Portability

Portability. Now You can take it with you!!
By Paul Herbig
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Cellphones highly competitive before have now become almost volatile.
Portability: switch vendors and still have same cell number. You may be able to buy the phone from one vendor, service from a second, and have the same cell number you obtained earlier from a third vendor. This presents a whole new twist to the world of cellular phones. Whereupon earlier vendors could use a lock-in strategy, this is not possible any more.

In an industry already plagued with a 25 percent annual customer attrition rate, one estimate is that out of the 145 million cell phone customers in the U.S., an additional 10 to 12 million customers will switch, increasing the expected attrition rate to as high as 35%. Even this number could be low.

Marketing strategy is to lock-in customer through some non-duplicable property of the product offered. For example, Sun computers operate on their own operating system. Many high level Enterprise software systems (that operate the overall business entity) are not compatible with others competitive systems, you must often reconfigure your computing system and ways of business around their software. Your people must be trained on their system. And a definite learning curve is evident; it may take a year or more before you become truly proficient on the system. From a vendor’s point-of-view, this is most preferable situation—a truly captive customer base. You can give considerable abuse to your customers once you have locked them in, raise prices as often as contractually permitted, provide poor to non-existent service, and the customers often have no choice but to stick with you (sounds sort of like the local cable company doesn’t it) because they are locked in. To change vendors or systems would incur considerable “switching costs” which most customers really do not want to pay. So they stay. And you can boast about your large customer base but rarely do you mention anything about customer satisfaction. And rarely do you provide references or give testimonials. But it can be quite profitable.

That is, for a while. Then it will catch up with you. Sooner or later the dam will break. Even with tremendous switching costs, at some point customer’s ire will overcome and take the plunge and costs necessary to switch vendors. Good luck on every getting them back. Or technology changes (as it did from word processing units to PCs) which make switching to the new technology a requirement and switching costs become mute in the vendor selection process (as you must pay them no matter which vendor you select). Even if your current vendor decides to upgrade and offer the new technology, you escape as fast as you can. So lock-in (get ‘em and string’ em) strategy is a short run success (short run being 5-8 years) but does not offer longer sustainable advantages. It works much like a crooked used car dealership: you must continually be looking for new customers. Even with proprietary software or patents or processes, lock-in without customer focused marketing is not viable in the long run.

Now that cellular companies cannot use the lock-in strategy and must compete for customers head=on, what will they do? History tells us there are only 3 viable strategies: low-cost, focused, or differentiated. Usually only one company can be the low-cost vendor. We are likely to see numerous companies during vie for that position but only one will survive to fulfill that niche (And become known as the ‘Walmart of cellphones’?). Price competition will be fierce but only one firm will become the price leaders.

Other companies will attempt to be the generalists, something for everybody. This too is not a winning strategy as if you stand for everything, you stand for nothing. The fall from grace of the generalist department stores show the end path for that strategy. If you build devices that everyone can use for all options for all, it will be either too bulky, too expensive, have too many functions most people will not want, or be just plain undesirable by many segments. Some generalists may survive but a few and not well.

Others could well zero in on specialty segments: teens, Gen Y’ers, parents, etc and work to become expert on that segment and offer phones keyed to that segment’s special needs. You are already seeing some of that in action as phones for teens and tweens are being marketed that are considerably different than those for businesspersons. This strategy has its down side: being a niche player does not make you a market leader and has limited upside potential but it can certainly be profitable. This is the route I believe most players in the cell market will take if they expect to be in for the long run.

Who says you can’t take it with you!!

Paul Herbig is managing Partner of Herbig Marketing Associates, (www.herbigandsons.com) a marketing consulting company and former Professor Marketing and Dean, Ketner School of Business for Tri-State University. He can be contacted at mktgandme@aol.com.