Walmart's Straight Talk Plan Challenges Brand-Building Mobile Competitors

Other Prepaid Players Such as Boost, Leap Look for Retail Reach, Competitive Pricing as Differentiation

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SAN FRANCISCO (AdAge.com) -- Does it make sense to invest in brand-building when the market you play in is more and more becoming defined by price -- especially after mega-retailer Walmart steps in to set a new pricing floor?

As shoppers flock to Walmart to get everything from diapers to prescriptions, a cheaper prepaid wireless plan would seem to be just another item in the shopping cart.
As shoppers flock to Walmart to get everything from diapers to prescriptions, a cheaper prepaid wireless plan would seem to be just another item in the shopping cart.
Starting Sunday, more than 3,200 Walmart stores will be exclusively offering Straight Talk, the nation's cheapest prepaid unlimited wireless calling plan, from Tracfone Wireless. The $45 plan lets users call, text and surf the mobile web all they want, beating a similar offer from Boost Mobile, which, priced at $50, was unprecedented when it launched in January.

Even for a market that's becoming increasingly commoditized, industry watchers and players say the prepaid category supports customer segments beyond the price shopper, and that will call for different messaging and strategies. But for the price-conscious segment, distribution will be the key, and brand-building will take a back seat.

Walmart is unlikely to put significant promotional dollars behind Straight Talk, even though it is exclusive to the world's biggest retailer. With the product being a natural fit with Walmart's customer base, primarily low- to middle-income shoppers, it is expected to sell itself like everything else in the store: as shoppers flock to Walmart to get everything from diapers to prescriptions, a cheaper prepaid wireless plan would seem to be just another item in the shopping cart.

"With Walmart, you have the most powerful distribution channel in the world, and that may trump marketing dollars to a degree," said Michael Nelson, an analyst at Soleil/Nelson Alpha Research.

At eye level
Alex Besen, who heads up mobile consultancy the Besen Group, said Straight Talk needs no advertising because Walmart's captive shoppers will see the offering on the shelf.

"Customers are already there," Mr. Besen said. "They see the price, and they see the phones. There isn't much need for advertising." Besides, he added, trying to justify marketing dollars for products whose customers tend to be disloyal to, and whose margins are being squeezed by the ongoing price war, would be a tall order.

Underscoring the importance of a strong distribution strategy in the prepaid category, a number of players are aggressively extending their retail reach. Leap Wireless has inked a deal to sell its prepaid offerings through Target stores; it is also expected to extend its wares to Walmart and Dollar General Corp. Sprint's Boost Mobile unit is now trying to expand its footprint by opening 50 stores in time for the industry's biggest year-end selling season. Chicago-based prepaid wireless provider PlatinumTel is exploring partnerships with convenience stores, said Omar Abhari, senior VP of operations.

"The price point will always be king, and the level underneath that is the distribution channel," Mr. Abhari said. "If you have the best price, but don't have the right distribution, no one will know."

But Mr. Abhari remains a believer in branding, noting that after PlatimumTel launched an ad campaign in Chicago encompassing broadcast and out of home, the company saw a lift in sales.

But even as the prepaid market is increasingly becoming a race to the bottom, the category is still growing and in flux. Not only do opportunities exist for differentiation, but it will become even more critical for marketers to steer the conversation beyond price.

"Trying to compete with Walmart on price is a losing proposition," said Rob Enderle, principal of the Enderle Group. "The more you do brand-building, the less you have to compete on price."

Growing category
Experts say it's wrong to think that everyone in the prepaid market is a price-shopper, even though this category has historically catered to those who are credit-challenged, strapped for cash, or light users of wireless services. Prepaid subscribers are the fastest-growing segment in the market, accounting for an estimated 56% of new wireless subscribers last quarter, compared to the postpaid market's 38%, according to Mr. Nelson's analysis. In the current economic crunch, more subscribers under contract with the large wireless providers are dumping their commitments and converting to prepay: 13% of some 800 respondents in a recent Yankee Group survey said they converted to prepaid service from postpaid, compared to 4% who said the reverse. Since these folks don't fit the prototypical prepaid subscriber, they would be game to hearing more than value messages. Handsets, network coverage and quality, and customer service are all fair territory for differentiation, and prepaid service providers can use them to rationalize higher-priced offerings.

"When your products are becoming increasingly commoditized, that's when you need to build a brand," said John Jackson. "You need a reason for customers to call you. If you go to a supermarket where everything's generically labeled, that's when it doesn't matter, but in this case, consumers have a lot of choices."

Some prepaid vendors have found ways to slice up the market. Boost, which was the bright spot for Sprint after gaining more than 930,000 subscribers last quarter, has been able to position itself as a lifestyle brand. Jitterbug, which caters to users looking for easy-to-use cellphones and services, with live operators ready to help, has found a sweet spot with the over-50 crowd.

"I don't think this category has become so rational that it's all about price," said Neil Lindsay, VP-marketing at Boost. "What has to be sustained is an emotional connection, and branding plays an important role to make consumers feel confident that when they buy our brand, we won't nickel and dime them. If you don't make that connection, it's a tenuous position to be just leaning on price."

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