MVNOs – The Market for Retailers? (2008)
Since the launch of Virgin Mobile in the UK and a data MVNO in Japan by the name of Japan Communications, the industry has come a long way. The sector has become of significant importance across North America and the EU, with shoots of growth emerging in the Middle-East and Africa. Within the Asia Pacific region the MVNO industry has seen mixed outcomes with the jury still out about their potential for success. Media companies, retailers and non-wireless providers to name just a few have launched onto the MVNO market in search of profits and exclusive customer loyalties.
Within retail the big names have secured their places, such as Tesco in the UK and 7-Eleven in the US. Carrefour is massing its way across the EU and even the likes of Avon, the home delivery cosmetics business, is launching itself in multiple countries.
What do these companies think they will achieve and what is so special about their offering which consumers can not get directly with an MNO – why do these MVNOs exist? This thought piece seeks to address these questions and raise other questions by examining the differences between retail MVNOs and carrier MNOs.
The bad client relationship which leads to churn
Typically the point at which the subscriber signs a contract or takes a pre-pay offer from an MNO is the point at which the marketing communication channel begins to deteriorate. The hard work has been done to get the surfer to the site, the shopper through the door and the caller to pick up the phone and buy. But what happens from that point? The client receives their handset with calling package and sets about using the service. They pay their monthly bill or top up as required and generally have no interaction with the carrier other than paying for the service. Then something happens - the customer has a problem or a better offer comes along. The relationship is weak since positive contact has been minimal and the customer sees no reason to stick around. With porting available in most markets even the threat of losing their personal number is no more.
Switching this around to the retail based MVNO, the service in essence is the same but the client will interact with the company more often. Taking Tesco as a case in point, the average UK supermarket shopper will visit a store at least once a week. Within the same week they might purchase fuel, travel insurance, take a quote for a loan, receive bargains and special offers online or through the post, take their recycling to their local store’s facility, pop in for those one or two emergency items using their 24 hour opening times, queue briefly at check outs to pay for their items and generally have resolvable problems which can be dealt with face to face often with the customer always being right, even when wrong.
Too often when the customer has a problem with a carrier there has been no existing ongoing positive relationship. The shop staff are sales staff so are unwilling to help and a call to the helpline number involves touch tone systems, a queue to speak to a person and then often the staff answering the phones are unable to or unwilling to help. Anxiety is further increased when indigenous populations are routed through to a call handler in a foreign location where language barriers and regional dialects for both parties block a productive dialogue. Whether this is true or not the fact is that there is a consumer backlash against it. This is not to say that the retailer providing an MVNO would provide a better customer service facility than the carrier, but what the carrier does not have is the goodwill built from the ongoing relationship the retailer has, or even the dependency the consumer has developed for the retailer. Taking this account the customer moves on, ports their number and churn has occurred away from the carrier.
The power of brand loyalty
The issue of branding is a key strength to a retail based MVNO. Supermarkets have long moved on from just being retailers of groceries, even the selling of cheap clothing and electrical goods is something they have conquered and are moving onwards from. The modern day supermarket is accessible 24 hours a day either in person, over the phone or online. Their product portfolio ranges from bread to mortgages and anything and everything in between.
Retailers seek to engage with their consumer markets at every opportunity. Whether via a high profile store with logos and adverts on anything and everything, a carefully structured advertising campaign or a loyalty scheme where the database of customers can receive targeted mailings from, the retailer is always within the customers’ conscious thoughts and often their line of sight.
For the carrier the same is harder to achieve. Once the customer has purchased the phone and tariff they want then there is little reason to revisit the store - there are only so many covers and chargers any mobile phone customer can want. This makes transmitting the brand to the client more difficult, potentially leaving just a one way financial cost to the carrier with only a recurring bill payment by the customer in return. If the carrier sends too many unsolicited messages to the customer then they will opt out of marketing all together, but the retailers’ customers keep walking through the shop doors voluntarily week in week out.
As the retailer’s brand is fresh in the customers’ mindset the retailer is able to exploit this. Their mailings can occur with a higher frequency and have a high perceived benefit particularly when everyday savings are offered to the reader. The same readers can be sent information about mobile phone services and offers unique to that retailer’s MVNO business. Added to this is the gradual reliance some customers place upon the one retailer, whereby the majority of transactions in their life involves the one retailer. This makes for a very comfortable marketing environment for a retail based MVNO.
Footfall / Traffic
There is no point in having a brand if you do not have anyone interested in it. The key to any business’ success or failure is within its sales, which ultimately is a numbers game. Retailers have these numbers in massive multiples with shoppers in store at all times of the day or online either actively seeking something out or just killing time and willing to buy a bargain. These potential customers are continually exposed to the offerings of the retailers so finding new clients can just involve an in-store campaign as opposed to a costly nationwide television and multi-media campaign.
“Bottom dollar” – “Cheap as chips”
Having suggested that retailers have an advantage from their everywhere presence it seems strange that being the cheapest is the route of most retailers. Supermarkets in general compete on price and this is the well trodden route to the MVNO market for them. Texts for pennies, voice minutes for only a few more, no contracts to lock the client into and few if any premium services. The question this throws up is who then makes money out of this market segment? The retailer receives a cut of the revenue from the carrier or has to hit a target to cover the minutes they have purchased from the carrier. When competing on price the number of subscribers needs to be had in volumes. Potentially this is the strong point of the retailer; they have these volumes of existing clients. It is the transferring of the grocery shopper into the mobile phone customer which seems to be their latest challenge.
Summing upThe purpose of this brief has been to give some insight into the MVNO market, specifically within the retail MVNO market.
The aim of this thought piece is not to dissect the market.
See also The MVNO Directory