Prepaid mobile service plans offer new growth opportunities for operators willing to experiment with innovative plans and value-focused pricing. Especially in the U.S., prepaid mobile plans are becoming increasingly popular. Let’s look at the market potential, and consider the types of plans to offer.
PREPAID MARKET GROWTH IN THE U.S.
According to a recent Euromonitor International report, there’s been a noticeable shift in favor of prepaid mobile services in the U.S. over the last 5 years. While prepaid services decreased in the majority of Western Europe and received only modest growth in countries like Australia and the UK, the U.S. experienced a record 11% growth.
Prepaid mobile sales captured 19% of the U.S. market, so there is still a large opportunity for growth for U.S. operators.
And Yankee Group has forecasted prepaid growth at a change of annual growth rate (CAGR) of over 12% for the next 3-4 years. That’s 3 percentage points faster than the overall telecommunications industry. This equates to over 26% of the $27.5 billion in total sales the Yankee Group expects the industry to generate in 2016.
3 major market drivers account for the shift to prepaid mobile plans:
- The economic recession which led US consumers to save more money, comparison shop and move away from long-term contracts
- An improved positive attitude towards prepaid mobile services as a result of enhanced smartphones and data plans
- An increase in Internet usage from younger members (12-20) who tend to seek less expensive plans
Mobile providers need to understand the reasons for the growth in prepaid plans in order to appropriately tailor their service offerings. They also need to understand the challenges these drivers present.
CHALLENGES TO PREPAID MOBILE GROWTH
In order to sustain the projected high growth rate for prepaid plans, operators need to design offerings that address the following challenges:
- Low average revenue per user (ARPU) - As mentioned previously, prepaid mobile customers are value shoppers. Operators will need to experiment with plans and pricing to induce usage and improve ARPU.
- Lack of loyalty, high churn - With number portability readily available and an increase in contract-free offerings, customers have little reason to remain loyal to a single operator. And price-sensitive customers can continually look for better deals and discounts from other operators. Operators who pay attention to demographics and the needs of specific customer segments will be better able to provide attractive service and price plans that encourage loyalty.
- Premium-priced devices - Low smartphone penetration within the prepaid market is a principal barrier against prepaid data adoption. Thus, there is a great need to seek out new ways to drive down prices of smartphones and provide attractive financing options.
ONE SIZE DOESN’T FIT ALL
It’s clear that mobile operators need to offer innovative plans for continued growth. But what does innovation look like?
For starters, prepaid isn’t a one-size-fits-all proposition. To increase market share, mobile operators can create specialized services or sub-brands aimed at niche markets. For example, these might be:
- Teens/young adults
- Senior citizens
- International travelers
- Ethnic groups
Sub-brands let operators segment their prepaid customer base. They can then offer data packages and pricing plans suited to the needs of these smaller market segments.
Here are 4 different sub-segment plans that are doing well:
- Great for individuals who make calls to other countries
- Unlimited texting
- International calling credit
- Dial U.S. from outside as if it is a local call
- Parental controls with limits (average teen texts 3300 times/month)
- Adjust your plan throughout the month
- For occasional data users (casual plans)
- Occasionally check email and social networking accounts
- Offers a large selection of smartphone models
- Offers optional specialized apps
GET READY TO GROW
To summarize, here’s how mobile operators in the U.S. can increase their prepaid mobile market share/penetration:
- Better understand demographics and the usage behavior of specific customer segments. Provide a sub-brands strategy to address the diverse needs of niche customer segments and to improve ARPU.
- Accept that one-size-fits-all plans do not work anymore. Acknowledge that prepaid customers demand sophisticated plans and want to customize their own personalized offers.
- Induce loyalty and reduce churn by targeting offers and promotions for prepaid customers that let them pay only for services they want to use.
In future blog posts, I’ll outline other opportunities, operator pricing plans, and recommendations for mobile operators in the U.S. These will include:
- Simple and flexible financing plans
- Affordable smartphones
- International roaming
- Customer subsegments
- Top-up methods
- Enhanced data services innovations/customized plans
- Create-your-own pricing plans
- Flexible billing and charging capabilities
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