Carriers Use Black Friday Weekend to Up the Retail Ante

Even Verizon Has Jumped Into the Promotional Arms Race

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Walk into one of the new Verizon Wireless stores, in Chicago or Houston, and you may find it hard to spot the phones. They're buried in the back. At the front, the store stocks rows of accessories and digital gizmos: smartphone cases, headphones, fitness-trackers, smart-watches and connected devices for the home. It even sells drones.

The nation's largest wireless carrier has opened two central city "destination stores" -- and a third, smaller outlet in Seattle -- this month as it prepares for an assertive holiday sales push. Verizon, like its rivals, is promoting deals on smartphones.

But a big focus this season is putting new devices into consumers' hands and getting consumers inside their doors.

Carriers have traditionally spent lavishly around Black Friday, when phone upgrade cycles hit and shopping peaks. But this year, the holidays arrive with the four biggest companies locked in a promotional arms race. And the marketing executives at the largest firms are facing pressure to innovate on sales -- as smartphones shrink as a revenue source -- and on advertising -- as T-Mobile continues to provoke the industry with its discounts and astounding growth.

Verizon's investment is particularly noteworthy. Up to now, the carrier, unlike Sprint and AT&T, has largely resisted responding to T-Mobile's agitational moves. Yet it has recently announced a series of offerings, focused on data usage, and is heaving money into expensive retail real estate.

"It's no secret," said Jay Jaffin, VP-marketing for Verizon. "We're trying to expose consumers to elements of our technology -- the technology that's in the palm of their hand -- and how much they can do with it."

On the Wednesday before Thanksgiving, Verizon launched "Connection Day," a promotional giveaway aimed at travelers, backed by a major marketing spend. The carrier teamed with content providers Amazon, Apple, Condé Nast and Pandora, among others. Deals are available for Verizon subscribers as well as other customers, a first for the carrier. The idea came from its agency partners Zenith Media and Moxie, Mr. Jaffin said.

It may be a harbinger of more to come for the historically staid advertiser. In early October, Verizon Communications hired Diego Scotti, a Condé Nast and J. Crew veteran and the first conventional marketer the telecommunications firm has had as its CMO.

Heat from other carriers
AT&T, its smaller competitor with a bigger ad budget, is planning a significant e-commerce push around Cyber Monday, said Eric Goldfeld, VP-national consumer marketing for AT&T Mobility. But the company is far more invested in physical retail, its largest sales channel.

At its year-old flagship store, just six blocks south of Verizon's in Chicago, the carrier outfitted the outlet with a merchandising theme, "the Magical Forest." It is intended to create a showroom "where people seek treasures in a mystical and pristine environment," the carrier wrote in a statement.

On Black Friday, the carrier is offering steep discounts on wearable devices from Pebble, LG and Samsung. Through the holidays, it's also adding deals on Motorola's digital earbuds and HTC's new portable camera. And it's still carrying Amazon's beleaguered Fire phone, which, on Wednesday, received yet another discount.

Sprint is piling on, too, as the carrier looks to revamp through a series of aggressive sales offerings. As is T-Mobile, which increasingly invests in its brick-and-mortar locations. During the holiday weekend, the carrier's retail outlets are giving away tablets for free.

"I feel like a kid surrounded by piles of presents and wrapping paper," Mike Sievert, T-Mobile's CMO, wrote in a blog post announcing the holiday deals.

A la Apple
As the carriers pour money into retail, they likely have a clear model for successful customer experience and branding. "All these guys are trying to mimic Apple," said Walter Piecyk, a BTIG analyst.

While Apple is sprucing up its online presence (the company hired digital marketing veteran Bob Kupbens in March), most iPhones are still sold through the carriers. Improving retail marketing is one key way for the carriers to keep it that way. "They want to maintain that channel," said Mr. Piecyk.

One tactic they are using is audacious discounts. At the end of October, the carriers released a whirlwind of new plans, each aimed at outdoing the next. Sprint introduced a $100 data plan for 20 gigabytes of data, twice the amount of data that T-Mobile recently offered. Then both Verizon and AT&T sliced the prices their shared data plans.

In the most recent quarter, all four carriers posted earnings per share short of Wall Street expectations.

Yet analysts are not overly concerned. Carriers aren't competing solely on price, which could eat into profits. Instead, focus for now is primarily on lifting data caps, which only a small portion of subscribers break, said Jan Dawson, an analyst with Jackdaw Research. "They're focusing on that partially to avoid a straight-up price war," he said.

As the promotional battles roll on, the most enviable industry metric is churn, or the rate of subscriber turnover. T-Mobile and Sprint may be able to undercut their larger peers on data deals, but they fall short on keeping customers. T-Mobile has 1.6% churn rate, and Sprint's is 2.2%. Both Verizon and AT&T posted rates at or below 1%.

And the two biggest carriers have bigger revenue stockpiles, which they can plow into real estate.

A new reason to enter
Part of the retail reinvention is to shift the reasons consumers go into carrier outlets in the first place. At the moment, they arrive mostly when they need a new phone or tablet, when their phone is broken or when they have a service complaint. Two of these reasons are profoundly negative.

For Verizon, its destination stores serve as a location for the carrier to test retail plans, which may trickle down to its 1,700 plus national outlets, said Mr. Jaffin. The carrier's aim is to build a retail presence based on "lifestyle," where consumers can roam through electronics from a range of companies, managed by the wireless provider.

In that sense, it's different than the Apple retail experience.

Still, the analogy holds steady. "If you don't compare it to Apple, there's no other retailer to compare it to," said one agency executive familiar with the company.

A year ago, Verizon opened its first destination store at the Mall of America in Minnesota. The store fell short of expectations, in part because of its exurban location, said the agency executive. The carrier is now focused on "more prestigious areas," this person said.

Last year, the top four carriers spent $8.3 billion in U.S. advertising in aggregate, according to the Ad Age DataCenter.