It’s expensive to create, market, deliver, and support a product. Having customers who make your life more difficult and the whole process more expensive does not help matters.
Since we’re bright, smart product managers it sure seems as though when we spot an opportunity to change something about our product that will benefit everyone we should just go ahead and do it and not have to wait for our customers to ask us to make the change, right? Well that’s what the product managers over at T-Mobile thought before the lawsuit…
The Problem With Going Green
… is that where as everyone agrees that it is a nice idea in concept, most of us are too lazy to actually do anything about it. This is the problem that T-Mobile’s product managers were staring at awhile ago when they started hunting around for ways to cut the costs associated with delivering their service.
That paper bill that shows up in your mail every month looked like a nice juicy target for getting rid of. I mean come on, it’s the 21st Century after all and we’re talking about a customer base that is at least progressive enough to have a cell phone. Think about all of the costs involved: printing, folding, mailing, and dealing with returns. If you could get everyone to drop paper bills and go with electronic billing then the savings could be huge!
As most companies tend to do, T-Mobile at first tried taking a “green” approach. They told their customers that they’d plant a tree for every customer who agreed to drop their paper bill and go paperless. This really didn’t motivate very many people to sign up. See – what did I tell you about us being more lazy than green?
T-Mobile’s next step was to start to charge an extra $1.99 for those customers who wanted a detailed printout of their bill. The exception to this charge was existing customers who could choose to get it without having to pay extra. Once again, this didn’t really cause any major change in customer behavior.
The Big Stick
Clearly the message was not getting through to T-Mobile’s customers – stop asking for paper bills and agree to switch over to electronic bills. In August of 2009 T-Mobile finally got serious.
They started charging an extra $1.50 monthly fee for all customers who had not switched over to electronic billing and who were still receiving paper bills. This fee was applied to all bills, both short and long, and it also covered existing customers – nobody got to escape it.
What’s interesting about this big stick approach is that it worked! Before the new fee was announced, T-Mobile had about 1,000 customers sign up for paperless billing every day. Once the new fee was announced, this number shot up to 33,000 per day.
It turns out that T-Mobile sends out 16.5 million invoices every month. At this new accelerated rate they had the possibility that they could converted their entire customer base to paperless billing in as little as 15 months.
A Lawsuit Can Wreck The Best Plans
Of course there always has to be an unhappy customer somewhere, right? In this case an unhappy customer was so unhappy that they went to the effort to file a lawsuit against T-Mobile. The suit said that the new fee was a “…material modification to the contract by T-Mobile.” For those of you not up on contract language, it turns out that it’s a no-no to make changes to a contract after both sides have signed it.
The T-Mobil lawyers took a look at this lawsuit and realized that they had a problem on their hands – it was legit. T-Mobile then promptly backed off and announced that they were dropping the $1.50 fee. Dang!
What Went Wrong Here?
So there are a couple of interesting things that a savvy product manager can lean from this T-Mobile case study. Here they are:
- The Big Stick Works: to an extent. Having an extra 32,000 customers sign up for paperless billing every day, even if it was only for awhile, will result in a fantastic cost savings for the company. However, clearly customers didn’t like feeling that they didn’t have a choice.
- Always Check With Legal First: Sure, nobody likes the folks who work in the legal department. However, when you are messing around with a big stick approach to anything, it’s probably a good idea to touch base with them before you pull the trigger.
- Carrots Work Better Than Sticks: Sure a stick is easier to use, but carrots work better. In this case waiting until a contract was over, and then making the $1.50 fee part of the new contract would have been ok – as long as T-Mobile also offered a gift or upgrade at the same time for customers who opted to go paperless.
If the number of people signing up for paperless billing now returns to their previous levels, T-Mobile estimates that it’s going to take just over 41 years to move all of their customers to paperless billing.
Clearly the T-Mobile product managers had their hearts in the right place, it’s just that it appears that their brains weren’t there also. Using the big stick approach can work, but it generally only works in the short term. If you want to have a long term positive relationship with your customers, then you’re going to have to take the time to find ways to motivate them to take the action that you want them to take.
What do you think that T-Mobile should have done to get it’s customers to go to paperless billing?
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What We’ll Be Talking About Next Time
Would you sleep with your customer if they offered you a million dollars to do it? That was the question that was asked in the blockbuster movie “Indecent Proposal” with Robert Redford, Demi Moore, and Woody Harrelson.