The Importance of Branding Handsets: does purchasing based on handset brand drive churn?

As the number of service “features” being offered on mobiles grows and new designs become more popular, customers are increasingly influenced by the handset when selecting a wireless service, according to a new JD Power report.

The study finds that 19% of customers cite the type or brand of cell phone as a key factor during the initial process of selecting a wireless service-up from 11% in 2004. While the brand of wireless provider is still the most popular reason influencing the initial selection process, it has decreased significantly in importance — down 8 percentage points from 2004 to 40 percent in 2006. Other key factors that influence the initial selection process are price/promotion (29%) and retail location (12%).

“It is clear that as the number of cell phone service offerings increases, and the design and visual appeal improves, wireless carriers and national retail chains are using the handset as a key promotional tool to attract new subscribers,” said Kirk Parsons, senior director of wireless services at J.D. Power and Associates. “Additionally, as service plans are more competitively priced, retail outlets of the major wireless carriers are also using cell phones as a key differentiator — typically offering exclusive deals on new and popular models, such as the Motorola RAZR. Carriers and retail chains are making these trendy cell phone models more available in order to increase store traffic, raise market share and, more importantly, increase the likelihood of repeat purchases.”

Customer satisfaction with the retail buying experience can vary significantly depending on the key factor that is considered during the initial selection process. For example, the overall retail satisfaction score among customers who cite the wireless carrier brand as the most important factor is 751 points on a 1,000-point scale. This compares to a satisfaction score of 719 points among those who cite the type or brand of cell phone as their key reason to purchase a wireless service. Additionally, among customers who are most influenced by the cell phone brand, the likelihood of switching carriers in the next 12-month period is 60 percent higher than among customers who cite the brand of the wireless provider as their key factor in the selection process.

“Promoting the cell phone instead of the service plan and the carrier that provides that service may drive more initial traffic to the stores, but it can potentially have a negative financial impact with higher churn rates,” said Parsons. “It is imperative for wireless carriers to strike a balance between attracting new subscribers based on price or the latest cell phone model, and making sure the customer is using the right service plan or provider that will meet their wireless calling needs.”

Source: Cellular News