The iPhone 4, O2 & Me: What I've learned from O2's launch plan & why I'll go with someone else...

     The upcoming iPhone 4 launch on June 24th looks to be an event for everyone involved, from Apple down to cell phone operators and retailers. Though Apple, as the hardware manufacturer and a retailer, and other 3rd party retailers face an opportunity for sales limited only by their stock, cell phone operators have inherited a unique challenge. The iPhone 4, much more than the previous iPhone 3Gs launch, represents the next shift in Apple's flagship phone, downgrading previous models out of the current offering (only the iPhone 3Gs 8gig model will be consistently offered). Because of this technological shift, UK Cell Phone operators, such as O2, Vodafone, Three & T-Mobile which will all offer the iPhone 4 at launch,all must balance out the need to acquire new customers through offering the new phone, while retaining current subscribers through upgrades and available stock.

     Personally, I'm really interested in how the iPhone 4 launches here in the UK, since I've been holding out to buy one. Having been happy with my Pay-as-you-go existing phone and my iPod Touch until earlier this year (when I managed to crack the screen & have finally tired of finding wi-fi to use around town), I've intently followed the launch of the new iPhone through its rumors, leaks & finally its announcement, waiting to buy the new model instead of getting a 3Gs. All in all, I could be described as a highly motivated, tech minded, but reasonably typical consumer, ready to join an 18 or 24 month provider plan..

     My personal interest & the cell phone provider's balance of acquisition vs. retention managed to mix however, after I received an email from O2's iPhone launch email list this week. Having signed up for email updates from each of the UK cell phone providers, I was surprised to find that O2 (my first choice to get the iPhone from) has limited sales of the handset to existing customers until the end of July. The move, on the extreme side of retention, means that as a new consumer, I and others will be forced to wait until the end of next month to purchase the phone or go to another provider.

Given O2's current monster-centric campaign, I thought I'd create my own entry, the "You-Can't-Have-An-iPhone-asaurus"

      While I'm personally against O2's retention only launch strategy, it raises several interesting questions given the UK cellular market. New premier phone launches represent one of the only major impetuses for consumer movement within the sector, as the switching costs created by contracts are usually very high. For every provider, rumored low stock levels at launch for the iPhone means that operators must balance a finite but golden opportunity to attract & retain customers for another 18 to 24 month contract period. O2 and other operators have rolled out upgrade plans for consumers near the end of their contracts, retaining customers which could possibly swap to another provider, but will this work out as planned? By focusing only on existing customers, O2 is gambling that stock levels aren't high enough to acquire a majority of new subscribers, but may instead function as a defensive mechanism for current customers.

O2's retention only strategy will only succeed if three things occur:

1.) Eligible current customers desire to obtain the new iPhone is stronger than any negative sentiment they may have about customer service or reliability.
        Cell Phone providers are in a harsh market when it comes to maintaining positive consumer sentiment,    as people don't normally remember when a call functions well, only when it is dropped or coverage isn't there. This generally negative default for sentiment, mixed with long contract periods, means that most consumers exist in a long term, love hate relationship with their provider. Given that the iPhone 4 represents another 18 or 24 month period with a network, O2 must hope that subscriber's "anyone but my current one" sentiment won't overcome the iPhone's attractiveness.

2.) Stock levels must be high enough to actually retain a large amount of customers
          Given that the level of iPhone 4G stock is rumored to be very small, its a large risk by O2 to publicly exclude new customers from purchase. While the other networks can run out of stock and reasonably claim that they couldn't serve everyone, an O2 sell out takes damage from both the exclusion of new customers and the inability to serve existing customers, despite a strong focus. To succeed, O2 must get enough iPhones to existing customers to establish a cachet of ownership, generating goodwill for the brand. If O2 subscribers feel like the brand gave them an exclusive opportunity, long term benefits may help to overcome the default negative sentiment in the industry.

3.) Everyone else must sell out relatively quickly...
           While O2 needs to have a minimum amount of stock for its customers, it must also hope that everyone sells out of the iPhone relatively quickly. By blocking acquisition sales until the end of July, the brand is gambling that consumers won't have other existing outlets for purchase. If the iPhone sells out in its first week and new stock doesn't come until the end of July, O2 hasn't lost many potential acquisitions. However, if other brands manage to stock the phone throughout July, O2 misses a month of vital time to acquire consumers who won't be looking to purchase again for 18 to 24 months. 

           The basic question in an optimal scenario for O2 is whether consumers will appreciate the opportunity the brand has given them. Will consumers see O2 as giving them the chance to purchase a coveted device, or will they simply focus on the purchase and allow any good will to degrade quickly. Finally, one has to wonder how many existing customers are out there to retain. The nature of the mobile network operator's contracts means that users who purchased the iPhone 3Gs will almost certainly be in the beginning of their contracts (less than a year) and not able to ignore the financial costs of upgrading. O2 must hope that this segment of their customer base is large enough to justify the exclusive focus.

          As for new consumers such as myself, I can personally say that the exclusive focus on current customers doesn't make the brand that much more attractive for me. The deal doesn't increase my opinion of O2's customer service, instead I feel frustrated that I'm unable to give a company money I was ready to part with. The desire to purchase my iPhone is stronger than any rational thoughts I may have about how great a deal like this would be for the iPhone 5G launch as a future O2 customer. Given that I'll be tied into a 18 or 24 month contract, upgrading to future iPhone models is extremely far from the front of my mind. Any points O2 might score for taking care of current customers is certainly not enough to wait until the end of July to purchase a phone from them, even with my preference for the brand. Because of this, I can personally say that while I don't know if I'll be able to get an iPhone on the 24th, I know it won't be O2's door that I'll be lined up infront of.