Should I subsidize or should I not? (Part 2)
Taking in consideration the acceptance of the first post, I’d like to share with all the Readers, some additional findings in the handset strategy project where we analyzed in detail the impact of subsidy in the operator’s handset strategy.
One of the most important questions to answer was: How can the operator handle the fact that the market (and therefore their base) was arbitrating over the migration and acquisition campaigns being launched at the same time? Let me explain: our client, extremely focused in providing value to the final client and acquiring as many valuable clients as possible, was launching acquisition campaigns and handset migration campaigns at the same time. For each of these campaigns, the level of subsidy applied to the handset conforming the offer was different, investing heavily in subsidy for the new adds while investing less in those current clients willing to replace their handset.
What happened? Let me tell you that the average customer of a telecom mature market is not stupid and so, when the customers saw that there was a huge opportunity to get a mid-high-end handset buying the new prepaid offer, using the initial charge of the SIM card, and once the charge was over, replacing the SIM with the old one and leave the old handset. So, an acquisition campaign was arbitrated by the market, transforming it to a replacement campaign by most of the clients.
This shouldn’t be an issue except for the fact that if the operator had known this upfront, it wouldn’t have incurred in such subsidy levels. Net, net, a lot of money was inefficiently spent.
On top of this, we noticed that more than a 30% of the clients holding an active SIM card and replacing the handset at a certain date were replacing the handset after the first month! (See slide attached). This unveils another issue: in most of the cases, the operator is pushing specific handsets to the base through replacement initiatives that are not effective, incurring in a huge amount of money in subsidies that could’ve been avoided as the customers show they are not happy with them and so, replace them with their previous handset.
Bottom line: 1) Subsidy levels should start considering CLTV; 2) Look out with the subsidy levels depending on the business objective of the campaign 3) Understand customer’s needs before pushing any handset 4) monitor the results of the campaigns to avoid pitfalls in the future.