Omnitel_Case

Omnitel Pronto Italia case 1. What was Omnitel’s advantage when the service was launched in December 1995' ← Omnitel’s advantage Vs TIM was a high quality customer service through the call centre. The differentiation was made through: • Polite operator’s approach while TIM’s operators were impersonal • Minimizing customer waiting time: 85% of Omnitel’s customer service calls were answered in less than 20 seconds. The objective was to have zero waiting time. • One-stop calling: trained operators answering all customers’ questions and avoid transferring calls to another operator. 2. Why did the launch not perform to expectations' • Omnitel’s launch didn’t perform to expectations (only 4% of market share) because they didn’t differentiate from the existent operator TIM and didn’t offer new services. ← Same than TIM’s pricing strategy leading to customer dissatisfaction : ← charging customers 10.000 Lit monthly fee ← Same minutes charged rates than TIM ← Moreover, the network coverage was limited ( only 40% of Italian territory by end of 1995 ← The target segment was limited to high-end customers. • The customers were satisfied by the high quality service but this doesn’t fit their needs since they are sensitive to the monthly charged fee. ← American shareholders recommended the American model by offering handset subsidies. Americans are rational in their purchase while Italians are impulsive and can afford the purchase of a handset. This model doesn’t fit with the Italian mindset. • TIM, as the first historical operator in the Italian market, had implemented a philosophy that cell phone is not for everyone but only for people of certain stature had the right to own. 3. What are the economics of LIBERO' Specifically, how do the revenues from the new plan compare to those from the existing plan' REVENUES: The average usage rate was 188 minutes per month per subscriber and consisted of: • 88 minutes of outgoing calls: 13 minutes at peak and 75 minutes at off peak • 100 min of incoming calls: 25 minutes at peak and 75 minutes at off peak Omnitel charged its customers: • A monthly fee of Lit. 10,000 as set up charges • Lit. 1,524 for calls made during peak hours • Lit. 170 for calls made during off peak hours Current revenues = 10,000 + (38 x 1,524) + (150 x 0.170) = Lit. 93.412 LIBERO REVENUES : LIBERO plans no monthly fee and customers pay only when they used their cellular phones. The anticipated average usage rate was 193 minutes per month consisting of • 93 min of outgoing calls: 13 minutes at peak and 80 minutes at off peak • 100 min of incoming calls: 25 minutes at peak and 75 minutes at off peak LIBERO plan charges: • Lit. 1,595 for calls made during peak hours • Lit. 195 for calls made during off peak hours • LIBERO revenues = (38 x 1,595) + (155 x 0.195) = Lit. 90.835 ← With LIBERO plan, the monthly revenue of Omnitel will decrease by Lit. 2.557 (-2.75%) per customer compared to the current plan. To compensate this deficit Omnitel should: • Increase the number of new subscribers. • Target new segments in order to increase the minutes usage • Increase peak hours and off peak hours usage. • Leverage the high quality customer service. 4. Why is the churn rate so high for many European countries' Do you expect the churn rate to increase or decrease with the launch of LIBERO' |Country |Churn Rate |Subsidy | |U.K. |28.0% |Up to £ 250 | |Norway |22.0% |Yes | |Sweden |20.5% |Yes | |Finland |12.0% |No | In European countries, there are many mobile phone service providers with a fierce competition. The wide range of prices, diversified offers and service providers will encourage dissatisfied customers to switch between different operators. Finland’s churn rate at 12% was one of the lowest in Europe: Finnish operators are different from other European operators because they offered negligible dealers commissions and no handset subsidies. Their offers were more flexible. In contrast, UK had the largest churn rate in Western Europe at 28%. Cellular companies hoped to stimulate demand by offering lower handset prices and continued subsidies but customers are not interested to sign for a long period of time. Handset subsidies, non flexifibility, potent war price and the large number of operators are the major factors which increase the churn rate. 5. What do you learn from consumer research and the Conjoint Analysis in Exhibits 5 to 8' Personal Users: | | |25% |19% |35% |21% | | |TOTAL |BRAND LOYAL |SERVICE / SPECIAL |COST SENSITIVE |MONTHLY/PEAK | | | | |SERVICES | | | |Brand |54 |181 |47 |6 |-10 | |Activation Cost |126 |81 |109 |180 |180 | |Monthly Charge |124 |135 |60 |141 |141 | |Peak tariff |129 |112 |81 |168 |168 | |Off peak tariff |117 |108 |111 |214 |214 | |Special tariff |101 |100 |69 |117 |117 | |Service |84 |6 |174 |13 |13 | |Service incl |66 |83 |123 |-13 |-13 | Within personal users, cost sensitive and brand loyal are the most relevant segments. The cost sensitive segment finds off peak tariff, activation cost, peak tariff and monthly charge important attribute. Prospects: | | |15% |33% |30% |22% | | |TOTAL |BRAND LOYAL |SERVICE |COST SENSITIVE |SPECIAL TARIFF | |Brand |44 |187 |-9 |5 |59 | |Activation Cost |115 |126 |87 |131 |127 | |Monthly Charge |113 |36 |122 |153 |110 | |Peak tariff |138 |63 |134 |169 |167 | |Off peak tariff |124 |122 |85 |212 |61 | |Special tariff |97 |48 |87 |69 |197 | |Service |78 |122 |170 |0 |2 | Within prospects, service and cost sensitive are the most relevant segments. The service segment finds service, peak tariff and monthly charge important attributes. The cost sensitive segment finds off peak tariff, peak tariff and monthly charge important attributes. Rejectors: | | |17% |33% |25% |26% | | |TOTAL |BRAND LOYAL |Monthly Cost |ACTIVATION COST |TRAFFIC COST | |Brand |43 |214 |7 |17 |3 | |Activation Cost |111 |59 |44 |225 |123 | |Monthly Charge |116 |54 |207 |110 |45 | |Call rate |131 |66 |141 |55 |234 | Within prospects, monthly cost is the most relevant segment. The monthly cost segment finds monthly charge important attribute. ( From the Conjoint Analysis, the price attributes (off peak tariff, peak tariff, monthly charge) are very important for the different segments. Service attribute is also important and this is an advantage for Omnitel. 6. Will LIBERO lead to a price war' If yes, what could Omnitel do to avoid one' • TIM could perceive LIBERO as a price cut and a price war. • But, Omnitel could avoid this by o targeting other market segments o Expanding the market by introducing other services. 7. Would you launch LIBERO' Why or why not' If you were Bona, what changes would you make to LIBERO, if any and why' We will launch LIBERO in order to expand the market and make a breakthrough in the telephony sector. Giving the conjoint analysis, Bona should improve some aspects of the LIBERO plan: • Revise the off peak and peak tariffs without leading to a price war by offering an amount of communication minutes after a certain number of communication (for example you consume 200 hundred minutes you have 5 minutes free). • Offering for example a special tariff to a favourite telephone number • Always innovating and making offers to customers regarding their needs. • Keep the high quality of customer service. • Target different market segment than TIM and make cellular phone common for everyone and not only for special stature people. • Communicate massively on this new product.