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Monday, December 21, 2009

Apparently, it's the contract.

Verizon Wireless is defending the implementation of a $350 “early termination” fee for customers who purchase smartphones and switch service providers before the end of the agreement, explaining that the fee covers the costs and the risks of providing high speed internet.

I understand their perspective. All wireless providers have dramatically reduced the cost of phones and other devices to attract customers and get entice them to sign long-term service agreements. The service philosophy in play is that the cost to serve an existing customer is dramatically less than the cost to acquire a new one, and with a contract, they can count on users as a reliable stream. They get frustrated when this strategy is short-circuited by customers who aren’t as loyal as they would hope, leaving the provider without penalty for a better deal, better service or both.

Instead of customer behavior that needs adjusting through penalty, perhaps it is their retention model that needs correction. Rather than using contractual verbiage and fiscal penalty to retain customers, why not use outstanding service supported by compelling products to make people want to stay?

The strategy of holding a consumer to a contract is tough to enforce at the best of times, and it’s difficult to start charging for something that previously came free.

More suspect is the logic that justifies signing a client to a contract for service and holding them to their obligation not to defect, while not performing their own end of the agreement to provide a quality service. Effective service agreements (and client relationships) tend to work in both directions. If the company isn’t providing service levels customers expected when they entered into the service agreement, customer defection should be facilitated, rather than restricted.

If their ad claims are accurate, Verizon would have little to worry about.


Matthew said...

You hit the nail on the head - 'lazy', 'dull', and 'shortsighted' are terms that come to mind. You would hope that the absolute time and relative distance between the old Ma Bell era of telecomm and its technology and today's wireless communication and networking business would lead to a more customer need-driven approach to generating loyalty, but apparently contractual threat is the best anyone can come up with. No wonder 'pay-as-you-go' wireless is exploding not just amongst targeted demographics, but the bread and butter, 'high value' contractual customers as well.

Barry Dalton said...

The entire process seems illogical, Chris. The convoluted way to retain customers is one aspect. The other is our, as consumers, willingness to put up with it. There are no-contract mobile phone providers that offer an alternative. However, they don't offer the same cutting edge handsets. Also, the big 3(?) Spring, Verizon & AT&T have done a masterful job marketing the network, even though these no-contract companies lease capacity on the same networks.

Confusing mind of the mobile phone consumer, isn't it?