Did anybody write a decent history of the phone card business yet? It would be fascinating. I know, I was there.
In the early nineties I was trying to market some of the early prepaid phonecards, with my American friends wondering what was the point. Being from Europe I was convinced they would succeed, though it took me a while to find out why.
At one point a friend organized a luncheon at a phonecard convention. At that particular time a few small companies were marketing phonecards, and trying to cook up a business case. Many were trying to do promotional cards on the European and Asian model without success, because consumers didn't know what phonecards were for, and threw them out. For some time the collectible market was buoyant, mostly because of foreign buyers, who did not appreciate the meaninglessness of every Tom, Dick and Harry printing phonecards, and going out of business the next year, not to mention the fact that "unused" was frequently not a useful distinction for pin-based cards, unless the pins were covered by a scratch-off strip, which was often not the case in the early days. All the majors at that time had retail product at 60 cents per minute for domestic US traffic, and multiples for international traffic, and the biggest successes were vending machines in Hotel lobbies, supplying cards to visitors from Japan and Europe who already knew what a phonecard was, and did not realize the price gauging. The majors were spending themselves silly on trying to market these cards, without any meaningful success.
I had a chance to speak at that luncheon. My comment boiled down to a question to the majors: "Why are you marketing to the wrong people?" I proceeded to point out that a prepaid card was a financial instrument not a phone product, because it removed credit as an impediment for using the phone system. Therefore its natural market was 30 million under-served consumers in the US who did not have home phones because of credit problems. These folks were looking for a discount product, not for 60 cents a minute. Not a hint of any appreciation from the collected MBAs working for the big phone companies, but two months later someone else who was at that meeting called me to tell me they were testing a card which addressed the market I described. Would I be interested in checking it out? I said yes. It was the TLC phonecard, the first serious (somewhat serious at least...) discount phonecard. My phonecard business went from $3,000 in sales the first year, to $30,000 the second to $300,000 the third (the year TLC was launched), to $3 million in its fourth year (1996), after which the market collapsed and many companies, including TLC went out of business. But by that time however, the case was made that the market was discount cards, and even the majors didn't take more than another 10 years to figure it out, though they never really succeeded at it either.
In the practice of marketing these cards, we did not need any advertising, except some posters with rates. What I did do was to go into a convenience store and give away one or two $2 cards to the last people on the line, and tell them how to use the cards. The next week when I came in the owner of the store would want to buy phonecards. In other words, the real marketing was word of mouth. This was an experience that was reinforced again and again, such as in early 1997, when I had a card with specials to W. Africa, and within two weeks I knew every Senegalese store owner in Connecticut. Suddenly Senegalese people came chasing me down the street to be able to sell the cards in their stores.
In short if you're selling a product that meets a real need, you don't need much advertising. This is very different from selling to wealthy consumers and competing for disposable income with a million other products. For that type of business you need heavy marketing budgets, and the normal marketing logic is start at the high end, and lower prices with volume.
But along the lines of realizing that phonecards were a financial product, not a phone product, I began to think a lot about the fact that there is a huge pent-up demand for effective financial solutions and that check-cashers, bill-payers, money-remitters, pawnshops, and payday loan operators were making a lot of money delivering inferior service, and were ripe to be taken out by effective solutions enabled by superior IT and the internet. It is now 2005 as I write this, and it still has not really started to happen, but inevitably it will.
Copyright, (c) 2005, Rogier F. van Vlissingen. All rights reserved.
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