In case you havent already heard, T-Mobile will be completely doing away with their current pricing scheme and 2-year contracts on the 26th. In place of it is their latest attempt at a coup on the US mobile industry, what they label as “Value Plan” pricing and rebranding themselves as the “UNCarrier.”
“UNCarrier”? So what does that mean to you, the consumer? T-Mobile is completely dropping the current 2-year commitment model that exists to subsidize the cost of handsets. In case you’re an idiot, the reality is that your shiny new iPhone or Galaxy SIII is not really $199. Carriers purchase and resell them at these subsidized prices attached to a 2-year contract to ensure they make their money back (or subject you to an Early Termination Fee “ETF”)
Unfortunately, prior to this move, all 4 major carriers used the subsidized handset model to advertise handsets at an unrealistic price. As the years have gone by, consumers have become accustomed to this pricing scheme and any attempts to remove the subsidizing model altogether will upset consumers who have been trained to believe a top of the line smartphone is only worth $200. It will require T-Mobile to retrain not just their own customers, but all mobile phone customers, of how much their phones truly cost. To add to the difficulty, T-Mobile will attempt to do this while the competition continues to advertise their devices at their current, unrealistic prices while backed by a traditional subsidy.
And even that’s not the worst of it. Consider that T-Mobile has always been considered the “budget carrier” of the Big 4, offering the lowest prices on service and ensuring their lineup of devices includes a heady mix of cheaper, no-name handsets with little to no premium device offerings (prime example: T-Mobile has never offered the iPhone). By targeting the low-end of the market, T-Mobile has rounded up the types of customers who are the most price sensitive. Arguably many of them are the least educated with lower than average incomes. Because of this, no matter how many times you do the math for them and show them the significant savings that can be had by blowing up subsidies, all they will do is revolt over the perceived initial cost of a device out of sheer stupidity. In addition, those price sensitive customers who may have been considering a switch to T-Mobile will be dissuaded by the high initial cost of entry resented by a smartphone at full pop. Their target audience will not be able to see past the advertised price and see the total value.
However, the customers that do understand what T-Mobile is trying to accomplish and are able to see the value in their new pricing schedule are in no way being targeted by T-Mobile. They have the smallest network by far with no widespread LTE and nothing to offer in the premium device range. The only potential customers that are intelligent enough to see the value have no incentive to move to T-Mobile.
Because of these issues, T-Mobile has a long road ahead in their attempts to educate consumers from the bottom up, and in the meantime, will lose a lot of customers through churn as their poorly educated customer base leaves them when their old contracts end and face stiff pricing instead of the low cost upgrade they feel entitled to. Like Ron Johnson’s attempt to bring real value to JC Penney customers, unfortunately T-Mobile’s attempt will result in the same fate.
Expect T-Mobile to return to advertising a more “traditional” subsidized model by the end of the year. They may continue to do what they’re doing on the back end, but they’ll have to change their marketing strategy, at least up front, to try and recover the mass of customers they’re about to confuse and lose.