What Was Verizon Thinking?

Verizon’s botched $2 “convenience fee” price hike for customers who pay cellphone bills over the phone or on the Internet should serve as the poster child for bad execution of a price hike strategy.

The announcement by Verizon Wireless regarding its intent to charge the fee starting January 15th was immediately lambasted by customers and consumer groups alike. Even the Federal Communications Commission (FCC) took notice and issued a statement that, “On behalf of American consumers, we’re concerned about Verizon’s actions and are looking into the matter.”

Barely 24 hours after the initial announcement, Verizon reversed its position and announced that it was cancelling its plan to impose the new fee. Talk about an execution debacle and public relations nightmare. And while I’m sure that Verizon is going though its own post-mortem, here are three lessons that I think can to be learned from last week’s fiasco.

1. Focus on the Value

Verizon tried to frame the price hike as a convenience fee (supposedly to justify the value that customers derive from paying their bill over the phone or internet) but when pressed by critics, the response focused solely on Verizon’s internal costs and not the value associated with the service. According to Verizon, the fee was implemented to “help allow us [Verizon] to continue to support these single bill payment options in these channels and is designed to address costs incurred by us for only those customers who choose to make single bill payments in alternate payment channels (online, mobile, telephone).” Not one mention of any value that customers derive from paying bills over the phone or the Internet. And without any association of value with the new fee, Verizon didn’t stand a chance.

2. Use the Carrot, Not the Stick

While some may feel that this is one more example of ‘big corporation gouging small consumer’, the real reason for the hike was to shape customer behavior. What Verizon wanted (more than the $2 revenue gain) was for more of its customers to switch over to its automated bill paying option because it guarantees Verizon a steady (and more predictable) revenue stream. Payments using the automated bill paying option help Verizon better manage its cash flow – far more valuable than the added fee. But rather than charge the fee to shape customer behavior (the stick), Verizon should have offered a financial incentive (the carrot) to encourage customers to make the switch on their own. Rather than announcing an unpopular price hike, the announcement could have been framed as a discount (perhaps a one-time or even short-term discount to their bill)…and that would have saved Verizon from having egg on its face last week.

3. Don’t Underestimate the Power of Social Media

This is a great example of how social media has become a powerful tool for consumers and activist groups alike. Change.org—the same group responsible for helping rollback Bank of America’s recently proposed $5 monthly debit card fee—was able to leverage social media to quickly gather more than 37,000 signatures of those opposed to the hike; and similar petitions were organized by other consumer groups. Facebook pages in opposition to the hike were also quickly created – adding fuel to the consumer fire that was already burning. And even Twitter was abuzz with opposition. This immediate and powerful opposition to the price hike would have been impossible prior to the advent of these social media vehicles. And it was this strong public outcry (fostered for the most part by social media) that convinced Verizon to reverse its decision.

Here’s the takeaway: Price hikes are difficult enough to successfully implement even if the execution is mistake-free. Think before you act. Make sure your planning is thorough. And don’t forget these three lessons when it’s your turn to execute a price hike strategy.

image credit: anneberryhill.com

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Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.