T-Mobile CEO John Legere
Photograph by Bloomberg — Getty Images

CEO Legere turns industry loyalty rewards programs upside down.

By Aaron Pressman
June 6, 2016

There were two conflicting reactions to T-Mobile’s announcement on Monday that it was starting a weekly program to give customers free stuff like Domino’s pizzas, Wendy’s shakes, and online movies from Walmart’s Vudu site.

Among analysts, reporters, and investors, there was a collective yawn over the 11th marketing promotion in T-Mobile CEO John Legere’s three-year-old highly successful “Uncarrier” strategy to combat rivals AT&T, Sprint and Verizon Communications. Some said that the giveaways were a signal that T-Mobile’s run of marketing brilliance under Legere was coming to an end and that the carrier’s ability to lead the industry in subscriber growth might be winding down as well.

“It’s questionable whether stock ownership and free junk food will really make much difference in either retaining existing customers or winning new customers,” longtime telecom analyst Jan Dawson said. “This certainly isn’t likely to move the needle in terms of boosting phone net adds,” using the industry terminology for new customers.

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But on social media among T-Mobile tmus customers, there was rather more excitement about the prospect of free pizza and movies, as well as a chance to get one free share of T-Mobile stock.

One long time customer, referring to T-Mobile’s name from before it was bought by Deutsche Telecom over a decade ago, tweeted: “finally a reward for being around since voicestream days! Stock $$$.”

Analysts had been more impressed with the customer-attracting power of Legere’s earlier Uncarrier moves like eliminating some international roaming fees and letting customers watch streaming video or listen to streaming music without using up their data allowances.

What the critics seemed to miss was that freebies weren’t just a random effort by T-Mobile to gain publicity, but were another twist on a less-than-great telecom industry practice, in this case the overly-complicated loyalty rewards program.

Verizon’s vz typical program, for example, lets its Fios customers accumulate loyalty points in seemingly random amounts–200 points for ordering a pay per view event, 100 points for enrolling in paper-free billing or 100 points for following Verizon on twitter. Then the points can be turned in for rewards like gift cards from Starbucks and Target.

“In this case, we were inspired by what we saw out there in loyalty programs,” Mike Sievert, T-Mobile’s chief operating officer tells Fortune. “They are all basically a scam.” 

T-Mobile’s loyalty reward simply requires downloading the carrier’s app and checking for the available free items every Tuesday. Customers must go to the store to pick up their free food items, of course.

AT&T’s effort to quickly announce a loyalty program for its wireless customers last week, ahead of T-Mobile’s announcement, drew particular scorn from Legere, who frequently refers to his two larger rivals as “dumb and dumber.”

Under AT&T’s t program, customers can get a free second movie ticket with a movie ticket they buy on Tuesdays and other similar offers. Legere called it a “shoddy, quickly thrown together thing,” adding “I think they just made my point for me.”

Legere declined to reveal how much of the free stuff T-Mobile was paying for itself versus being contributed by partners. “Definitely in some of these prizes, we pay, we buy it, we give it to our customers,” Legere said on a call with reporters. “In some prizes, there are partners that really want to bring people in and they’ll either do a sharing with us or others.”

“This is a real Domino’s two-topping, medium pizza and that does cost over $12, which is important,” Legere noted. The total retail value of the initial weekly giveaway is $31.49, he said.

In addition to the weekly free stuff, giveaways also will include one hour of free use of the GoGo airline Wi-Fi network for T-Mobile customers on any domestic flight and a one-time grant of one share of T-Mobile stock per account. The stock has gained 9% over the past year.

Shares of T-Mobile, which have gained 12% so far this year, dropped slightly after the announcement.

Subscribers can gain an additional share of stock, up to 100 total per year, for each new customer they refer who signs up with T-Mobile. The shares given to customers will be bought on the open market and won’t represent new shares issued by T-Mobile, which would have otherwise diluted the value of existing shares.

That design demonstrates that Legere and his crew know how to play to shareholders, not just customers. It’s a skill that will likely continue to pay dividends in the future.

 

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