TracFone Straight Talk Plans Changed Their Company!

And then came TracFone Straight Talk!
So what's so interesting about the Straight Talk plans that were added to the TracFone prepaid cellular portfolio?  These plans consist of monthly plans with buckets of minutes, data, and text messages, including unlimited.  At the time of launch, TracFone's Straight Talk plans were a complete divergence from their classic low cost pay-as-you-go plans.  I expect that in this case starting a newTracFone Straight Talk brand specifically for these plans was an easy (and wise!) decision.

These plans continue to be extremely competitive, and you'll see people advertising the unlimited plan focusing on the fact that it's on Verizon's network.  Why?  Well, when it first launched, the TracFone Straight Talk brand was new and didn't have any brand equity (i.e. people didn't really associate it with anything...yet), and TracFone is known for its super cheap value plans.  On the other hand, "$45 unlimited, no contract plan on the Verizon network" speak volumes!

Why did they do a trial?
The initial launch was only a limited trial and had many people frustrated.  Why a trial instead of a full market launch is an easy question to answer.  TracFone needed to see whether the business model would be sustainable.  In other words, could they make money from it!  Although we'd all like to see super cheap unlimited plans, the reality is that carriers have real costs to deliver services, and a lot of the variables and unknown expenses comes down to how many minutes people actually end up using on a monthly basis.  

There's typically a period, often referred to as the "honeymoon period," when people first get an unlimited plan.  They use the heck out of the phone because everything is included.  This usage can stay this way for several weeks or longer.  Then people tend to settle in on their normal calling habits.  Although they'll likely settle in on more minutes than they used to use before they got an unlimited plan, it tends not to be nearly as high as their usage during the honeymoon period.

Risky Business!
The challenge is knowing what that average will ultimately be, because it drives the net cost to the carrier.  Simply, they're getting a fixed amount of money (ex. $45 for TracFone Straight Talk) from you each month.  As you use more minutes, their profit declines.  The more you stack on the minutes, the more the carrier's profit declines.  Eventually it becomes unprofitable.  And don't think that just because a company is large, or has been around awhile, that they can't go bankrupt.  The crashing U.S. economy of 2008-2009 was a good reminder of this fact!

There's also almost always a small percentage of people (let's call it 1-5%) who use so many minutes, WAY above what the average person uses, that they can actually ruin the cost structure (i.e. overall average) for the entire business or product.  That's why you'll see a lot of "reasonable usage" clauses in a most unlimited plans, whether for voice or mobile broadband.  This allows carriers to disconnect customers who are abusers.  Although a lot of people complain about this type of hidden language/clause, the reality is that 95-99% of customers will never be impacted by it, but it does help to allow carriers to continue offering good value to virtually every other customer.  If they couldn't get rid of these abusers, they'd either have to increase the price for everyone, or shut down their business altogether.

So, TracFone Straight Talk was a trial because TracFone needed to figure out how many minutes their customers would end up using.  Once they determined that, they had a better understanding as to whether their pricing would be sustainable (i.e. profitable) to allow them to continue rolling out the program.  And even then there's still risk, because as you roll out to new markets, you get different types of customers, who in turn can change these average numbers.

Note that In October 2009, it was announced that Straight Talk would be rolled out to all Walmart stores.  In other words, the trial was officially over, and they've been thriving ever since!

TracFone Straight Talk

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