Between 2002 and 2003, the displacement of landline by wireless nearly tripled, with more than a quarter of very small SMBs seeing notable decreases in their long-distance bills.
Although consumers have been substituting their wireless phones for landline phones for several years, we have not seen the same displacement in SMB markets until recently. Based on data from our 2003 Small & Medium Business Bundled Communications Survey, we find landline displacement is finally increasing across all SMB size segments and is more prevalent in the IT services/VAR/system integrator, professional services/consulting, and construction segments.
As Exhibit 1 shows, between 2002 and 2003, the percentage of landline displacement nearly tripled, with more than a quarter of SMB respondents in the Very Small (2 to 19 employees) segment now seeing notable decreases in long-distance bills. The smallest SMBs have wireless purchasing habits and preferences similar to the consumer market; landline displacement is much more prevalent. For small SMBs, landline displacement has increased from 5 to 18 percent, and increased to a lesser extent for medium SMBs. Thirty-seven percent of medium businesses are seeing modest decreases in long-distance bills because of landline displacement, compared to only 17 percent in 2002.
Targeting High-Value Best Customers
Service providers want to target SMBs that are receptive to their services and of the greatest value. Based on our data, we segmented SMBs by both receptivity to wireless (measured by the prevalence of landline displacement) and service provider value (measured by median long-distance and wireless spend per month) and chose the best SMBs to target. We further segmented our data by industry and present the largest segments.
Three industry segments (IT services/VAR/system integrator, professional services/consulting, and construction) show relatively higher incidence of landline displacement (see the shaded rows in Exhibit 2), and wireless service providers would find them a more receptive audience for service offerings. Three industry segments (manufacturing, financial services/banking/investments/insurance, and education) show relatively lower incidence of landline displacement. SMBs in these segments would be loyal customers for a long-distance service provider.
We also asked SMBs about their monthly spending on long-distance and wireless to assess higher-value compared to lower-value SMBs. Exhibit 2 also presents these results. Based on our survey data, three industry segments (IT services/VAR/system integrator, manufacturing, and financial services/banking/investments/ insurance) have high median spending per month on long-distance services, while three industry segments (IT services/VAR/system integrator, financial services/banking/investments/insurance, and construction) have high median spending per month on wireless services.
As landline displacement continues to erode landline providers’ customer bases, long-distance service providers should institute win-back programs to entice high-value SMBs in the IT services/VAR/system integrator and, to a lesser extent, professional services segments, to increase landline service or purchase new services. These win-back strategies would include incentives, discounts, or awareness programs to entice a lost customer to re-initiate service or a low-value customer to purchase a new service offering. In addition, long-distance service providers should create retention programs including bundles of complementary services and loyalty programs to keep current high-value customers including those in the manufacturing and financial services/banking/investments/insurance segments.
While long-distance service providers are fighting to keep their high-value customers, wireless service providers are the beneficiaries of landline displacement. Wireless service providers should create value-based marketing initiatives to persuade high-value SMBs in financial services/banking/investments/insurance to substitute some, or in certain cases, all of their landline long-distance with wireless service. These value-based marketing initiatives would include awareness campaigns stressing the cost savings of wireless over landline long-distance, as well as the value of having a more mobile and productive workforce. Wireless service providers should also institute retention strategies for high-value SMBs in IT services/VAR/system integrator and construction.
Landline Long-Distance Service Provider Recommendations
Wireless Service Provider Recommendations
- Providers that offer both long distance and wireless should create compelling bundled offerings. The goal of these offerings is to increase total spending and wallet share. By creating bundled products, service providers can focus SMBs on a solution rather than on one element.
Long-distance providers should develop marketing initiatives to better retain high-value SMBs in the manufacturing, financial services/banking/investments/insurance segments, and professional services. Service providers will differentiate themselves with a combination of bundling, service discounts, enhanced customer care, and innovative marketing approaches including loyalty and rewards programs.
- Wireless service providers must develop value-based marketing strategies focusing on the benefits of wireless service including the measurable cost savings of wireless versus landline long-distance. Because SMBs are price sensitive, a value-based strategy should include ROI analyses of switching from landline long-distance to wireless. Wireless becomes a slam-dunk if it saves money for an SMB and enhances the quality of service an SMB provides its customers.
- Wireless service providers that do not have landline offerings, such as AT&T Wireless and Nextel, are highly desirable partners for CLECs and other landline service providers. Given increasing amounts of landline displacement in SMBs, wireless service providers are in a strong position to negotiate favorable deals to create bundled wireless and landline service offerings.
The Yankee Group originally published this article on 3 December 2003.
- To select the most cost-effective telecommunications solutions from a marketplace filled with competing (and often confusing) offerings, SMBs need better information from their employees on calling patterns, habits and preferences. With this type of valuable quantitative and qualitative information, SMBs can pit landline AND wireless service providers against each other and negotiate the best deal.
- SMBs in IT services/VAR/system integrator, manufacturing, and financial services/banking/investments/
insurance segments are high-value customers to IXCs. Take advantage of intra-industry rivalry to negotiate the best long-distance deal, and do not forget under certain usage circumstances, wireless is more cost effective. Landline long-distance and wireless is only one of many services in telecommunications today.