In our conversations with telecom executives, analysts and investors, we often hear a resigned acceptance that the wireless industry is marching toward commoditization. The consumer market in North America is nearly saturated—more than 9 out of 10 adults in the US own a mobile phone and 7 of those are smartphones—so 95% of “new” subscribers are just switching among carriers. Like other mature consumer markets, the battle in wireless telecom has become a “fight for inches.”
As wireless carriers compete for market share, some of the traditional sources of differentiation (such as network quality or phone selection) have been losing efficacy, making it harder for carriers to sustain advantages against competitors. In some European markets, telcos have already lost these sources of differentiation, as the market has commoditized almost completely. North American carriers are not as far down that path, but we see signs that they are headed in that direction. For example, Bain & Company’s recent benchmarking of consumer behavior and customer loyalty in the wireless industry, which we measure with the Net Promoter ScoreSM (NPS®), found that among the top three primary reasons customers choose their carrier, price is beating out network quality and brand as the most important factor. What’s more, customer loyalty scores of those choosing their carrier based on the brand or network have been converging among the major carriers.1 Whether in the form of lower rates, handset subsidies or early termination buyouts, price is becoming the main source of competition. But even so, we don’t think the march to commoditization is a foregone conclusion in North America.
Despite the signs pointing toward commoditization, Bain research finds that wireless consumers still have unmet needs—and, more important, they will pay more for value propositions addressing these needs. Our nationwide consumer survey of 2,000 wireless users and direct conversations with more than 100 customers in focus groups revealed some of those opportunities: We believe carriers that can improve their abilities to segment customers and also deliver innovations closely targeted to customers’ unmet needs will set themselves apart from competitors. The products and services they deliver could help raise average revenue per user (ARPU) while improving NPS, increasing new subscribers, reducing churn and bolstering their reputations beyond mere connectivity providers.
Identifying new sources of value in wireless
Telecom executives can take lessons from other mature consumer industries where successful companies have reversed the march toward commoditization by innovating around customers’ unmet needs to increase revenue. In 2005, Gillette injected new energy in the stagnant razor category by identifying an unmet need for higher-quality shaving, leading to the successful five-blade Fusion ProGlide razors while sustaining a substantial price premium over private-label substitutes. In the 2000s, airlines in the US responded to rising costs and price competition by gaining a clearer picture of the needs of their customer segments and unbundling services that were important to each. This allowed them to begin charging for valued features, such as extra legroom and priority boarding. Today these offers represent a significant portion of the industry’s profits in the US, offsetting losses in the core business of short- and long-haul air travel. In both cases, refocusing on specific customer needs counteracted trends toward commoditization.
Similar opportunities are emerging in wireless. In our conversations with customers, they say they are overcharged and underserved, but these same people acknowledge they still have unmet needs that they’re willing to pay more to have addressed. To learn more about these needs and the revenue opportunities underlying them, we applied top-down and bottom-up research approaches. Our top-down segmentation revealed six distinct segments of wireless customers, each with various levels of engagement, suggesting opportunities for innovation.