Prepaid Cards and Prepaid Phone – a better alternative to the negative option

In case you did not get it from my last blog post, I do not feel good as a consumer signing up for a service or product under a negative or positive option plan. Without a top notch customer service department and several channel options for notification it is conceivable you can pay for a service you no longer desire in perpetuity. For those of you that agree with this, I think there are some real alternatives to controlling your expenditure and your ability to change your mind. Pre-paid programs were initially introduced and targeted for the credit challenged. I see it today as something more along the lines of also being a great product for customers that want to control what they spend or give family members or others, without the blank check written to the company. I would rather control my outlay and pre-paid is an excellent control device.

How many of you have know about prepaid?
I bet you do not even realize that you use pre-paid all the time, and you find it convenient. I do not remember the last time I used cash at a Starbucks. Do you have a Starbucks card? If you do, you are not unique. Latest estimates are that Starbucks has 16mm plus of active pre-paid cards.

My son recently had his 10th birthday party.
For the first year it seemed that almost all the gifts he received were some form of pre-paid retail cards, including an Amex pre-paid gift card, cards from Sports Authority and of course the obligatory gift cards from Game Stop. If you have never bought one as a gift, I do recommend it. It takes no time to buy and it is both brainless and desirable for the recipient. As a gift donor you simply do not have to think of returns. As a gift recipient you get to select what you realy want.

Watch for Pre-paid phone
In Europe, pre-paid mobile is more the norm than post-paid mobile. In North America, we have had less success with this model. Historically, I believe the failure in North America is more a function of the marketing. When you understand the benefits of pre-paid, you have to believe it is an excellent customer choice. With pre-paid, for a lack of better words, you pay as you play. This is what I like about it. It is great for the credit challenged, which happens to be almost the entire youth market.

A variation of pre-paid is the MVNO market. Most of these product offerings are pre-paid and most are sold thru alternative channels.

A mobile virtual network operator is a company that does not own a licensed frequency spectrum, but resells wireless services under their own brand name, using the network of another mobile phone operator. The first successful MVNO was Virgin Mobile, launched in the United Kingdom in 1999. As interesting as this is model is, there has been a lot of money poured into systems and marketing in the United States and to say the least, it has not caught on like it should.

Discount MVNOs provide cut-price call rates to market segments. Discount MVNOs include Fresh Mobile, MobileWorld and Virgin Mobile. Their strategy is based on cheap prepaid or postpaid pricing plans with basic voice and SMS services. I have two former business associates clients from British Telecom Cellnet that have set up a MVNO with Kroger Stores here in the USA. They are smart guys and they are confident that with their distribution partner they can make this work.

Lifestyle MVNOs focus on specific niche market demographics MVNOs such as Boost Mobile in the US. From the sponsorship, it is clear that Boost Mobile targets the youth market. Their sponsorships include a professional surfing event, the Boost Mobile Pro of Surf. (See ASP World Tour.) In addition, Boost Mobile sponsored a professional skateboard event, the Boost Mobile Pro of Skateboarding, as well as logo-labeled skateboards and accessories. They also sponsor a number of skateboarders. Boost Mobile was purchased by Nextel in 2002 and thus subsequently became Sprint’s property when Nextel and Sprint merged. I love the positioning of this product. You should also check out TYo Mobile, a subsidiary of IDT Corporation (NYSE: IDT), is a wireless communications provider designed specifically for the rapidly growing U.S. Hispanic community.

The largest lifestyle MVNO was a failure. ESPN Mobile was really promoted and invariably customers found other ways to get their social sports media information. As of December 31st, the ESPN Mobile web site states "Because you are a valued Mobile ESPN customer, we'd like to remind you once again that our service will be ending as of December 31st, 2006."

According to JD Power, T-Mobile's pay-as-you-go wireless has the best combination of voice quality, customer service, phone options and flexible rate plans. Its cheapest option is 30 minutes for $10, but minutes expire in 30 days. Verizon is also excellent. I understand T-Mobile wins best in 2 regions in the USA and Verizon ties for first in the 4 other regions. This does not surprise me at all. They are both excellent service providers on the post paid side. Initially pre-paid were substantially higher priced per minute charges than post paid products, yet now I believe the price difference is narrowing. This should really stimulate usage of pre-paid.

Pre-paid is great
I believe this market is going to take off. The issuers love it because they get the cash upfront before the actual meter is running. I’m sure there also is some element of spoilage or non usage. On the other hand, consumers love it because they can control their spending and going cashless is really a convenience. If it isn’t already, I think it is going to be a mainstream product for all different kinds of consumers.