Why are vodafone charging customers to remain loyal?

I visited my local vodafone store today, to ask about getting an iphone. However, despite being a vodafone customer for nearly 2 years, it’s not as simple as signing a contract extension and paying for the phone. Instead, they wanted to charge me “between $150 and $400” for the privilege of signing up for a longer and more expensive contract.

Charging customers who want to commit to a longer relationship at a higher price, seems a strange strategy. Banks have tried it with mortgages, but the fee is usually compensation for locking in a lower interest rate. Meanwhile local energy companies are falling over themselves to offer customers money to stay or return.

The language vodafone are using reflects the penalty for ‘breaking a contract’, not the benefits of extending a relationship. In contrast, airlines will let customers change a ticket (their contract) for free on most non-budget fares, and they have limited capacity to juggle. And could you image the reaction if a marketer at Sky TV suggested charging customers a break fee to upgrade their package with new channels..?

The point that vodafone appear to be missing, is that customers aren’t lining up outside stores to get the vodafone experience; they’re lining up to get the iphone experience. And until now vodafone were the monopoly that could provide it, and their pricing and in-store attitude reflected it.

But that’s starting to change. Apple New Zealand now sell the iphone online, for $50 less. And Telecom have launched a guerrilla marketing campaign to encourage customers to buy an iphone and then defect. They’re offering a $600 account credit – enough to cover the break fees – and the prospect of the iphone 3GS working at full speed nationwide (apparently the vodafone network drops to GPRS outside urban areas, and inside our building).

So what will stop customers defecting? According to the vodafone spokeman quoted in the NBR article, it won’t be a problem because tethering on the XT Network would be very expensive by comparison. But I have to wonder who sees tethering as a ‘killer app’? The customer wanting access to the mobile internet, or the mobile companies wanting to sell larger data plans?

I’m told I’m geekier than the average person, yet I’ve never once tried to tether my laptop to my phone. For a start, it takes to long to load the pages. So I’m confident that most people buying the iphone, are buying it for experiences other than tethering. And all those experiences are available on any mobile network, at a wi-fi hotspot and even on a plane.

As a consumer, I’m looking forward to watching the competition, and hopefully seeing some price innovation to match the Australian market.

Posted in Great customer experiences (and not) and tagged , , , , .


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  3. Hi Paul,

    I agree with your sentiments. Vodafone in New Zealand are certainly exhibiting a “Loyalty by Legal Threat” customer service mentality, that is to legally entrap customers into their products and services through contracts rather than building fans or advocates.

    I have been a Vodafone customer for over 10 years and recently was informed that I was not allowed to transfer my current mobile number (and business) to a personal post-paid account without signing up to a 12, 18 or 24 months contract. In essence, Vodafone seemed to be saying that my choice to retain them (Vodafone) as my mobile carrier was not good enough for them, I needed to make a legal commitment before they would consider my business.

    It is difficult to understand Vodafone’s customer service ethos where you see millions of dollars devoted to marketing campaigns attracting customers to their products and services and then on the other hand, treating loyal customers with doubt and suspicion. Perhaps a percentage of that extensive marketing budget devoted to customer retention and loyalty programme would not be short sighted.

    • Thanks Andy, locking in customers is certainly a very ‘old school’ approach to retention. It suggests a lack of confidence in the product &/or service, but does save them having to innovate or create a better customer experience!
      Its monopoly thinking, that hopefully will change as XT and 2-degrees sink their teeth into the market.

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