The mobile phone business is a jungle. While salesmen roar on about low, low prices, the bills have a nasty bite. A report last week by the Consumers Association’s Which? magazine says as many as one in four consumers regret buying a mobile phone, are shocked by hefty bills they receive and are locked into unfair contracts for up to 15 months at a time.
The industry has been quick to react, claiming the report was based on a very small survey of reader’s letters. A spokesman for Cellnet says: “Much of the report contained sound advice, but the way it has been headlined is very unfair. Where is the evidence to show that one in four purchasers are dissatisfied?”
While disputing Which?’s findings, most companies agree that the industry has an image problem. Orange head of marketing services Simon Garner says: “In the early years it was not well structured. The business was built on a sales channel that had incentives through commission. That led to a lot of fly-by-night people jumping on the bandwagon to make a quick buck. Advertisements sprang up in magazines such as Exchange & Mart and Loot and people were setting up businesses in their bedrooms.”
He says the situation is improving. Orange recently began dealing with consumers directly rather than just through their dealer network. “That is a very different type of relationship and you cannot hide behind your channel,” says Garner.
But Simon Rockman, editor of What Mobile and cellphone, says: “Those not bought directly from companies are purchased through salesman who are on commission. Some, such as Carphone Warehouse, pay their sales staff a fixed commission and their training is good. But the multiples are the worst. You get people selling you a phone who don’t understand the product or service. It is a complex area and often the staff don’t know what the best deal is.”
If the salespeople don’t understand the product, what hope is there for consumers? Marketing initiatives have done little to differentiate the brands and their levels of service, but consumers are still keen to buy. While mobile phones were once associated with drug dealers and yuppies, now they are an increasingly mass-market purchase.
There are more than 3 million users in the UK. Conservative estimates suggest the number will rise to 10 million in the next five years.
The major mobile providers are planning autumn ad campaigns to boost the Christmas market. Cellnet will be spending 10m through Abbott Mead Vickers.BBDO. A source says the it is “expecting a great big bonanza at Christmas to repeat our success last year.”
But it is still extremely difficult for consumers to make an informed decision about the right brand to suit their particular needs. It is a very complicated issue and would tax all but the most avid anorak who enjoys ploughing through tables of tariffs and zones.
First consumers have to consider which of the major providers to go with. They may opt for the long established Vodafone and Cellnet, both of which offer analogue and digital systems (digital is clearer and calls cannot be listened into). Then there’s Orange and Mercury One-2-One. They offer a digital service using the PCN standard, which is different from Vodafone and Cellnet’s digital standard, GSM.
The consumer must also consider the cost of the handset, insurance against theft, call charges, rental rate and the length of contract they are tied into – the average is 12 to 15 months. Rockman says it is all very confusing for the novice. What Mobile and cellphone lists 190 different tariffs. One thing that is certain is that an hour’s worth of calls a month can cost from 450 to 900 a year.
One of the biggest image problems for the industry – and one that it will have to address or risk losing potential consumers – is caused by the fact that many dealers are offering handsets for a little as 9.99. Consumers think they are getting a bargain, often ignore the small print and are then alarmed when they receive a bill for 180. They then realise they are tied to a 12-month contract. Cellnet managing director Howard Ford describes it as “bill shock”.
Rockman says: “If you are paying 10 for something that is worth 150 you should automatically smell a rat.”
Mercury One-2-One’s handsets are significantly more expensive than many of its rivals and its contracts last for six months. A spokesman says: “Lots of people have been buying mobile phones because the hardware is very, very heavily subsidised. Virtually no one pays a realistic price for the handset. They are attracted by the low entry price but are surprised by the running costs. Our start-up costs are higher but we aim to give overall value-for-money.”
The Consumers Association says it wants to challenge what it believes to be unfair long-term contracts in court. Jayne Church, marketing director at People’s Phone, says: “Typically, a phone that retails at 9.99 will cost well over 100 from the manufacturer. It is to give the service providers a reasonable opportunity to recover this subsidy that customers enter into a contract for 15 months. This is unlikely to be a problem in most cases, provided, however, that they have been sold the right phone in the first place.”
Phone companies say that while some consumers may be confused others are tak ing advantage of the phone providers. Companies such as Mercury One-2-One, which are offering 14-day money-back guarantees, say customers are exploiting them by taking 14 days free calls to cover situations such as child birth or changing jobs.
While this may be the case, the phone providers are still at a distinct advantage. All of them say they are addressing the problem of confusing jargon.
Cellnet is relaunching in September to emphasise its national network, which it claims gives consumers greater freedom. It is also continuing its successful tie-up with Ford, whereby purchasers of a new Ford car are given a free mobile phone. Cellnet is also looking at tie-ups with other blue chip companies to give consumers more confidence in the brand. However, until there is greater brand differentiation and greater clarity about the hidden costs, consumers will continue to be confused and this may prompt further criticism from the likes of the Consumers Association.