The U.S. cellular adoption level is fast approaching 30 percent-not bad. However, it’s also a long way from the penetration rates we see in Europe, particularly in the benchmark countries of Scandinavia.
Will the United States match Finland with a 69-percent penetration rate any time soon? Strategy Analytics Inc. predicts a U.S. penetration rate of 51 percent by 2003. However, in order to reach even the low to mid 40-percent range, the industry has to directly address the primary barriers to adoption that still exist for 70 percent of the U.S. population today.
During the past 18 months, the market has seen dramatic changes across the multitude of service plans and handset options available to users. From Code Division Multiple Access entry-level plans at $17 to higher-end “flat rate, across the states” plans, and from “free” analog handsets to the Nokia Corp. 9000i, it would seem there is something for everyone.
And yet more than two-thirds of the U.S. population still doesn’t subscribe to cellular service. Why not? Is there some inherent element that makes a person a cellular subscriber-something that is so personal it just can’t be affected? Or is 70 percent of the population not being properly targeted for cellular service?
Strategy Analytics’ “Wireless Market Monitor 1999,” a random-digit-dial telephone survey that took opinions from both current cellular users and nonusers across the continental United States, revealed many crucial characteristics of the nonuser base in the United States. However, two primary themes emerged when considering the present barriers to adoption: cost and need.
Barrier one: Cost
(real and perceived)
Despite the dramatic drops in cost, both of handsets and entry-level service options during the past few years, nonusers still cite cost as a primary reason they don’t subscribe to cellular service. In the most recent Strategy Analytics end-user survey, expenses related to cellular subscription were cited by 30 percent of those surveyed as the primary reason for not subscribing to cellular service. The cost of handsets was cited as the main reason by 20 percent of all nonusers surveyed-even in the current environment where analog phones are free and digital handsets carry price tags of under $60 during some operator promotions.
So are handset prices, for example, still too expensive for nonusers, or is it more a matter of perception? When considering these costs, it’s useful to look at the respective average annual incomes of users and nonusers.
In looking at comparative incomes among average income levels across the United States, we see that more than 25 percent of nonusers earn less than $25,000 per year, while only 5 percent of users report similar incomes. In thinking about handsets that cost $150, $100 or even $60 retail, nonusers who have less than $25,000 income annually are going to find these prices quite high relative to their household budgets. For at least one in four nonusers, handset prices are too expensive.
However, looking at the nonuser base that earns more than $50,000 (approximately 20 percent), it appears less likely the actual handset cost is what’s keeping them from signing up. Is it possible this nonuser segment perceives the cost to be higher than it actually is?
Over the past few years, nonusers in the United States have begun to expect free or at least very affordable phones. Working from this foundation, it isn’t necessarily surprising they may view $60 for a digital handset as expensive, as nonusers usually don’t distinguish between analog and digital cellular services.
When broken down to some cost or no cost for handsets, the overall nonuser base clearly shifts its view on cellular service: Nearly 30 percent of all nonusers in the Strategy Analytics survey responded that they definitely or probably would subscribe if they could get a digital handset for free. With the high levels of operator subsidies for handsets, is it worth dropping from $60 to $0 to penetrate 30 percent of the nonuser base? Does the increase of acquisition costs matter when considering the potential revenue stream for 30 percent of the 148 million nonusers currently in the United States?
Perhaps a more tempered way of overcoming the perceived high cost of handsets is through a more obvious and clear marketing message. While industry analysts and decision makers know average handset prices across the country, the average nonuser does not have as clear an understanding of the market. They may not realize $59 for a Qualcomm Inc. QCP-820 is a great deal when compared with the average operator retail price of $129 for that handset. However, when the same offer is phrased as “$70 off Qualcomm Digital Handset for New Subscribers!,” nonusers may more clearly and obviously realize the “bargain” of the heavily subsidized price.
Barrier two: No need!
While high price tags (either real or perceived) represent the primary barrier to adoption for one in three U.S. nonusers, the remaining nonuser base overwhelmingly cited other reasons for not subscribing. What was the main “other” reason cited by nonusers? No need!
No need? For years, the wireless industry in the United States has pushed convenience and safety as main reasons for subscribing to cellular service!
Or has it? In casting a qualitative eye to the responses of the Strategy Analytics end-user survey, we see a nonuser base that believes cellular service is not a necessity for them. Whether it’s because they work close to home, they’re rarely out of reach of a telephone or they feel they’re too old for it, a large portion of nonusers just don’t think they need one.
While barriers such as high handset costs (both real and perceived) can be countered in a number of clear and tangible ways, nonusers’ belief they don’t need a cell phone poses a far more daunting and enigmatic challenge for operators and handset manufacturers.
In theory, every person in the United States has a need for cellular service, whether for safety or convenience. Yet this message hasn’t yet penetrated two-thirds of the population. Why not? Is it possible the industry has been too subtle in singing the praises of cellular service? Is it possible nonusers just haven’t made the connection that the phone they see advertised on television and in their local paper is something they could easily find use for, whether as a safety tool if their car breaks down or for convenience in making sure their kids got home from school all right?
While statistical overviews, survey data and in-depth analysis reveal some critical insights, so too can anecdotal evidence. For example, on Mother’s Day this year, I gave my aunt a gift of a 12-month contract on an entry-level analog calling plan with a free Nokia 918 handset. She protested and said “No! Too expensive!” without having the faintest idea of the price. When I fended her off by telling her it was only $20 a month, she then tried the “too difficult to use!” tack. I sat down with her and showed her I had already programmed in some numbers, including my own and the number for FAA. We then made calls to each other on our cell phones, and she began to realize that her new toy could be a lot of fun and very useful.
Now she carries it with her when she goes on business calls in her not-so-new car and, as I can attest, definitely uses more than 30 minutes a month. Her initial perceptions of the expense of wireless service and the difficulty of using a “high-tech gadget” were directly addressed and altered by the simple information I plainly put to her. She’s now definitely a cellular user and is talking about upgrading to a “snazzier” handset by Christmas.
Could operators and handset vendors use these types of methods to alter the perceptions of current nonusers? Absolutely. The key elements should be:
Clear and basic statement of the lowest way of looking at the price. For example, I
didn’t tell my aunt I’ll be paying a minimum of $240 for her gift; rather that it was $20 and
a free phone. I left it to her to calculate the total cost. She didn’t even bother with that step after learning how to use her new toy.
Clear communication of the multitude of ways the phone can be used. If an operator is looking for greater cellular penetration in Manhattan, emphasizing the safety aspect of a phone for automotive breakdowns won’t be as effective there as it would in Dallas.
Clear communication of how easy the phone is to use. To many people, cell phones appear more daunting than computers; but if you show them how easy it is to make a call, their fears and worries will be allayed. Whether it’s via TV advertising, in-store demonstrations or training call center personnel how to communicate the basics, both operators and handset manufacturers must devise ways to address and overcome this barrier.
Whichever approach operators and handset vendors take, they must ensure there is no subtlety about their message. Communicate it in basic, easy-to-understand language and images so nonusers will have no misunderstanding. A picture of a car broken down at night in the rain will much more clearly communicate a practical need for cell phones than an operator logo and talk about the various features that may be available.
One final note on user perceptions: While the industry has done a great job of demonstrating how cell phones can be ever-present tools, it hasn’t done a very good job demonstrating that users have the final say over whether or not they get calls. In the Strategy Analytics survey, a vocal minority of nonusers reported that the main reason they don’t subscribe is that they “want to be away from the phone sometimes.” The idea of a cell phone as an always on, always available resource has negative implications as well as positive. To eliminate this barrier, operators and handset manufacturers should clearly communicate to nonusers and users alike that the power button on handsets means power off as well as power on.
Conclusion
While the industry has come a long way in the past few years, nonusers still comprise more than two-thirds of the U.S. population. Understanding the specific perceptions and sensitivities of the multiple segments of nonusers is the first step to increasing adoption and cellular penetration rates across the nation.
In considering how to overcome primary and secondary barriers to adoption, the market also must consider the importance of creating demand. Once tangible barriers are identified, they can be directly addressed and overcome, but the nonuser base in the United States will continue to contain a subsegment that can’t be neatly categorized, classified and targeted. Through continued enhancement of the cellular value proposition-i.e. ever-increasing levels of bundled minutes, average cost per minute falling below the 10-cent mark, implementation of calling party pays service-both concise and ambiguous barriers can be addressed and broken through in order to continue and further accelerate market penetration.
While cost and need are currently the primary barriers to adoption, each applies to varying degrees across the multitude of subsegments of the nonuser base. Within each subsegment, emphasis on the two primary barriers vary, as well as the importance of additional barriers to adoption, such as prepaid opportunities and no-contract service plans. As the market passes the 30-percent penetration mark, understanding the specific perceptions and sensitivities of the multiple nonuser segments will become even more critical.
Kelly J. Quinn is senior industry analyst within the Mobile Communications Service, North America, at Strategy Analytics Inc.
