Locking-in customer to your products or services are real and can be very effective. This article study Starhub’s hub club which has the complete and mature lock-in for its customers.
Service offerings
Between SingTel, Starhub and M1, Starhub used to have the most complete service offerings. Now both SingTel and Starhub have similar offerings. The complete service offering comprises of Mobile and Fixed line service, Internet service, Cable/Pay TV service, mobile broadband and Wireless Internet. The more services available for consumer, the more lock-in a company may have to its consumers.
Services available from each operators: (ordered on Alphabetically)
- M1: Digital phone-line, Mobile, Internet, and Mobile broadband. (4)
- SingTel: Fixed phone-line, Digital phone-line, Mobile, Internet, Wireless Internet, Mobile broadband and Pay TV. (7)
- Starhub: Digital phone-line, Mobile, Internet, Wireless Internet, Mobile broadband and Pay TV. (6)
Digital voice refers to a similar service provided by fixed phone-line service. It dependent on Internet connection, requires external power supply (to power Voice-enabled modem) and does not have high-reliability for emergency purposes.
As we can see, SingTel leads Starhub by one service – Fixed phone-line. Despite the fact, SingTel recently offers its Mio plan (Pay TV, Digital voice) while previously Starhub led the pack in term of service offerings.
Convergence
Consumers are attracted to convergence of services. It saves time and hassle in payment and managing bills. Starhub has a unique value and start in this, it is the first to offer 3 services to consumer: Mobile, Internet and Pay TV. 8 Years ago, I signed up with Starhub for both its Pay TV and Internet, followed later by the mobile service. I wouldn’t even consider SingTel with exception of its fixed phone-line service.
I believe there are plenty of consumer that started similar like mine. Starhub enjoyed no competition on Pay TV space and relatively few competition on Internet. In 2007, SingTel launched Mio that offers Pay TV service to its customer. This is an beginning of a lock-in from Starhub.
Locking-in Consumers further
Wider Service offering does not guarantee a deep customer lock-in. For example: an unhappy Starhub Internet consumer can switch its internet service to SingNet while still enjoying Cable TV and Mobile services. The companies go further by enticing customers to sign a contract for a particular service for a period of 12 to 36 months. In exchange, the consumers enjoy either or combination of discount, “free” premium e.g. Laptop, Modem, Wireless network devices, etc. Such contract, with a relatively stiff penalties of breaching the contract, effectively lock-in a customer for a period of time.
Are the premiums really free? Well, Nothing is free. Let me illustrate further:
1) Starhub MaxOnline Promo
- MaxOnline Express Option 1: 2 Years contract, S$ 44.94 (25% discount)/month, Free cable Modem
- MaxOnline Express Option 2: 2 Years contract, S$ 53.93 (10% discount)/month, DLink Wireless router + Card, Free cable modem
- MaxOnline Express Option 3: 2 Years contract, S$ 59.92 (No discount)/month, Apple iPod classic 80GB
From the options above (As 12/05/2008), it can be seen that the ‘net’ price for the service would be approximately the same. If a customer takes only a free modem, he would be given a discount of S$ 15/month (effectively S$360 in 24 months time). Should one takes option 2, he would be given a lower discount of ~S$ 5/month (less S$ 240 discount in 24 months time). The different of S$ 240 would easily pay the added premium of Dlink router and network card. The last option did not offers any discount customer are given additional premium of iPod classic 80GB which equivalent to total discount without premium (~S$380).
It is clear now that the more expensive the premium a customer receive, the less discount he will receive. This translate that customers is paying for the premium. In other aspect, The company has a ‘net’ price of a service in this case a 75% of a published price, and will be able to tweak the remaining 25% for marketing purposes.
Companies have not lowered the price down but rather provides discounts to keep the listed price constant. Similar pricing strategies used in Petrol stations in Singapore.
Starhub MaxOnline promotion can be read from here.
2) SingTel
- SingNet 10Mbps Option 1: 30 months contract, S$ 88.00 (No discount), Free Macbook 13″
- SingNet 10Mbps Option 2: 30 months contract, S$ 85.00 (5% discount), Free Hellgate London gaming PC
- SingNet 10Mbps Option 3: 24 months contract, S$ 69.00 (~22% discount), No additional premium
Without going further, it goes the same as Starhub MaxOnline promo. Customer pay more than the ‘net’ price to get the premium. SingNet promotion can be read here
Locking-in Consumers Reloaded
A couple year ago, Starhub launched its loyalty program dubbed ‘Hub Club’. To be eligible, a customer must subscribe to all essential services: Cable TV, Internet/MaxOnline and Mobile.
In early convergence, we note that consumers can switch to competitor for any of the service notably Internet service and mobile. Service contract is also useful to retain customer over a fix period of time but does not guarantee they will stay beyond contract period. Hub Club is a natural barrier for consumers to move to other providers, here’s why:
Let’s consider a Starhub customer who has joined Hub club and enjoyed all the savings and discounts. He wanted to switch over to SingNet’s Internet service by terminating his MaxOnline service. In order to do this, he must give up his hub club status and lose all the discount.
He is subscribed to the following services (for illustration):
- Mobile service with each on a PowerCall plan 4 lines. (~S$ 30/month/line)
- MaxOnline Premium (12Mbps) with 24 months contract at 10% discount. (~S$ 74/month)
- Cable TV Ultimate and Digital package. (~S$ 121/month)
- Digital voice (Free for Maxonline customer)
With Hub Club status, he would have paid S$ 81 (Mobile) + S$ 67 (MaxOnline) + S$ 109 (Cable TV) = S$ 257 out of S$ 315. Saving of $58 can be achieved. Note: numbers are rounded for easier calculation.
When He drops MaxOnline service and replace it with a similar value from SingNet 10Mpbs at S$88, this what will happen.
- He will lose all the discount and pays S$ 241/month for mobile and Cable TV
- He will be charged for Digital voice at S$ 10/month
- He pays S$ 88 to SingNet for Internet service
When He lost the Hub club discounts, he pays the same amount of money (~S$ 251) as before but without Internet service. Thus it is only wise to keep the Maxonline as moving to competitor will increase the monthly charges. This is a natural lock-in for consumer so that they won’t go to competitors.
Defending market share
SingTel probably realise this and strategize to defend its market share. It launched aggressive marketing to retain existing customer and to entice new customer (fresh and from competitor) to get into its service.
Eye-catching premiums such as Sony Bravia LCD TV, Apple Macbook, Lenovo X61 are offered for commitment between 24-36 months. These premiums are by far the best ever offered to the market. Starhub offered Compaq laptop, Samsung LCD TV and once a mere 14″ Thomson conventional TV. In this regard, thumbs up to SingTel marketing strategy.
Here’s some comments on Starhub premiums in the past and recently:
- a 14″ Thompson TV -> Outdated by any mean when I received it
- Canon miniDV camcorder -> Discontinued model by the time redemption started.
- 26″ Samsung LCD TV -> In these days, 32″ would be a bare minimum
- Compaq notebook -> Good spec, but I rarely hear Compaq laptop these days. It’s either Acer, Fujitsu, Asus, Lenovo, or Mac.
- iPod classic 80GB -> Come on… We moved to iTouch, Apple TV or iPod Nano
Starhub needs to review its premium offerings and ensure that they are interesting
While I’m not familiar with Mio plan (it’s hub-club like package), I haven’t seen on how it can produce similar lock-in effect for consumers.
Practical advice
- Be aware that you’re locked-in to an operator and knows the costs to exit.
- Sometimes, it may be worthwhile to keep what you don’t need in order to save money.
- If you’re not satisfied with a service, you can get substitute from other company, but be aware of what is the final total charges you’re going to pay.
- Be prepared to pay more for better service from other company.
Opinions expressed in this article are mine and does not represent any affiliations to any organizations that I may have.
Tags: club, consumer, hub, lock-in, Marketing, singnet, singtel, starhub
