Ask Us: The No Upgrade Switch

Mellowlen62 asks:

Took my son to VZW corp store to price the Droid X at full retail. He wants for Christmas and was giving me half of the price. No upgrades at this time. Rep says “running a promotion. Put another line on your account, get him the X, put an old phone on his existing line and we will waive the $10 fee for the life of the 2 yr contract.” Does this sound legit?? I’ve been scratching my head…

Sounds like a sales rep trick I like to call “the new line switch."  Let me explain…

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The Details

So you go into a store looking to buy a phone.  You’re told you don’t have any upgrades.  Even if you expected this, and also expected to be paying the full retail price, you’re open to suggestions.

So the rep mentions adding a new line to get the phone discount, then swapping the devices on each line.  They might even tell you it will save you a hundred, two hundred, or even three hundred dollars.

So you follow through with the new line, even though you don’t need another line on your account.  Did you make the best decision?

The Motives

Before we address if you made the best decision or not, let’s discuss the motives for following through with this kind of deal.

First, the motive to the customer is straightforward: saving money.  If you were told you had two options: pay $570, or pay $200, which would you take?  Obviously, we all want to save money.

The motive to the sales rep is a more complex issue.

For a Verizon sales rep, selling a phone without a contract is essentially a waste of their time.

When you buy a full retail phone, the rep makes nothing.  They don’t get a commission.  And in the above situation, this rep isn’t even going to make anything off of the data plan, because the phone in question already had a smartphone on it (we discovered after the initial question).  If the customer doesn’t buy accessories, they’re not going to make any money there, either.  In fact, the lack of accessories with a phone sale actually hurts one of the most coveted Verizon sales metric: accessory ratio (the number of accessories sold for every handset sold).

When you upgrade a line or start a new line, with a smartphone, the rep is not only going to make money, but get props for their sales metrics as well.  In fact, a new line might even be the difference between a few bucks and a couple hundred bucks, depending on how they sit with their monthly quota.  As such, the motive to have you upgrade or add a line over paying full retail for a phone is making money and gaining reputation for their sales.  A big motive, indeed.

The Math

Here’s the problem with this Ask Us question: the math doesn’t add up.  Let’s take a look at the difference.

Buying Phone Full Retail Adding a New Line Instead
Current Monthly cost: $9.99 New Monthly cost: $9.99
Current Monthly data fee: $29.99 New Monthly data fee: $29.99
New Monthly discount: -$9.99
Total Monthly cost (before tax): $39.98 Total Monthly cost (before tax): $29.99
Price of phone: $569.99 (Dec ‘10) Price of phone: $199.99 (after rebate)
After buying DroidX at full retail
Monthly cost: $39.98
Two year cost: $959.52
After buying DroidX at discount
Monthly plan: $69.97
Two year cost: $1679.28
Difference between buying full retail and adding another line:
$719.76 over two years.

So to summarize this, you are paying an extra $720 over the course of two years to get a $370 discount, which adds up to a loss of $350.  That’s right, you pay more by adding a line to get a discount.

And this is including a monthly credit promotion of $10.  With that taken out of the equation (because it won’t always be there), the cost of adding a new line increases by another $240.

Now, if you were able to remove the $30 data plan from one of these lines by activating a basic phone (without data requirements), then you would only be paying an extra $240 to get a $370 discount.  So, in that case, this scenario may make sense, at least monetarily.

Let’s Make a Deal?

That leads us to the final question - is this a deal worth making?

Depending on your cost scenario with the new line (adding another smartphone), it’s probably not worth it.  Literally.  It could cost you more over two years than buying the phone at full retail anyway.

Next, you have immediate need versus available funds.  If you have the money for a full-priced phone, go for it.  If you don’t, adding the new line obviously has a much better up-front cost.

Really, the best way to approach this is with common sense.  Does it make sense to you, either buying without a contract, or adding a new line you won’t use.  Whichever makes the most sense in your gut is probably the best route to take.

But buyer beware: anytime a salesperson “comes up” with another way of doing things, ask yourself one question: who does this really benefit more, the customer, or the salesperson?