Give away the razor and sell the blades – or rather, mobile phones?

Give away the razor and sell the blades – or rather, mobile phones?

by K. V. Rao

 

After posting this blog, we thought we owed AT&T some props. So here you go:

 

Who doesn’t have Olympic fever? I do, and during my hours of watching Phelps break record after record, I notice the commercials. One commercial in particular has caught my attention and that’s Apple’s ads for the new iPhone 3G being priced at just $199 – half the price it was before. Why would they do this? They certainly don’t need to. The answer: AT&T. The phone service giant is actually subsidizing Apple $200 per iPhone.

 

So what’s going on here? The answer: subscriptions. AT&T is actually going to make more money in the long run as they now have monthly rates with more pricing and plan options on the service. In other words, customers will actually pay anywhere from $10 to $20 more a month, depending on the options they choose.

 

This really highlights the power of subscription plans — the ability to use pricing to attract a wider number of customers, and make more money per customer in the long run. AT&T’s customers now have more options to choose from when picking a plan, something that wasn’t an option with the first iPhone release, so the price increase isn’t unexpected or ill-recieved. Every customer has different needs, even iPhone customers, and AT&T is addressing that, and making a higher profit while they’re at it. Check out this engadget article that discusses the new pricing plan in more detail.

 

This is another great example of the power of subscriptions, and how with a subscription model, you have more dials and levers to best monetize your overall value proposition. At&t has harnessed this by recognizing that their iPhone market is wide and different customers will use this fantastic gadget for different things. The price of the product went down, but in the long term A&T will have a wider customer base and higher recurring revenues.

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