In 1991, US landline carrier MCI launched an offer that was to be copied by fixed and mobile telcos across the world – its ‘Friends and family’ tariff and campaign.
Nowadays it is hard to imagine a world without competitive telecoms, but competition in US telecoms had only begun, slowly, from 1984 (in Europe, competitive telecoms began with Mercury Communications in 1982). The USA telecoms market was split between the local exchange carriers (LECs) and the long-distance carriers. At the time, there were three significant long-distance operators in the USA – AT&T, the incumbent, plus MCI and Sprint, the challengers.
MCI’s early history was so dogged with lawsuits to win the right to compete that wags joked that MCI was ‘a legal practice with a telecoms tower on top’. MCI was later to fall in the Worldcom accounting scandal and is now a subsidiary of Verizon.
So, back to the story. By 1991 MCI has established itself as a serious player in the long-distance market. MCI decided to launch a new type of tariff, where the caller would gain an extra hefty discount if the person they were calling was also an MCI customer. The story goes that the MCI team heard that AT&T was working on a similar plan, but that the billing development would take many months for both companies (telecoms veterans will know that billing system development is usually the bottleneck in telco services), so MCI rented a warehouse, hired hundreds of clerical staff, gave them desks and computers, and taught them to them calculate the discounts by hand – then launched the service. MCI’s ‘Friends and family’ service was a massive success . By the time the competitors responded, MCI had gained massive market share and the battle for ‘Friends and family’ was over.
It seems obvious in hindsight that telco customers tell their friends about the purchases they make. We all accept now that for communications products, an economic incentive can be designed to add to the social pressure already existing, and will drive customers to follow their friends in switching telecoms provider. A former colleague of mine, Dr. Daniel Birke, explored this phenomenon in his Ph.D thesis and subsequent book.
MCI’s ‘Friends & family’ tariff and campaign was successful because it combined two key elements:
- A tariff discount for caller if the recipient was also a user of MCI’s long-distance service
- A member-get-member campaign where the customers were encouraged to ask their friends to join MCI to avail of the discount, or to pass the phone numbers of friends to MCI salespeople.
It is worth pointing out that MCI’s ‘Friends & family’ tariff was fundamentally different to the on-net mobile tariffs that are almost ubiquitous today. Firstly, on-net calls are cheaper to deliver than offnet calls, because they attract no interconnect payment whereas MCI gained no savings from delivering calls to ‘Friends and family’ destination because the service was provided by the LEC in either case. Secondly, differentiating between on-net & offnet destinations in a billing system is relatively straightforward, whereas MCI had to apply the discount based on each customer’s individual list of ‘Friends and family’ destinations.
Perhaps the story of the warehouse full of staff at computers typing up bills is an urban myth, but MCI’s success was a lesson to all telcos: social influence is a strong force in marketing. Combine a generous offer to a customer’s social group with an easy mechanism for sharing, and your customers will market your product for you. Add in a strong brand and an excellent user experience and your customers become apostles. It is hard to achieve but for those that do, the rewards are considerable.
A version of this post appears on the idiro.com blog.