Omnitel Case Study

 

1

MarketingManagement|7/1/2010

Diagnosis:

Telecom Italia Mobile (TIM) had a monopoly over the Italian Communications Market. It generated 97%

of Italy‟s 7.5% market penetration, also until Omnitel‟s entrance into the market because of the lack of thecompetition, TIM didn‟t incur the huge marketing costs. TIM‟s marketing strategy was primarily directed towards

the uppers echelons of Italian society. Omnitel entered the market in Feb 1995 but they could start the commercialservices in December 1995 with network coverage of 40% of the Italian territory. Ominitel thought of its superiorcustomer care as its competitive advantage over TIM, however they could only acquire 1,80,000 subscribers by May1996. Omnitel was looking for methods to differentiate itself from TIM but at the same time avoiding a price war.

Problem Identification

The problem was twofold, that of building Omnitel‟s market share while avoiding a price war with TIM, and

differentiating brand Omnitel from brand TIM.

5 C Analysis

Company Background:

Omnitel was a

ble to obtain GSM license after liberalization and paid Lit.750 bn in Dec „94 to become Italy‟s

second GSM operator and launched its commercial service in Dec. 95.

They started with a network coverage of 40% of Italian territory.

Market share was 4% of the total Italian telecom market.

Initially they offered plans similar to TIM but prime focus was on its high-quality customer service, which

led to „happy‟ customers and low churn rates.

Financial strength of Omnitel was not as strong as their competitor i.e TIL, hence they avoided getting into aprice war situation.

Competitor Analysis:

The major competitor was Telecom Italia Mobile (TIM) formed in July 1995 after divested from TelecomItalia and was listed separately on Italian stock exchange.

The customer base was over 4 million by the end of first quarter of 1986 and had strong roots in ItalianCellular market.

They offered two types of tariffs:

o

Euro Family

o

Euro Professional

They enjoyed monopoly over Italian telecommunication market until Omnitel‟s

recent entrance; themarketing costs had been lower than its European counterparts.

The distribution channel of TIM was very strong as it had 1,500 exclusive dealers, 20 TIM- owned shopsand 150 Telecom Italia stores, but after the entrance of Omnitel they became more aggressive.

Its marketing strategy was to cater primarily to the high end segment of the Italian society touting cellularphone as a status symbol.

Omnitel Pronto Italia

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CASE OVERVIEW
Omnitel entered the Italian telecommunication market in February 1995. Till then the Italian
telecommunication market was dominated by Telecom Italia Mobile which had a monopoly in
this market.
The rst private company to enter the Italian telecommunication market was Omnitel. This
was facilitated by the decision taken by the European Commision (EC) in 1993 that all member
states should open their markets and guarantee competition in the telephony market by January
1998. Omnitel had to purchase a license for the GSM network for 760 million dollars.
Currently the biggest competition for Omnitel is Telecom Italia Mobile (TIM) which was formed
in July 1995 and was listed in the Italian stock exchange after splitting from its parent company
Telecom Italia. TIM had a customer base of over four million and held 97% of the market share.
STRATEGY TO OBTAIN MARKET SHARE
Omnitel is at a critical stage at this point unless penetration in the market is achieved prospects
for growth are limited. During the initial six months Omnitel oered plans similar to TIM and
focused mainly on high quality customer service. This was the only dierentiating factor between
Omnitel and TIM.
By means of a market survey conducted it was found that a large share of mobile phone users
were reluctant to change brands. Unless new revised plans and schemes by Omnitel were oered
the company would not appear attractive to prospective customers.
Two high level management executives of Omnitel were of diered viewpoints. Fabrizio Bona the
Marketing Director of Omnitel proposed the idea of LIBERO, which eliminated the monthly fee
completely and making payments for only the time duration of the calls made by the customer.
At the same time Francesco Caio, CEO of Omnitel was of the opinion of oering customers
handset subsidaries in exchange for signing a contract with the company. This would be done
as a substitute to eliminating the montly fee charged to its users. He was of the opinion that by
doing this he would be able to guarantee
a constant revenue scheme from the monthly fees. Such
schemes had worked elsewhere in Europe.
ALTERNATIVES AND THEIR SWOT ANALYSIS
Subsidized handsets with contracts
In this plan we provide the customers with a handset at lower than market rate (in addition to
the usual call plan).
• Strengths:
 Proven Strategy in the other European markets.
 Tested and proven in several other countries.

 A decrease in cost of handsets might entice customers- subsidies lead to a fall in the
price of the handset, thus decreasing the initial cost of acquiring a connection for a
customer.
 Constant Revenue stream for the period of the contract- this guarantees constant

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monthly subscription fees irrespective of the usage thus ensuring a xed revenue from
every customer.
 Initial cost of acquisition is low hence this might be more attractive to the low income
groups thereby increasing our market penetration.
• Weaknesses:
 Not suitable for Italian market because Italians being very brand conscious might
consider a subsidized handset below their status.
 People are unhappy with xed charges and in this plan - here we have two xed
charges i.e. the connection charge and the monthly subscription charge.
 Customers seek a sense of exibility & freedom in any purchase, therefore being locked
in a contract might be a deterrent to their purchasing decision.
When I rst signed up for a cellular phone, I got the phone for free but I had to
sign a contract for a year, which seemed alright at that time. But I was shocked
to see my bill at the end of the rst month. It was so very high. It included the
connection fee, the activation fee and the monthly fee. I felt duped because of
all these other charges. I discontinued the service as soon as the contract was
up?- Previous cell phone customer.
 Increase in Customer Acquisition Cost - As company has to bear the cost of providing
subsidies on handsets for this plan, the overall cost of acquisition per customer rises
signicantly.
• Opportunities:
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
• Threats:
 Italians still consider mobile phones a status symbol viz. a viz. a utility.
The cellular phone was a possession that was both expensive and exclusive.
Something that only people of a certain stature had the right to own.
 Due to a shift in the business plan, the company might lose its existing customer base-
As we have seen that the subsidized handsets might create a negative image of the
company in the minds of the Italian customers, our existing customers might opt out
as they might not want to be associated with a brand like that.

LIBERO - No monthly subscription charges and no handset subsidy
In this plan we provide a plain calls package sans the monthly subscription. We do not provide
any handsets.
• Strengths:
 According to our Market research report, a lot of people have asked for a plan in
which there are no monthly subscription charges.
 Low cost of acquiring a customer? As we dont have to pay subsidies, it reduces the
cost of acquiring that connection.
 Lower commissions for dealer - This will further reduce our acquisition cost per cus-
tomer. We are expecting to have high sales volume which will oset the decrease in
commission rate.
 No signup fee - as there is no contract there is no signup fee.
• Weakness:
 Higher call charge - As there is no monthly subscription fee or contract fee, we have
to increase the call charges to maintain our revenue.
 The xed revenue is lost - Absence of monthly subscription fee translates to a loss of
guaranteed xed revenue (irrespective of usage).
 Customers may buy the phones and never make calls thereby reducing overall revenues
and increasing our administrative costs.
• Opportunities:
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
 Large untapped market? With a penetration rate of 7.5%, such a plan may lead to a
sudden increase in market share/penetration which our competitors may struggle to
catch up with in the long term.
• Threats:
 Possible price war: A price war with TIM might seem imminent if such a plan is
brought out in the market.
 TIMS responded to Pronto's entry in the market by rewarding their highest performing
dealers and oering them shares. Therefore we can infer that TIM will be aggressive
in its initiatives to retain its market share.
 Since this has not been tried in any market in Europe, the risk of employing this
strategy is high.

LIBERO + + ..... + Unlimited Flexibility Guaranteed
In this plan we provide various options such that they can build their own plan (they can choose
a subsidized handset, opt for a monthly subscription charge and/or forego both of them).
Subsidy Call Charges Monthly Subscription Charge
Low Low Yes
High Low Yes
Low High No
High High No
XXX Low Yes
XXX High No
• Strengths:
 Flexibility to customer in terms of selecting a plan which caters to his personal con-
straint.
 Caters to all segments of the market because we are empowering the customer to
choose what he wants based on his needs and wants.
 Entices market interest, therefore also raising brand recognition ? As this is a unique
plan which is probably being introduced for the rst time in the Italian market backed
by good advertising and promotional strategy, Pronto is sure to get noticed.
 Lower commissions - This will further reduce our acquisition cost per customer. We
are expecting to have high sales volume which will oset the decrease in commission
rate.
• Weaknesses:
 Higher administration costs: Implementation of a multi faceted plan will increase the
need for upgraded systems and additional employee training.
• Opportunities:
 Can increase market penetration - the USP of this plan is the incredible exibility it
oers and the customer centric approach it adopts. Such a plan can, not only increase
the market share, but also increase the market penetration signicantly.
 Large untapped market? With a penetration rate of 7.5%, such a plan may lead to a
sudden increase in market share/penetration which our competitors may struggle to
catch up with in the long term.
 First mover advantage might give us an upper hand in acquiring market share which
the competitor might struggle to cope with in the short run.
• Threats:
 This is a radical initiative involving high administration cost therefore the risk involved
is higher.



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