There’s gloom and doom on Wall Street, and consumers are looking for ways to save.
Why aren’t they turning to prepaid services for more control
over their monthly cell phone costs?
On Dec. 1, the National Bureau of Economic Research made it official: The United States is in a recession. Americans are driving less, buying off-brand products, taking fewer trips, and cutting back on entertainment. According to a recent Virgin Mobile USA poll, 87% of Americans are changing their spending habits. However, when asked to prioritize expenses, customers said they would spend less on groceries before they would be willing to change the way they use their cell phones.
Analysts speculate whether the recent downturn in the economy might increase the demand for prepaid services like Boost Mobile and TracFone. According to a recent poll conducted by Opinion Research Center (ORC), on behalf of New Millenium Research Council (NMRC), one in 10 Americans are familiar with prepaid mobile phones. But familiarity doesn’t necessarily translate to understanding. The study concluded that only about half of consumers who should use prepaid phones are doing so today. “What we found is that a combination of consumer uncertainty and myths about prepaid phones appear to account for the lower level of use in the U.S.,” said Allen Hepner, scholar at NMRC.
Those myths could be the reason that Jenny Bridges, a spokeswoman for AT&T, isn’t seeing a significant migration to prepaid. “We have not seen statistics tying prepaid growth to economic conditions,” Bridges said. But she also noted that AT&T’s prepaid option should appeal to the budget-conscious consumer, looking to take control over monthly cell phone bills.
MYTHS AND IMAGE
Currently, 29 million Americans use prepaid/pay-by-the-minute cell phones. That’s only 16% of total cell phone users in the United States, whereas prepaid accounts for a third of the mobile market in other developed countries. According to the NMRC survey, 51% of postpaid cell phone users say they do not use all their available minutes, a statistic that should indicate a growing market for prepaid. The NMRC survey concluded that an additional 25 million current postpaid customers in the United States would be good candidates for less expensive cell phone service (namely prepaid plans).
But consumers aren’t just baffled by the cost of prepaid. The NMRC survey found that Americans are confused by a host of issues regarding prepaid service, ranging from reception to handset availability. Forty percent of those surveyed mistakenly believed that prepaid phones are only available in very basic models. Fifty percent of those surveyed believed that “prepaid phones don’t get very good reception and only work in certain places.” Fifty-two percent were unaware that prepaid offers services like voicemail or text messaging. But prepaid carriers face their biggest obstacle in educating customers on their rights regarding cancellation of their current postpaid services. Graham Hueber, senior researcher at NMRC, says: “Half of cell phone owners with a contract-based phone plan say they know when the cancellation penalty ends, whereas fully 43% do not.”
Neil Lindsay, vice president of marketing at Boost, agrees that educating American consumers is important, but he also thinks that the end of America’s credit-friendly economy will naturally attract customers to prepaid services. “In places like Australia, where credit is not as widely accepted,” Lindsay said, “prepaid accounts for almost half the market.” Lindsay acknowledged that prepaid services in the United States were a very different thing at their inception; Boost has long leaned on its dollar-per-day walkie-talkie handsets. But with the rollout of Boost’s new dollar-per-day chat plan, he’s confident that it can offer competitive per-minute value to current postpaid customers. Lindsay said his company continues to market the youthful aspect of the product but admits the future is in communicating value to consumers and broadening their demographic.
MAKING THE CONNECTION
But value isn’t everything for Americans, many of whom are convenience-store impulse shoppers with a tendency to let emotions run up the tab. Americans are susceptible to paying more for a brand name even if it’s inferior. Fifty-two percent of respondents to a poll conducted by Cricket agreed with the statement: “My cell phone is a critical part of my life, and I would feel lost without my cell phone.” Twenty-two percent agreed that their cell phone was an expression of who they are.
So does prepaid have an image problem in the United States? Will consumers be open to flat-rate prepaid plans that either meet or exceed the value-per-minute of postpaid? For the answers to these questions, analysts are patiently awaiting fourth-quarter results. But regardless of why customers are currently staying with their postpaid plans, the future for prepaid in the United States may depend on the carriers’ ability to simultaneously educate their prospective customers and offer them a product with a familiar feel.