Rate-Plan Analysis
Deborah Young, Revenue-Management Editor
Wireless Review, Mar 15, 2001
Featured in:
Some carriers are investing in the concept that disclosure pays.
Before BellSouth Wireless hired Allan Keiter as its revenue-management director, he’d never owned a cellular phone and had no idea how complex wireless rate plans could be.
As a former airline industry exec, he considered pricing in that industry confusing. But eventually, he concluded that wireless rate plans are even more complex, and that consumers often overspend on the wrong plans because they don’t understand the correlation between their usage and plan features such as peak- and off-peak prices, roaming rates and call rounding.
Keiter is not alone in his analysis. Consumer advocates such as Airtime Advisors are telling customers to demand rate-plan analyses every three months, then ask for refunds if they were on more expensive rate plans than their usage patterns require (www.airtimeadvisors.com).
Some carriers are starting to acknowledge consumers’ concerns about the possibility of being on the wrong rate plan by disclosing more about their companies’ rate plans. The most dramatic example is Alltel (www.alltel.com) with its Always Up2Date Guarantee, which promises periodic rate-plan analysis to allow customers to keep pace with rate improvements.
Rate-Plan Spin
This past spring, while anticipating the roll-out of the company’s first national rate plan, Alltel execs began mulling the idea of adding a guarantee to differentiate Alltel’s national plan from its competitors’. At first, the execs drafted a 7-point guarantee, which included no roaming charges, no long-distance charges and a voice-mail provision, said Mickey Freeman, Alltel director of relationship marketing.
But most of the seven points turned out to be standard fare in other companies’ national rate plans. So the Alltel execs returned to the drawing board and emerged with a 2-point guarantee, the Always Up2Date Guarantee, a promise to analyze customers’ usage every six months and recommend the most cost-effective rate plan and to upgrade handsets every two years.
“The way we got to the two main points was through not only our research but research from other reputable information companies,” Freeman said. “Yankee, Forrester and others were showing that customers have two overriding concerns about their wireless plans. One of those concerns is that the plan might be outdated. The other is that the customer has invested in a phone, and that phone may be outdated.”
Providing rate-plan analysis to individual customers when they ask for it is far from a new concept. But providing the service pro-actively for a large group is both a new concept and a challenge, according to Freeman.
“One of the challenges was to develop a system that could actually do the analysis in an automated way,” Freeman said. “We developed the software in house to do that.”
The system Alltel developers created reviews six months of a customer’s call usage, then compares that information with the customer’s current rate plans and other Alltel plans to determine the most cost-effective choice. Then, the customer is notified if there is a more cost-efficient plan available for him.
Another challenge has been to find an inexpensive way to communicate with customers who are slated for rate-plan analysis. Alltel is working on the solution to this problem.
Although Alltel originally designed the Always Up2Date Guarantee for its Total Freedom national rate plan, the company has expanded the program’s scope to cover Regional Freedom customers. Subscribers of these plans spend at least $29.95 a month.
By catering to low-tier customers, the guarantee goes against conventional industry wisdom, which classifies customers according to value and potential and treats them accordingly.
Freeman admits that moving customers to less expensive rate plans costs the company in lost revenue. In addition, the rate-analysis program brings added costs, such as those associated with maintaining customer-usage databases and contacting customers.
“But you have to weigh that against the cost of losing a certain portion of those customers altogether,” Freeman said. “If we lose that customer, we lose all opportunity to gain from those future wireless revenues, and in our case, to gain revenues from selling long distance, paging, local or any of the other bundled services that we offer.”
Alltel expects the biggest payoff to be in customer retention. Although Freeman declined to comment on how much the company expects to reduce churn, he said that Alltel’s goal is that the guarantee will lead to churn rates lower than those of other plans the company has offered and average industry churn rates. In its November quarterly report to the Securities & Exchange Commission, Alltel reported its annual churn rate had risen to 2.34% between September 1999 and September 2000, compared to an annual churn rate of 2.21% the previous year.
Will Alltel’s rate-analysis strategy catch on in the industry? Probably not in the near future, according to Elliott Hamilton, The Strategis Group (www.strategisgroup.com) wireless group director. Hamilton acknowledged that conducting periodic rate-plan analyses and potentially switching subscribers to lower rate plans would not be attractive to large carriers because of the revenue losses involved and the logistics problems involved in providing analyses for a huge customer base.
“But I think it’ll show up in (carriers’) churn,” he said, adding that not considering ways to provide some type of rate-plan upgrades would be shortsighted.
“I do expect to see other carriers adopt Alltel’s strategies, particularly as churn rates continue to hold steady,” said Knox Bricken, a Yankee Group (www.yankeegroup.com) analyst. Bricken’s rationale is that with customer-acquisition costs in the $350 to $400 range, it’s cheaper to find pro-active ways of keeping customers than placing the emphasis on acquiring new ones.
However, other companies have found ways to use the lure of rate-plan analysis that are less dramatic than Alltel’s program.
How Many Ways?
Through his Web site, Keiter, now president of MyRatePlan.com, helps consumers choose the best wireless plans for their usage and geographic regions. Consumers can go to the MyRatePlan.com Web site, enter information about their wireless usage and receive information back about the most inexpensive rate plans being offered by the carriers in their regions.
Keiter also markets MyRatePlan.com to carriers as a way to lure potential subscribers via the Web as well as retain customers. Although consumers can visit the Web site and have their usage compared to several wireless carriers’ offerings, Keiter says that individual carriers have an incentive to license the software.
“The number of people who know me is inconsequentially small, whereas the number of people that go to the AT&T site every month is in the millions,” Keiter said. “So the benefit is that it gets a much broader distribution.”
During 2000, MyRatePlan.com developed additional analysis products. The company’s family-plan analyzer takes into account the nuances of various carriers’ family plans, such as whether families can share minutes or talk to each other for free. A prepaid calculator lets consumers discover the most appropriate prepaid plan, based on usage volume and prepaid-card expiration dates. The company also runs a wireless plan manager, which notifies consumers via e-mail when their contracts are about to expire.
Selling in Cyberspace
E-commerce’s growing popularity provides another incentive for carriers to use Web-based rate-plan analysis.
“The carriers are ultimately going to need to provide tools to make it easier for customers to make their buying choices online,” Keiter said.
He added that few consumers, about 2%, buy phones online now because the Internet is more impersonal than shopping in stores, where products can be seen and felt.
Nextel (www.nextel.com) has taken this approach by adding search-engine operator Ask Jeeves’ software to its Web site. Now consumers can go to Nextel.com and click on Shop@Nextel to gain access to the Nextel Shopping Advisor.
Nextel’s Advisor asks a series of six questions to determine customers’ needs. These questions ascertain whether the phone being purchased is for business or personal use, national or international use, whether hands-free operation is required, the average number of minutes the phone will be used each day, whether most calls will be local or long distance and whether the customer prefers a sleek or rugged handset. After customers answer these questions, the Advisor describes three suitable plans and shows a color photograph of recommended handsets.
SprintPCS.com’s plan advisor uses a simpler approach. Customers are asked only one question: How many calls will you make and receive in a week? Answer choices on the boxed menu range from 0 to 221+. Once a customer selects a range of calls made each week, the plan considered most appropriate is highlighted in yellow.
The MyRatePlan.com software, which is licensed by Cingular Wireless (www.cingular.com), requires answers similar to those elicited by the Nextel Shopping Advisor, minus the handset information. However, instead of making the software available to all Web-site visitors, Cingular uses the rate-plan analyzer as an intranet application for its CSRs.
“We have customized it with a message page so that it can be updated to alert the reps to any changes or promotions that take place,” Keiter said.
According to Keiter, altering the software program so that it can be used by visitors to the company’s Web site would take less than one day. The former Houston Cellular, now a Cingular property, has chosen this route.
© 2002, PRIMEDIA Business Magazines & Media Inc. All rights reserved. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, redisseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of PRIMEDIA Business Corp.
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