Consumers ‘cracking the code’ when it comes to smartphone purchases

Research from CCS Insight suggests consumers in France and the UK are becoming more savvy when purchasing devices, seeking more cost-effective options outside the telco channel.

From a financial viewpoint, moving away from the subsidized handset model would certainly be attractive for the telcos, though the consequence might well be shorter contract timeframes and increased customer churn. Should customers not have to stick to a 24 month contract to pay-off devices, the result could be more frequent searches for cheaper data tariffs. Losing this stickiness is not an ideal proposition for the telcos, though it could offer a chance to innovate and move out of the dreaded utility function.

According to CCS, more consumers are searching for alternative means to secure a smartphone. More than half of those on SIM-only contracts said they worked out that it would be better value to buy their phone and SIM card separately, with channels such as Amazon, eBay and Argos becoming increasingly popular. The research also demonstrates an increased appetite for second-hand and refurbished devices.

“We refer to this concept as ‘cracking the code’,” said Kester Mann of CCS Insight. “People now have a far greater understanding of the true value of the different parts of a mobile service. In the past they significantly underestimated the real worth of a smartphone, which was traditionally heavily subsidised and bundled into operators’ service plans.”

One in every ten mobile phone users in the UK said that their primary device is a second-hand model. The majority of the time these devices are sold or passed on between family and friends, while refurbished devices currently represent about 4% of the UK market with potential for growth.

The subsidised device model is one the industry has been edging away from for some time. There are of course consequences to refresh periods for customers, and with the cash-conscious consumer becoming more savvy on searching for deals, there is a risk of churn. However, by removing the subsidized devices from offers, telcos can concentrate on building value elsewhere.

O2’s Priority strategy is an excellent example of how value can be built into contracts with low-risk and high-reward. As a partner programme, the focus is placed on the wallet of the customer not O2. Relationships are developed with third parties, and a broad variety of discounts offered to customers. The customer experience is enhanced, value is offered and loyalty increased, but there is no cost to O2 aside from developing the platform and negotiating offers with third-parties on the behalf of customers.

This is a genuine value add which can be built into propositions once the idea of customers chasing the latest flagship for a subsidised price. There are of course risks, and there will be customers who desire the subsidised devices, but consumer trends separating the device from the SIM offers opportunities for telcos to create business models focus on experience and value, not simply throwing flagship devices on advertising boards.