Why are vodafone charging customers to remain loyal?

14 07 2009

I visited my local vodafone store today, to ask about getting an iphone. However, despite being a vodafone customer for nearly 2 years, it’s not as simple as signing a contract extension and paying for the phone. Instead, they wanted to charge me “between $150 and $400” for the privilege of signing up for a longer and more expensive contract.

Charging customers who want to commit to a longer relationship at a higher price, seems a strange strategy. Banks have tried it with mortgages, but the fee is usually compensation for locking in a lower interest rate. Meanwhile local energy companies are falling over themselves to offer customers money to stay or return.

The language vodafone are using reflects the penalty for ‘breaking a contract’, not the benefits of extending a relationship. In contrast, airlines will let customers change a ticket (their contract) for free on most non-budget fares, and they have limited capacity to juggle. And could you image the reaction if a marketer at Sky TV suggested charging customers a break fee to upgrade their package with new channels..?

The point that vodafone appear to be missing, is that customers aren’t lining up outside stores to get the vodafone experience; they’re lining up to get the iphone experience. And until now vodafone were the monopoly that could provide it, and their pricing and in-store attitude reflected it.

But that’s starting to change. Apple New Zealand now sell the iphone online, for $50 less. And Telecom have launched a guerrilla marketing campaign to encourage customers to buy an iphone and then defect. They’re offering a $600 account credit – enough to cover the break fees – and the prospect of the iphone 3GS working at full speed nationwide (apparently the vodafone network drops to GPRS outside urban areas, and inside our building).

So what will stop customers defecting? According to the vodafone spokeman quoted in the NBR article, it won’t be a problem because tethering on the XT Network would be very expensive by comparison. But I have to wonder who sees tethering as a ‘killer app’? The customer wanting access to the mobile internet, or the mobile companies wanting to sell larger data plans?

I’m told I’m geekier than the average person, yet I’ve never once tried to tether my laptop to my phone. For a start, it takes to long to load the pages. So I’m confident that most people buying the iphone, are buying it for experiences other than tethering. And all those experiences are available on any mobile network, at a wi-fi hotspot and even on a plane.

As a consumer, I’m looking forward to watching the competition, and hopefully seeing some price innovation to match the Australian market.

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