Faisal Sheik, Average Dealer and king of the Mobile Business Dealer forum, just wants a level playing field for the independents and the chance to make lots of money.
Before I start slagging off cashback,
I’m going to let someone else have a say first.
Dino Maroudias is the top dog at Hertfordshire based B2B dealership DM Telecom. I’d met Dino a few months back at a dealer round table, and I know he’s a fairly popular chap in the industry, especially with the folks at Yes Telecom! Dino is actually a keen exponent of cashback, so I invited him to pen a few words to explain why he thinks it’s so good. Here’s what he had to say...
“CASHBACK – The bane of our life or a necessary evil in an already confused marketplace?
“As an independent dealer we have to compete with the networks and other dealers alike. Because the mobile industry is extremely price driven from the customer’s point of view, it is necessary to be competitive to survive. Networks reduce line rental in order to obtain business, throw kit around as if it was free to them also, and other dealers; for example super-dealers who act like networks, try to emulate them by offering huge discounts.
“The favoured way to receive this financial incentive by the customer is in the form of a cash substitute for line rentals and/or call charges, otherwise known as cashbacks. In principle these are commercial business decisions, and on the whole make great sense.
“The problems that arise are purely to do with making the customer understand how their bill should look and the very small number of unscrupulous dealers who get excited at huge commission payments and do not pay their customers what they owe them.”
Points
Dino makes a number of fair points there.
We certainly do operate in a very confused marketplace, both at a consumer and a B2B level. The core tariffs and call charges are bad enough; but then when you throw into the mix redemption offerings, and “99p for 10 months” promotions, it all adds to the confusion.
He’s also right in noting the high level of competition in the Industry. As an independent dealer, you are competing not only against other dealers but also against high street multiples – and more often than not, against the networks too! How do you make yourself stand out amongst the crowd?
Dino, like many dealers, feels this is done by competing on price. And this is where the cashback comes in.
Dealers will use the commission they make to return money to their customers, and they distort the line rental the customer is paying to make it look more attractive.
A classic example is where a popular tariff like FlexT 35 (normally £35 per month) is marketed as having 12 months’ half-price line rental. In reality the customer will still pay £35per month plus usage charges – but the customer is assured that if certain conditions are met, they will receive a “cashback” of £210.
Making money
If it all works out, it’s not too bad. Unfortunately, though, it’s a very big “if”.
Think about that FlexT 35 offer. Many dealers will advertise this package with a phone like the Samsung D600. Before any bonuses, that’ll net the dealer £105.
Lets imagine they’re on a super-high volume based accelerator, and they get an extra £100 per connection. In such an extreme scenario, the dealer makes £205 from the connection. That’s great … until he then has to pay back £210 to the customer.
The sums just don’t add up; not on this particular deal and not on the majority of deals currently being offered to consumers. If every customer got back what they were promised, you’d be able to count the number of dealers still in business on one hand!
And this is where it starts to get messy, and the terms and conditions come in. Too many dealers (and sorry Dino, it’s a lot more than the unscrupulous few), use complicated T&Cs to deny the customers their cashback. Many companies actually work on an active percentage basis. If x% get their money back, it’s worth our while; anything more, then we’re in deep doodoo.
Some of the worst cases are the distance sellers, where some dealers work to a pay-out rate of less than 10%. The idea here is you make say 10 lots of £205 from the FlexT 35 deal mentioned; then it doesn’t hurt to pay one person £210!
Part two of this rant next time: the trick of setting up the best deal (lots of volume but with the lowest possible pay-out rate) and what’s to be done about this example of the short-termism besetting our business.
“The favoured way to receive this financial incentive by the customer is in the form of a cash substitute for line rentals and/or call charges, otherwise known as cashbacks. In principle these are commercial business decisions, and on the whole make great sense.
“The problems that arise are purely to do with making the customer understand how their bill should look and the very small number of unscrupulous dealers who get excited at huge commission payments and do not pay their customers what they owe them.”
Points
Dino makes a number of fair points there.
We certainly do operate in a very confused marketplace, both at a consumer and a B2B level. The core tariffs and call charges are bad enough; but then when you throw into the mix redemption offerings, and “99p for 10 months” promotions, it all adds to the confusion.
He’s also right in noting the high level of competition in the Industry. As an independent dealer, you are competing not only against other dealers but also against high street multiples – and more often than not, against the networks too! How do you make yourself stand out amongst the crowd?
Dino, like many dealers, feels this is done by competing on price. And this is where the cashback comes in.
Dealers will use the commission they make to return money to their customers, and they distort the line rental the customer is paying to make it look more attractive.
A classic example is where a popular tariff like FlexT 35 (normally £35 per month) is marketed as having 12 months’ half-price line rental. In reality the customer will still pay £35per month plus usage charges – but the customer is assured that if certain conditions are met, they will receive a “cashback” of £210.
Making money
If it all works out, it’s not too bad. Unfortunately, though, it’s a very big “if”.
Think about that FlexT 35 offer. Many dealers will advertise this package with a phone like the Samsung D600. Before any bonuses, that’ll net the dealer £105.
Lets imagine they’re on a super-high volume based accelerator, and they get an extra £100 per connection. In such an extreme scenario, the dealer makes £205 from the connection. That’s great … until he then has to pay back £210 to the customer.
The sums just don’t add up; not on this particular deal and not on the majority of deals currently being offered to consumers. If every customer got back what they were promised, you’d be able to count the number of dealers still in business on one hand!
And this is where it starts to get messy, and the terms and conditions come in. Too many dealers (and sorry Dino, it’s a lot more than the unscrupulous few), use complicated T&Cs to deny the customers their cashback. Many companies actually work on an active percentage basis. If x% get their money back, it’s worth our while; anything more, then we’re in deep doodoo.
Some of the worst cases are the distance sellers, where some dealers work to a pay-out rate of less than 10%. The idea here is you make say 10 lots of £205 from the FlexT 35 deal mentioned; then it doesn’t hurt to pay one person £210!
Part two of this rant next time: the trick of setting up the best deal (lots of volume but with the lowest possible pay-out rate) and what’s to be done about this example of the short-termism besetting our business.
DEAL DOSSIER
THIS MONTH’S TOP THREE DEALS
1- Vodafone TV 500 package. Good value at £35 per month for 500 mins and 100 texts, plus Stop the Clock and Vodafone Passport – and best of all, it offers free Sky Mobile TV for 6 months, and brings some excitement back. £300 pre-phone commission on selected 3G handsets.
2- Orange Raccoon 35 with the Nokia N80. £60 margin, but with up to 360 minutes and 500 texts, plus 120 bonus minutes, and best of all, a free Nokia N80: a good deal for the customer. £50 margin approx.
3- T-Mobile FlexT 35 with Web’n’Walk on a MDA Vario. All-you-can-eat voice, text and data package with a £100 margin – great phone, great deal at £42.50 per month.
THIS MONTH’S TOP THREE DEALS
1- Vodafone TV 500 package. Good value at £35 per month for 500 mins and 100 texts, plus Stop the Clock and Vodafone Passport – and best of all, it offers free Sky Mobile TV for 6 months, and brings some excitement back. £300 pre-phone commission on selected 3G handsets.
2- Orange Raccoon 35 with the Nokia N80. £60 margin, but with up to 360 minutes and 500 texts, plus 120 bonus minutes, and best of all, a free Nokia N80: a good deal for the customer. £50 margin approx.
3- T-Mobile FlexT 35 with Web’n’Walk on a MDA Vario. All-you-can-eat voice, text and data package with a £100 margin – great phone, great deal at £42.50 per month.
GRIPE LINE
THIS MONTH’S TOP THREE GRIPES
1- Cashback. Why must we only ever
focus on price?
2- Lack of passion. Too many people in the industry who don’t care about phones.
3- Peter Crouch. It’s not just because I’m a Man U fan who hates Liverpool – there is no way he is better than Jermaine Defoe. By the way, Sir Alex, if you’re reading this, can we please sign Riquelme?!
THIS MONTH’S TOP THREE GRIPES
1- Cashback. Why must we only ever
focus on price?
2- Lack of passion. Too many people in the industry who don’t care about phones.
3- Peter Crouch. It’s not just because I’m a Man U fan who hates Liverpool – there is no way he is better than Jermaine Defoe. By the way, Sir Alex, if you’re reading this, can we please sign Riquelme?!
TOP JAFFA
THIS MONTH’S Jaffa Cake GOES TO:
Simon Johnson and the team at EBS for having the Orange price book ready by 26th of last month. It's still not early enough, but still an amazing improvement, and much better than the rest!
THIS MONTH’S Jaffa Cake GOES TO:
Simon Johnson and the team at EBS for having the Orange price book ready by 26th of last month. It's still not early enough, but still an amazing improvement, and much better than the rest!