ATT -Verizon Price Signaling Dance Continues

The two biggest wireless providers, Verizon and AT&T, both introduced programs to enable their customers upgrade their smartphones more often. That is more often than the two year contract permits. AT&T’s plan is branded as Next and Verizon’s plan is branded as Edge. Both plan works the same way.

You pay an additional monthly fee (in case of Next it is $10/month, Edge is yet to announce price). And you get the privilege to upgrade your phone every year. So every year Sir Ive reduces a few nanometers on iPhone, you get it right away.

The response from the blogs have been predictable. They all call it outrageous or a huge ripoff.

NEXT IS AN ABSOLUTELY CLEAR RIPOFF

EDGE IS JUST THE SAME SHELL GAME AS AT&T NEXT (here)

Why is this a ripoff as long as you have a choice not to sign up for it? Here is something that Verizon marketing said  that speaks volumes about who they are targeting,

Verizon Wireless Chief Marketing Officer Ken Dixon said the program is designed for customers looking for the “latest and greatest,” and the carrier will continue to offer its traditional contract plans. Mr. Dixon said the plan is “an affordable way to upgrade.”

In other words, cheapskates need not apply. Happy to upgrade phone every two years, then don’t pay the $10 a month. In your customer mix there always exist some who would gladly pay more – either for he same product or for something better. That is just the artifact of demand distribution. Since finding those who would pay more for the same is hard marketers introduce better versions at higher prices to see who steps forward.

There is another person Verizon is talking to with this message – AT&T. They want AT&T to know, “We are seeing this as premium priced option as well and not going after cheapskates. So you keep your prices high, we do too.”

Where have we seen this price signaling before? With their wireless plans. Here is what I wrote in GigaOm last year,

Price signaling has always existed between the number one and number two players in any market. Agreeing to not engage in a price war is truly a win-win for the market leaders. Since outright price fixing is illegal, market leaders resorted to signaling to tell the other company their intentions or send a threat about their cost advantages.

But traditionally, it was more like flirting — ambiguous enough that the underlying intentions could be denied. Why are these two not shy about admitting to flirting now? The simple answer is the iPhone.

Once again I say here, as a marketing guy, I am in awe. This works great to capture additional consumer surplus from those customers without making life too hard for others. They both are saying,

Will the customer with higher willingness to part with their money stand up! Half go that way, half come this way.

And this isn’t overt price fixing. It is pricing excellence.