April 23, 2007

Vonage: No New Customers

If you believe the phrase "It is 'x' times cheaper to retain a customer than to acquire a new customer", you'll have a wonderful lab experiment to monitor, courtesy of the plight of Vonage (thanks, Jim Fulton).

Earlier this month, Vonage was barred from acquiring any new customers as part of their ongoing dispute with Verizon. Vonage attorney Roger Warin said it best:

"It's the difference of cutting off oxygen as opposed to the bullet in the head," Warin reportedly said. Urging the judge to reconsider, he added that the decision would "in effect slowly strangle Vonage."


What would you do if your company were not allowed to market for new customers anymore? What levers would you pull to prop-up sales as long as you possible, before your business imploded?

6 comments:

  1. FYI, I deleted an inappropriate spam-related advertising comment. That's why one comment is missing.

    As you know, I welcome any and all valid comments.

    ReplyDelete
  2. Anonymous4:12 AM

    Kevin,
    1. To retain only your original customers(who are paying a monthly fee) is made even more difficult as your competitors will undoubtedly attempt to undersell you in the short term to steal your customers and push you into bankruptcy. Once you are out of the picture, their own prices will either return to normal or go higher.

    2. This shows the double-edged sword of trademarks and copyrights. On the one hand, I completely understand the need for protection of intellectual copyrights, especially when someone has invested large amounts of money and time to come up with process first. On the otherhand, watching RIM almost collapse last year over the idea(simplyfying here) that email be transmitted by a PDA, seems silly. Or to see movie stars trademark phrases they didn't necessary originate, only made popular, is even more ridiculous.

    With a global economy it will be much harder for Americans to prove their idea was "original", and much costlier to fight these battles.
    You raise a troubling issue that seems to be getting worse.

    BTW, MSNBC featured an article yesterday about Walmart's effect on Circuit City, Bestbuy, and others. You should read. Covers some of the ground we covered in comments in your post two weeks ago.
    Keep up the good work!

    K

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  3. Anonymous4:18 AM

    Kevin,
    Forgot to add, there are two ideas, if I was vonage, to combat above.
    1. Offer a long term package, even at lower rate.
    2. Offer additional services for people who take long term package.

    You may lose some customers who are reluctant to sign a long term deal, but you want to hold onto these guys until you can acquire new customers again, and to keep the wolves from eating up all your customers.

    Of course competitor may offer to pay the penalty fee if you switch, but either way they are going to get at your customers while you are down. Best to resolve court situation as soon as possible, although I suspect Verizon won't allow for a settlement as they know they eliminate vonage win or lose in the case.

    K

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  4. I would work w/ my legal department to see if there was a way to use existing customers (accounts) as a mechanism for creating new ones (w/in the legal guidelines).

    Kind of like a referral program, but a "new" account or customer would appear to be a line extension to an existing one.

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  5. Sounds like a good idea, Ron. Leverage what you have. I'd also see if I could market to folks who used to use my service.

    K --- I'll check out the story about Wal-Mart's impact on Best Buy / Circuit City, thanks for the head's up!

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  6. First, I am disappointed but not surprised by the move of Verizon. They bought up key patents years before Vonage ever came into existence, just to crush whomever had the audacity of getting into the VOIP business. Smart strategic move, but the sort of action that squelches innovation in this country.

    But as for what to do now, I see Vonage as having zero good options. They liken this to having your oxygen cut off. I say it's more like having blood flow to the head cut off. They're dead in seconds instead of minutes.

    ReplyDelete