For Boost Mobile, 50 Is the Magic Number

Post-paid subscriber calling plans have been a sore spot for Sprint Nextel. The nation’s No. 3 wireless service provider reported a 1.25 million drop in such consumers in its latest quarter. It sees big gains, however, in the pre-paid, no strings attached calling market, where U.S. sales soared 13 percent last year, per Pali Research. In February, the company’s Boost Mobile unit introduced an unlimited pre-paid calling plan that bills for $50 monthly. In its first two months alone and backed by an ad campaign dubbing charging hidden fees “wrong” and illustrating other wrongs (like a coroner eating a sandwich while doing an autopsy), the service recorded 764,000 new consumers. Boost Mobile CMO Neil Lindsay (pictured) spoke with Brandweek about why the plan has been successful and how the brand stays relevant. Some excerpts are below.

Brandweek: Sales of pre-paid, no contract calling plans have soared in a down economy. Is all this push behind what was formerly an unpopular segment of the market resulting in a permanent shift in the telecom industry?
Neil Lindsay: The shift is coming from the realization that pre-paid is now a viable choice, partly because the value equation has improved on pre-paid.  The reason it has appeal is because it’s a different business model to consumers. You can get a phone without feeling you have to make a commitment.

But there continues to be a difference because [if you] don’t have a contract, we have to charge more for the phone. There is a limit to the complexities of services we can support. Prepaid is your favorite healthy lunch café. It has what you need, but it’s not a full service restaurant. It won’t offer you all the bells and whistles.

[As for a long term shift], you will see some people moving back to contracted [when the economy gets better], but perhaps more people staying with pre-paid than we’re used to. Prepaid is becoming more mainstream. It will be significant in the sense that prepaid is moving from being this little piece of the pie to being important enough to every major carrier, and that has not been the case.

BW: Post-paid plans still yield higher profits, and yet, Sprint Nextel lost 1.25 million of these subscribers in its latest quarter. How would you describe the category’s health? What’s propelling it, what’s hurting it and what are you doing to overcome these tough times?
NL: We break it down into three areas: Demand—and wireless has become a social and business necessity, so [that’s an area that’s] healthy. Second is technology and capability, and there is a lot of technological development happening, so there’s plenty of value and opportunity. And third is business environment. Everyone is familiar with the state of the economy right now, but the industry continues to evolve in a positive way. Two out of three isn’t bad.

The industry is healthy. But what’s going to propel it is the constant need to communicate. What’s hurting it is the tendency to rely on complex and hidden fees. A lot of people complain that when they open their bill, or when they switch to pre-paid, they find it’s more than they expected. What we’re doing is focusing on the few things that matter by making sure that we’re really transparent and don’t charge fees that we don’t need to and to charge them when we need to.

BW: Boost Mobile’s new, $50 unlimited, pre-paid calling plan was an immediate success, more than the company could take. (764,000 new customers, a texting overload.) Do you see this as a short-term gain or something that’ll build long-term momentum for Sprint?

NL: The fifty-dollar plan has lots of legs. We don’t expect it to be a short-term spike. Competitors are clearly reacting and we have to get out every day and make sure we continue to push ours to make sure the [product] experience is still great.

BW: How’d you arrive at the magic number, 50? It seems to be working well with consumers.
NL: We tested it. Originally, we thought we’d go out with an unlimited voice calling plan and you’d pay extra for text and web add-on’s. But in the focus groups we conducted, it became clear to us that an add-on is seen as a hidden fee. The idea that you would have to pay more just to get basic services such as texting was perceived by the customer as, “You can’t say you have no hidden fees when you charge me more for text.”

Regarding $50 being the magic number, we realize that most people use a lot of text and those who don’t use a lot of text will probably use more voice, so it comes out equal. So we thought a $50 plan, all-inclusive, will speak value to them whether they use a lot or little. It’s a more natural budgeting point.

BW: Boost Mobile’s taken a healthy aim at the competition with its “Unwronged” campaign. (Ads, via lead agency 180 in Los Angeles, point out “wrongs” from the competition.) But do you think aggressive advertising is the way to go once consumers mindsets change coming out of the recession?
NL: Whether we are in a recession or not, it would be a valid point to make. There are still a lot of wrongs to talk about. Right now we have to be assertive when introducing a new market to a new audience while going back to the old audience to re-introduce ourselves as offering a great value. As we establish that clarity, we need to talk less about how we compare with other things and more about how we bring value to consumers. We’ll stay very closely to that over time by monitoring how the market is feeling. We’ve already done a “What If?” analysis: What if certain things occur in the market and what would our actions be? What if the economy comes up again and how would we change what we’ve been doing?

“Unwronged” has quite long legs. I don’t think it’ll [run] forever, but it will definitely be a while before all of our competitors can say they are as straightforward as we are.

BW: Have you seen any ROI as a result of this?
NL: We’re happy to see that the “Unwronged” advertising is achieving better-than-industry brand recall, and more importantly, very high message recall, which tells us it’s breaking through and our audience understands it’s about the $50 Monthly Unlimited offer.  To date, we’ve seen strongest sales volumes when the advertising is running, and our distribution partners tell us that customers are asking for the offer they saw in whichever “name the wrong” ad they saw.

BW: What’s the biggest marketing challenge Boost Mobile faces? How are you tackling this?

NL: We have to be careful about staying relevant over time. We, as a brand, hung onto a lifestyle messaging for too long. Some of our previous ads were right with the times, but we stayed a little too long in terms of a lifestyle image for our brand as opposed to a value image. We’re moving to make sure it’s about value, and we wrap it up with a relevancy tie to it, but we need to be careful that as we lean on value, we don’t stay too long on it. We need to adjust to how the market is moving. This is an unusual time. But it won’t be this way forever. As the country comes out of this challenging time, there will be some significant changes in the mindset. We don’t know in what way. That mindset will change, but we need to be aware of it. We need to be constantly insightful of how the telecommunications industry is moving, and how attitudes are changing and to adjust our messages so that people still get the value message. You might have a great offer or message, but if you wrap it up in the wrong story, people won’t get it. And so, a brand’s story has to resonate with consumers’ mindsets.

BW: There’s some slight cannibalization (“low single digits”) between pre- and post-paid plans. How are you fixing that?
NL: We monitor where consumers come from. Some are coming from competitors with less competitive offers like Cricket and T-Mobile. The market has neatly sorted itself into people who are just looking for voice and text with value or people looking for a broader range of capabilities, and clearly, with our network, with the contracted plan, you get more capabilities.

We’re also actively looking for ways to work with our customer base, including helping some decide when they’re ready to go to post- or pre-paid plans. We’re making sure we’re understanding behaviors and looking for triggers and giving them offers when appropriate to help them switch to a contracted service or when appropriate, to take them off that and go to one that’s pre-paid.

BW: How’s the pre-paid market changed? Who’s your target consumer nowadays?
NL: It used to be youth, more credit challenged youth. It’s changing very rapidly. The age group is broadening. It’s less about credit challenges than it is about people who want a little more level of capability and yet they don’t want to make a commitment. They tend to be very practical.