Proof That Handset Brands Help Sell Wireless Plans

Google Study Finds Many Shoppers Seek a Particular Manufacturer, Not Just a Reliable Network

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SAN FRANCISCO (AdAge.com) -- What do you do when you have one of the fattest marketing wallets in the world, but a chunk of your potential customers are being drawn in by ancillary offerings made by third parties who get big payouts from you because they're the deal-closer?
The iPhone has shown the world that high-end, integrated multimedia handsets have immense promotional value and correlate with higher revenue per subscriber.
The iPhone has shown the world that high-end, integrated multimedia handsets have immense promotional value and correlate with higher revenue per subscriber.

If you're AT&T and Verizon, whose marketing budgets rank second and third, respectively, after Procter & Gamble, you may want to take note of a Google study that found more than one in two wireless shoppers said handsets played a major role in their purchase decisions. Specifically, 24% said their decision-making was solely a function of the handset; 28% said both handset and carrier influenced their decision. The remainder said only the carrier mattered.

Cellphone brands matter
Moreover, more than 43% of shoppers who use search are looking for terms related to the original equipment manufacturer, such as Samsung or Motorola, as opposed to carrier or non-branded terms.

"Carriers need to know that 50% of the market is thinking about the handset," said Sara Kleinberg, Retail Industry Marketing Manager at Google, noting that shoppers typically make their decision within a week.

It used to be that the key message was about network reliability, which still matters hugely to consumers -- at least 50% of consumers make decisions based on carrier alone. But the growing interest in mobile devices does present opportunities for wireless operators, said Michael Gartenberg, VP-mobile strategy at JupiterMedia.

"Phones are still about talking, first and foremost, but increasingly, it's about functionality as well," Mr. Gartenberg said. "The phone is making a difference in ultimate adoption. That's why we're seeing carriers get exclusive devices for their networks."

Expensive victory for AT&T
If phones are driving many decisions, would it be wise to shift more of the marketing bucks to exclusive deals with handset makers? Its massive marketing budget notwithstanding, the biggest coup for AT&T's wireless consumer business has been the iPhone, whose marketing is handled by Apple.

The iPhone has shown the world that high-end, integrated multimedia handsets have immense promotional value and correlate with higher revenue per subscriber. But the phone hasn't come cheap for AT&T. Last quarter, AT&T's iPhone bill came to $900 million, about $375 per iPhone, which retails in its stores for $199 or $299 depending on the model. AT&T also pays out an estimated average of $150 for Research in Motion's BlackBerries, according to Research Capital Corp.

"We will see this model continue; this is a land grab," said Mark Winther with IDC. At the same time, Mr. Winther said he sees other forces that may make the subsidy model obsolete over time. He believes that the closed, proprietary environment of the wireless operators will not prove attractive to consumers as they wise up about the possibilities beyond what their providers offer. At the moment, for instance, iPhone customers are forced to use AT&T applications or Apple's tightly controlled Apps Store.

"There are a lot more sources of applications and cool things out there," Mr. Winther said, and in time, the carriers may be forced to open up their network.

And, he said, even though Apple must be pleased with its iPhone sales, "I have to think it's looking at ways to make it non-exclusive" to AT&T down the road.

Balanced approach
Others say the carriers are generally doing the right mix of advertising their service vs. playing up a specific handset.

"I think they're doing a good job now," said Kirk Parsons, senior director of wireless services at J.D. Power & Associates. "There's a fine line between branding and getting the word out of specific launches."

Ms. Kleinberg noted that many of the shoppers making decisions about their wireless buys are up for renewing their mobile subscription plans. Carriers are already taking pains to prevent defection, ensuring their customers know that they matter. T-Mobile, for example, let its subscribers have first dibs on the highly anticipated Google-branded G1 smart phone.

"In today's market where we're approaching saturation, you can't mine new pockets of new subscribers," said Charles Golvin of Forrester Research, who notes that increasingly, the carrier's customer-care centers are given greater power to keep subscribers from fleeing to a competitor, and offering them the latest and greatest handsets at deep discounts is not uncommon. "Increasingly, it's about keeping your customer and stealing customers from others."

A few of the study's other findings:

  • Searchers tend to be more high-end customers who want specific handsets and are willing to spend more money on phones. Plus, those buyers using search tend to buy more of the revenue-growth-driving services, such as data plans and media.
  • More than a quarter of mobile-phone subscribers shop online to avoid salespeople.
  • Almost three-quarters of in-store buyers conduct research online, and in-store buyers search almost as much as online buyers.
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