Sprint, Verizon, and psychic utility


Sprint has launched a new ad campaign directly against Verizon, using Verizon’s old “Can you hear me now?” guy in their commercials.  It’s a pretty brilliant marketing strategy in my opinion.  Here’s one of the commercials:

Now I know that Sprint’s claim that their network reliability is within 1% of Verizon’s might be true on a technicality (I don’t know for sure), it is true that most networks today are pretty good.  So is it worth spending twice as much money on Verizon?  Is it irrational for people to do so?

The first thing to note is that it is not necessarily true that the neat linear relationship between network reliability and plan cost is accurate (so that a network three times reliable would cost three times as much).  Generally speaking, the asymptotic nature of reliability is such that it is more difficult to increase the reliability of a system from 98% to 99% than it would be to increase it from 24% to 25%.  It’s like losing weight: the first few pounds are usually easier to lose than the last few pounds.

The other explanation is that the utility people get from consuming any given product is very subjective.  Part of the reason people purchase one product over another is the physical nature of it, but another significant part in the decisionmaking process is the psychic utility.  Remember being a kid and being upset when your parents bought the generic version of some product?  Even though it was the same exact thing as the brand name product, you felt there was more value in the brand name.  The same goes for choosing a cell phone plan.  Whether they actually deliver a better product or not, there is a trust that Verizon’s network is better than Sprint’s.  As such, people are willing to pay a good deal more.

Using the analogy of the haircut in the commercial, imagine the prices two hairdressers might charge for an identical haircut.  Let’s say that one is just a neighborhood hairdresser with no real name recognition while the other is a famous hairdresser.  Obviously the famous hairdresser could charge more even though their physical products are identical.  It’s the psychic utility a person gets from receiving their haircut from someone famous that causes them to be willing to spend more money.

So which cell phone carrier should you choose?  That’s for you to decide!  You need to decide what’s most valuable for yourself.

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