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2.29.2012

Feeding the Addiction: Marketing in the Drug Dealer Mindset (1) Getting the Consumer "Hooked"

Everyone knows that acquiring new customers cost money and repeat customers are your best customers and most profitable.

And if you happen to be selling a very "addictive" product that requires very little effort on your part to get repeat customers coming back for more, than you should be thinking like a drug dealer and make sure you get as many new customers hooked as quickly as possible.

I guess mobile phone service providers understand this best in Japan.

In the late 1990s when mobile phones were becoming more common, electronics stores were offering rows and rows of 0 yen phones. Yes, the mobile phones (hardware) was FREE.

The catch was that if a consumer takes up the free phone offer, they have to sign up for a two-year contract with the service provider.

The dealers (electronics stores, etc.) received kickbacks on the monthly subscription fees paid by the consumers to the service providers, and that is how they made their money.

Since all my benefits from my initial two-year contract with Softbank (the leading iPhone service provider in Japan and third largest provider who bought Vodafone Japan to acquire their network) expired this month, and my poor iPhone 3 is struggling with the demands on its limited memory, not to mention that I cannot carry the over 2,200 songs I have in my iTunes library on it; I decided to go for an upgrade to iPhone 4S, as belated as it is.

When the lady tending to me came out of the back room with the white iPhone 4S (64GB) version with many more boxes, I braced myself for a sales pitch for the optional accessories.

Much to my surprise, she wasn't selling them to me - she was GIVING them to me!!!


So the phone came with not one, but TWO cases - one hard and one soft (I had to chose the colours), an extra charger, a lithium ion battery that charges the phone (or acts as an external battery), a bluetooth headset, and a wireless clip type head set (earphones) for which I got to choose the colour as well (from black, pink, blue, white, and red).

The extra energy sources tell me that the iPhone 4S has a short battery life.

But the fact that Softbank is giving all this to me for free makes me wonder how well iPhones are selling to begin with, and how tough a competition au (No.2 provider in Japan) is putting up for Softbank. The market is now being flooded with Android smart phones and Softbank is also promoting many of them.

On top of all this, if I opt for the 24 monthly installments payment plan for the phone at 0% interest, my payment won't start until 2 months from now... But the discounts I get on my basic subscription price starts this month.

I have signed up for the flat fee Wi-Fi plan and minimal air time mobile phone plan as I never use it as a phone. In fact, I don't even know what my phone number is.

But it is obvious they make their money not on the hardware, but on the subscription payments.

Another example of "drug dealer" mindset marketing here is what the mail order companies (including e-Commerce players) call TEIKIBIN or subscription plans for goods that a customer may purchase regularly. Think: cosmetics, dietary supplements, water and other drinks, detergent, food items, and sanitary products.

Many offer the first purchase at a ridiculously cheap "trial price" like 500 yen (less than US$5) so long as you promise to make a purchase the following month as a minimum. After that, if you don't like the product, you can stop your subscription.

The subscriptions often come with loyalty benefits like a free gift or discount voucher for every fifth purchase one makes. And consumers are rarely charges for shipping. (That goes to showing how longer-term repeat customers bring profit!)

Others offer longer cooling off or guarantee periods like "60 days money back guarantee even if you use up the product," to make the first purchase as easy as possible.

Of course, there is always the "be a monitor" campaign where consumers are offered the opportunity to get the product for free in exchange for extensive feedback on the product after use.

I have recently learnt first hand that "system jewelry" or "build your collection as you go" jewelry a.k.a. "Lego for girls" can be marketed and sold in the same way.

My then 12-year old daughter asked for a charm bracelet for Christmas, and thereafter, all she wanted was new charms until she could not fit any more on her bracelet!

She is now 14 and of course she wants to start a second bracelet!

Lastly, I also see beauty salons in very competitive areas practicing the same kind of marketing.

Manicure and gel/gelish nail salons incentivise customers coming from other salons for nail polish or gel removal services and may even offer 50% discounts on the treatments as a "trial price" for first time customers. And then, they offer discounted removal services if the customer makes the booking for her next appointment before leaving the salon.

Eyelash extensions seem to be the same: "Put as many extensions as you like the first time for only 4,900 yen (about 40% to 50% of the regular price) the first time" - one salon advertises. And once again, customers are incentivised to make their next booking when they leave.

Come to think of it, my great aunt understood this well, too.

She was Japan's top sales person for life insurance for Japan's largest life insurance company. Her tactic was simple: "I will pay for your first installment out of my own pocket. You just have to pay from the second month, and I will make sure you get coverage from today!" She said.

Oh, I must mention that Softbank did this today, too.

There are three subscription based services that I will get for free for two months. If I don't want to continue the subscription, then I need to go and unsubscribe on my phone before 10 April. Each service costs 350 yen a month. Peanuts, yes, but peanuts that add up for the sites!

Mobile game services provider DeNA makes more than 2 million dollars a MONTH selling small fee  add ons @150 yen to @350 yen per app. To the user, it is the equivalent of less than a cup of coffee at Starbucks or a burger at McDonalds. But it adds up!!!

So, why not get people signed up for free for the first 2 months and then see if they notice they are even paying it from month 3. Or, rather, get them to use the service first and decide they cannot live without it from month 3.

Hosting services do the same. You can get one year for free, and thereafter, you pay as you go! But by the time you have built your site and it is hosted on their server, how many people want to move it?







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