.
Like cellular telephony, paging took off in the early 1980s because of an important technology advance, in this case, numeric digital messaging, he said. At that time, the industry still focused almost exclusively on businesses with mobile workers, as it had since its establishment in the 1950s. At the outset, tone paging required end users, typically doctors and other professionals, to carry around large devices that would sound a tone when someone had tried to call them. They would then phone into a call center to get the message.
“After numeric digital messaging, the next big invention, in the early-to-mid-90s, was text messaging, a very significant invention for business customers,” Gross said.
“Our industry was founded on the premise of making the use of the phone more efficient, but that is changing. … Today, the paradigm is fundamentally shifting to be able t
o converse via two-way messaging, to have an affordable, manageable conversation, from pager to pager or pager to PC. … We
are moving from a telephone-based system to messaging that, in many cases, revolves around the Internet.”
