How Much Should Brand Loyalty be Worth to Essential? Convincing PH-1 Owners to buy the PH-2
Everyone’s requirements are different. When it comes to mobile phones, for some, the camera is all-important. For others, it’s the display. Raw speed for many. For some it’s the storage. Maybe for others it’s apps and services, or maybe bandwidth incentives. Size, weight, and feel. But just because a given model or SKU hits a given user’s fancy once, does not automatically mean that they are going to sign up for a second tour of duty the next time around. I’ve only ever owned the first iPhone and the 6s. Yet my wife has been on the Galaxy S3, and has upgraded to the S5, 7, and 9 and nothing else in between.
My secondary daily driver right now is the Essential PH-1, a phone also owned by my boss’ boss, GWW President and owner Joe Barhoum. And thanks to a post written by Ben Schoon over at 9to5Google, there is a debate in progress about what Essential needs to do to retain customer loyalty when they, inevitably, launch the PH-2. Currently in the throes of my spring tech upgrade and update, it’s caused me to consider the codification of my own return customer habits and whether they true up to my actual buying behavior.
For me, customer loyalty is a thing that a company can only lose. For the most, part it’s not a major part of my buying paradigm. I tend to purchase whatever is the best thing available within my set cost profile. If the last phone that I bought was good, but the next time around for an upgrade some other manufacturer is making a better thing, I will buy the better thing. But if a company goes sideways with me any one time, they go on the blacklist and I generally won’t buy a product from them for years. There are several companies on my current list for different product categories:
- Asus motherboards and laptops
- NZXT and RAIDMAX PC cases
- Lenovo gaming laptops
- MSI laptops
- HTC Phones
- Google Phones (regardless of manufacturer)
- Moov fitness devices
- Microsoft was in the hardware penalty box for four years after my XBox 360 RROD issue
- HP laptops were also, but came out last year and my HP Envy 13 experience has granted them reinstatement
There are others, but my point is that it takes an extreme mixture of excellent product, not crossing any of my critical requirements during ownership, and value-position pricing compared to the rest of the market to just get me to buy a product revision / update on brand-name only.
For the most part, any sense of loyalty just lowers the amount of time I might spend vetting a potential purchase candidate if the manufacturer has done incredibly well by me in the past. And that key factor is on reliability and system availability (how often was the device not available or couldn’t meet my recurring use-cases due to a bug or fault). I don’t bat an eye if the current data shows that a Galaxy Note up-rev should be my next purchase. I’ve owned the Note 2, 5, and 8 and been head over heels with each. And it’s a product line that perfectly meets my specific requirements given my need for digital pen and ink capabilities. As I selected parts recently for a new PC build, I did not triple check my initial selection for a motherboard, given that the best available at first blush was a Gigabyte board, and a Gigabyte board powers my current primary gaming PC and hasn’t failed me once in two years.
So, if customer loyalty can be so fleeting in the current digital age, how much should a company pay to buy it? Would a 40% discount on the Essential Phone PH-2 be enough to buy mine? Certainly if we look at it without considering the competition.. But to me the value to Essential is more a matter of measuring the opportunity costs to its customer base; in other words, are PH-1 owners going to buy the PH-2 anyway, regardless of discount, if the PH-2 is competitively priced against the Pixel 3 or other phones? If they don’t buy the PH-2, what are they going to buy instead and does Essential have any chance of beating that competitor regardless of the size of the discount? They need to cover that opportunity cost delta and no more in order to maximize their potential earnings. Some current customers are bent because of the PH-1’s camera performance. Should Essential pay those customers to keep them onboard next go ‘round, as some suggest?
Carriers already offer buy incentives for your next upgrade by letting you trade in your current phone. In most cases, if you are trading in a last-gen flagship phone, such as an iPhone, Galaxy S, or Galaxy Note, the discount can be as much as $350, which can be 50% of your next flagship. In our morning Twitter tech talk, Joe suggested that Essential should offer 20% over whatever the going trade-in value is from carriers for the PH-1 at the time of the launch of the PH-2. I’m going to guess that the PH-1 won’t have a ton of trade-in value, and say that that value will be $150. That would mean that Essential would be knocking $180 off the PH-2. If that phone launches at $650, which would be my suggestion so as to be competitive with its natural predator, the Pixel 3, Essential would be selling some number of phones for $470; a 27% discount. In a business where margins for everyone other than Apple and Samsung are razor thin, that could be a company killer.
And would this set a good precedent? A mea culpa for a less than optimal camera on the last version? Should Google take 27% off the cost of the Pixel 2 because the Nexus 6P is known for dumping GPS connectivity, and for the time that it had the problem with the proximity sensor when you had a tempered glass screen protector on and would lose the ability to control the phone and the call because the screen would turn off?
I think this would be a bad precedent. Humans are a fickle lot and expectations for every phone manufacturer could get ridiculously out of control. People are just settling into the notion that it’s acceptable for your phone to only get software updates for two years. I am not interested in company’s making money hand-over-foot at customers’ expense; that’s why I typically don’t buy the iPhone. But not everyone is violating their customers in Apple-like fashion.
My personal take is that every manufacturer should offer a small loyalty discount for return customers; like $50 off. But other than that, I think Essential has a great chance in this climate of runaway, egregious prices for flagships to come in just slightly under the other players and be a great value buy. They are not going to keep someone from buying a Pixel 3, so they should not offer a return-customer discount so large that they are trying to win that battle. But they may be a healthy alternative to the OnePlus 6, or the Huawei Mate 11 Pro or Honor View 11. And to win those battles, the discount just needs to be conciliatory and representative of some humility.