Saturday, 7 July 2012

Why 'free' airtime is not really free

Some mobile networks (aka carriers) give you free airtime when you top up on a specific day.  So for instance if you buy $30 of airtime on a Thursday, you could be awarded with an additional $15 for no charge.  Looks like a good offer and strictly speaking it is.  But you need to factor human behavior into this deal, which isn't perfectly rational.  No company is out to give you something without a reason.

So how would this 'free' incentive work in any mobile carrier's favor?  They score on three counts:

#1: You are inclined to buy more airtime if there's a promotion on, even if you don't need the airtime

'Free' airtime is incentive to buy airtime even if you already have enough.

From the network's point of view, the cost of giving you $15 of extra airtime is much less than $15 because their profit margins are so high.  So you may have just paid $30 to buy $30 plus $15 of 'free' airtime, but the cost to the carrier of giving $45 of airtime to you is much less than $45 to them.  In fact they will still profit by giving you $45 of airtime for a charge of $30.

Think of getting a 'free' Coke with a McDonald's meal: you may think you're getting $15 worth of stuff for $12, when the whole meal with that Coke included may have cost McDonald's $10 anyway.  They're still making profit even though you think you're getting more than what you're spending.

People forget the difference between cost price and retail (marked up) price.  All that's effectively happening when you get something for 'free' is that the markup percentage is being lowered, but there is still a markup nonetheless.  On the whole then, the marginal profit for the carrier goes up when you buy airtime from them in spite of giving you some of it for 'free.'

Network: 1
Consumer: 0

#2: You don't monitor the point where the 'free' airtime runs out

You don't check your balance after every call or surfing session.  Most of the time you only maintain a rough idea of the remaining airtime you have.  If you're given 'free' airtime, you are not cognizant of the exact moment that you pass your 'free' airtime and start using the airtime you 'paid for' (the truth is you paid for all of it).

Critically the extra airtime lures you into a false sense of abundance and this causes you to use your airtime with more abandon i.e. faster.  You can therefore consume $45 of airtime faster than you would consume $30 because the less you have, the more conscientious you are; conversely the more you have, the faster you consume.  As a result you may very well end up re-filling airtime sooner than usual when you've been given more airtime than you're used to getting.  This isn't applicable to everyone, but it's applicable to most.

Bear in mind too that we all need to keep a certain amount of airtime in the tank for emergency calls and the like, so when your airtime runs out faster than usual you will top it up once more to maintain that safety buffer.

Network: 2
Consumer: 0

#3: Your 'free' airtime needs to be used within a tight time period

'Free' airtime given to you typically needs to be used within a couple of days.  This in turn pressurizes you into using up all that free airtime.  Worse than running out of airtime is not using airtime handed to you on a platter.  That's human behavior: we will eat more at a buffet than a conventional restaurant because we want to maximize what has been given to us, particularly when it's not costing any more money to consume more.  Think of how smashed people get during happy hour at a bar where you can drink all you want for $20 between 8pm to 9pm...there it's about getting drunk while it's cheap to do so.

Now with a time limit imposed you could very well drain more airtime than you bargained for in your quest to ensure no 'free' airtime goes unused.  It's about getting you to use the airtime, use it fast and in the process bring forward the need to re-fill your airtime.

Network: 3
Consumer: 0

For a mature company operating in a saturated market like a mobile network does, incentives and promotions are used to eke out more revenue from its existing customer base.  Given the above three factors, 'free' airtime ends up working in favor of the mobile network in spite of the fact they're giving something for 'free'.  In effect, the additional airtime is bait for the consumer to use their airtime up faster.  It's a psychological tactic meant to bypass any tight controls you have over your mobile usage and hopefully get you to spend more time calling people or browsing the net than you planned or needed to.

Like any promotion, the offer of free airtime will see you lower your guard and loosen your purse strings.  The net effect of all this though is that all but the most conscientious will end up giving more money to their mobile carrier.

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