OMNITEL PRONTO ITALIA

prashant@iimcal.ac.in

Omnitels Launch Strtaegy

Very focused on offering high quality customer service by personally identifying the customer; reducing / minimizing the wait time and avoiding transferring calls to another operator. (Why these service sensitive subscribers are unwilling to switch even if competitor offer is superior?) 19 % of subscribers / current users are very sensitive to service but are unwilling to switch to a private operator (Exhibit 6 ) while Exhibit 7 indicates that 33% of individuals are unsatisfied and are willing to switch to a private operator.

Omnitels Launch Strtaegy

Reasons to Stick to a Service Provider Network Coverage (Omnitels only 40%) Perception (Familiarity with TIM an old player) TIM users the upper echelons of the Italian Society might not be frequently or personally encountering poor service. To these high end users, wider network coverage may be more important than higher quality customer service.

Omnitels Launch Strtaegy

Moreover, competing on superior customer service need not have much value as it may imply an increased likelihood of breakdowns or problems. From the customers perspective, there should not be a constant need for customer service. Therefore, for OMNITEL it may be nore fruitful to target other segments than the 19% service sensitive upper echelon.

Conjoint Analysis
Exhibit 5 to 8 show that the size of cost sensitive market is significant: 35% of current users, 30% of the prospects and 61% of the rejectors. Both Ex 6 (Current users) and Ex 7 (prospects) also reveal that both set of customers are sensitive to costs. Exhibit 8 shows that individuals who have considered cellular phones before rejecting them are extremely sensitive to costs monthly cost, traffic cost, and an activation cost.

LIBERO
Eliminate Lit. 10000 monthly fee. Increase peak rates to Lit. 1595 per minute from 1524 per minute. Increase off peak rate by Lit. 25 per minute. No change in subsidies and dealer commissions i.e., do not subsidise handsets. Launch of a Lit. 40 billion advertising campaign over next three months.

Economics of LIBERO
There are two parts to the equation. Omnitel drops the monthly fee, resulting in a loss of Lit. 10000 in monthly fee per user. However, it gains revenue through higher usage rate and higher costs per minute. The Libero forecast indicates an increased usage rate of 193 minute per month as opposed to 188 presently. Second for 38 peak minutes, Omnitel gets Lit. 70 more and for 155 off-peak gets Lit 25 more.

Economics of LIBERO
New (LIBERO) revenue {38 minutes (13mnt outgoing+ 25mnt incoming during peak hours) x Lit. 1,595} + {155mnt (80mnt outgoing+ 75mnt incoming during offpeak hours) x Lit. 1,95} = Lit. 90,835 Old revenue {38 minutes x Lit. 1,524} + {150mnt x Lit. 170} = Lit. 83,412 Loss of Monthly fee = Lit. 10000 Revenue shortfall incurred by implementing LIBERO = NR (OR + Monthly fee) = Lit. 2,577

CHURN RATE ANALYSIS

Why churn rate is so high in European countries? The handset subsidies! Attracts customers impulse due to image and affordability; later cost of maintenance considered high hence as soon as contract is over customers leave. Churn hurts companies as their cost of acquisition is very high.

CHURN RATE ANALYSIS

How to reduce churn rate? Remove handset subsidies! Create exit barriers, strive to sell on rational needs than on hedonic ones! If company can get the middle class segment to use their phones all the time, transforming cellular phones from mere status symbol to items of utility, then these customers might be less likely to end their contract unless they are dissatisfied with the quality of service.

LIBERO and Price War?

No Risk of a price war as TIM is targeting upper end and Omnitel the lower end. Symbolic Vs Utility! Price sensitivity varies across segments LIBERO has the potential to enhance the market (presently 7.5% penetration) for Cellular so TIM can also take advantage. Since Omnitels resources are still growing there is going to enough market for two players.

Finally..
In June 1996 LIBERO was launched without monthly fee and with a strong ad campaign beginning of cell phones as mass-market products. Price competition was successfully avoided by continuously introducing innovative products. By the end of 1996 Omnitel covered appx 60% of the country and 85% population, acquiring over 700000 customer a world record. Launched a revolutionary product in early 1998 called PERSONAL giving customers a choice to select their offpeak time. By March they had over 3 million customers. Continued to receive recognition for their customer service winning many prestigious cust serv awards.