CASE STUDY On
Submitted to
: Prof. S.C. Ghai
Submitted By : Pranshu Gupta Roll No.
: 119
PGDM –B ,Class of 2009 , K.J. Somaiya Institute Institute Of Management Management Studies &Research &Research , Mumbai
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TABLE OF CONTENTS Executive Summary………………………3 Summary………………………3 Key Problems …………………………………..3 Assumptions ……………………………………4 Current Scenario ……………………………… 4 European Market…………………………….4 Italian Market ………………………………4 SWOT Analysis…………………………………5 Objectives ………………………………………5 Strategies ……………………………………….5 Action Plan ……………………………………...6 Main Features of the Plan ………………….7 Implementation & Promotion ………………….8 Profit & Loss Accounts …………………………9 Review ………………………………....... ………………………………................9 .........9 Contingency Plan ………………………………9
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Executive Summary : OMNITEL , the second biggest telecom player in Italy which started its operations operations in Mobile Mobile telephony telephony in December December 1995 , has been able to capture a market share of approx. approx. 9.6% ( Ref. Exhibit 14, European Mobile Market Market ) in a span span of 6 month months s of operatio operations ns . It is facing facing fierce fierce compet competiti ition on from the state state contro controlle lled d Teleco Telecom m Italia Italia Moblie Moblie (TIM)
in
term terms s of the the mark market et shar share e , pric pricin ing g & the the huge huge capi capita tall inve invest stme ment nts s involved . The main challenge before the management of OMNITEL is to increase the market share & also improve upon the profit margin fronts.
The Managing Director Mr. Bona & Marketing Manager Mr. Della are work workin ing g on vari variou ous s stra strate tegi gies es to incr increa ease se thei theirr mark market et shar share e & associating themselves themselves with high quality customers to be suggested suggested to the CEO of the Compan Company y . The biggest biggest challenge challenge faced faced is the fear fear of initiating a price war amongst the two players which they are bound to lose if that really happens happens . So, they are are trying to devise devise a strategy strategy to position themselves as a potential player in the market with a substantial chunk of market presence .
Key Problems : The Problem with the Plan of Mr. Bona’s Plan LIBERO by waiving of monthly fees is : 1. It may lead to the onset onset of Price War with TIM TIM 2. It may increase the Consumer Base as compared to if the
handset subsidy being offered . 3. The Increase Increase in the the revenues revenues due due to volumes volumes genera generated ted even even when the monthly fee is waived off .
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Assumptions:
The Profit Margins per call has been assumed as 30% , i.e. the selling price of each call is assumed assumed to be 130% 130% of its cost .
Current Scenario : European Markets : The European European Mobile Mobile telephony has recently recently been liberalised by The European Commission in January 1994 1994 & has been been opened up for the participation of Private players.Most of of the European Countries Countries are party to such a decree .
Italian Markets: The Telecom Market in Italy is still in its infancy with cellular penetration being 6.5% compared to the European European average of 5% at the end of year 1995 1995 . As comp compar ared ed to othe otherr deve develo lope ped d coun countr trie ies s of Euro Europe pe , Ital Italy y presents presents a very promising promising picture picture of Cellular Cellular Phone Phone market with 7.5% 7.5% penetration (at the end of March ’96) which is expected to grow to 22.8% in less than 5 years . Moreover , Italy stands in competition with various other European Countries in terms of the purchasing power parity which is evident from the High GDP per capita(USD 18070 ) & the overall GDP (USD (USD 1029 1029bn bn)) whic which h is seco second nd high highes estt in the the Euro Europe pe .Als .Also, o, the the Estima Estimated ted
Overal Overalll CAGR in Mobil Mobile e Subscrib Subscriber er Base is 23 % over over a
period of ten years from 1994- 2004 is second highest in the European market . There are two major players in Italian market viz. Telecom Italia Mobile (TIM) sharing 90.4% & rest 9.6% (Ref. Exhibit No. 14 ) being catered by
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Omnitel. TIM being a State Owned Player & the first player holds a prime mover advantage of being in a driving stage. As Compared to the overall European Market whose penetration levels itself have grown by a rate of approx. 150% over the last year i.e. from 1994 to 1995 ,it clearly indicates indicates that European European market as a whole itself has tremendous potential to grow .
SWOT Analysis of LIBERO :
Strengths : Excellent Customer Care . No Monthly Fees . First Private Player & hence has a first mover advantage.
Weaknesses : Smaller Player with weak financial backing . New to market so weak operations .
Threats : Low Quality Consumers may come in the Customer base in pursuit of increase in turnover . TIM retaliating the with an aggressive price war .
Opportunities : To tap the huge potential Italian Market which is still an unchartered Zone .
Objectives : Marketing Objective : To increase the number of Customers in the Customer DataBase from 502000 consumers(Ref Exhibit 14) to 800000 consumers in next 3 yrs .
Strategies :
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Strategy 1 : The Plan devised by Mr. Bona ,i.e. LIBERO in which monthly monthly payment payment is done away away with should should be implemente implemented d to achieve the company’s objectives of attracting the customers to increase the customer data base by December 1996.
Strategy 2 : Focus On Impulse Calling :There should be focus on making the consumer feel that he needs to stay connected all the time & once he starts calling it is nearly impossible for him revert back to control the impulsive calling attitude .
Action Plan :
In support support of his plan ‘LIBERO’ ‘LIBERO’ , Mr. Mr. Bona Bona should should convince convince his his boss boss Mr. Caio Caio that
the monthly monthly paymen paymentt of Lit.10 Lit.10000 000/-w /-will ill be
droppe dropped d down but but at the same same will be still still there there , but not as a fixed payment rather the one in which the consumer is offered an equivalent talk time . Let us consider the existing plan which offers Peak Hour calling charges at Lit.1524 as compared to Lit. 170 in Off- Peak Hours . Assuming the Data given for average consumption consumption per month as 193 minutes (93 minutes O/g & 100 minutes I/c).Out of the 93 Out going calls , 13 minutes are during Peak period & 80 are made during Off- Peak time. OmniTel should provide equivalent Talk Time for the Lit. 10000 /that that it is char chargi ging ng to its its cust custom omer ers s .The .The deta detaile iled d anal analys ysis is is tabulated as below :
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Avg.Peak Time Consumption @ 13*1524 Avg.Off-Peak Time Consumption @ 80*170 Monthly Payment TOTAL(in Lit.) New Plan Peak Time @4*1524 Off -Peak Time @ 25 * 170 Now, for the remaining 64 calls @Lit.738
=
20735
= =
13600 10000 44335
6096 = 4250 = 47232 TOTAL 57578
The calls made over & above these shall be charged @ Lit.738 per call & for remaining 64 calls (From Avg,consumption Pattern )the Additional revenue generated is Lit. 47362, 47362, which is way above above the collection collection that was done when calls were made with the Existing Plan . Net Revenues = 10346 + 47232 = Lit.57578 Compared to Lit.44335
giving us a clear margin of Lit.13243, Lit.13243, with
which dealer’s commission etc. can be easily serviced .Another point to be noted here is that the Call Rate that is charged subsequently is much lower than the existing ones & gives the consumer the freedom to call anytime & he doesn’t have to wait for off-peak Periods .
Main Features of the modified LIBERO LIBERO Plan : •
No monthly fees of Lit. 10000
•
4 minutes in Peak Period
•
25 minutes in Off Peak Period
The subsequent offering is @Lit.738 per call anytime of the day , which is reasonably above the normal tariff charged by the TIM. The biggest advantage with this plan is that it will not offend the TIM & won’t give it the impression of being engaging
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in pric price e cut. cut. Apar Apartt from from abov above e , the the comp compan any y is able able to generate enough profit margins so that all the expenses viz, Dealer commissions etc. are met comfortably.
The need is to increase the market share & improve the average talktime which can be done by provoking provoking the impulse call call making of the customers which is evident from the Exhibit No.5,6,7 which shows the behavioural segmentation of the consumers where 48% of the consumers were Brand Loyal & Service oriented & could see their benefits easily .
Implementation & Promotion : With company going Strong on the Pricing Front & targeting a huge chunk of potential Customers , it should focus on its Visibilty in the Market place , which can be done by following ways :
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The Local & National National TV Channels should should be flooded with fillers & advertisements during the prime time.
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Moreover , a sponsorship of a soccer event in the country shall be able to give the required visibility & mileage that the country is aiming at .
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Apart from the above, the positioning should be done in such a way that you pay for what what you use & not for being associated with us.
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So , the whole idea can be summarise summarised d by the below mentioned mentioned punchlines :
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Pay for u r bills ,not fines . 8
Need to liberate, just call …
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The The abov above e camp campai aign gn can can be popu popula laris rised ed by the the aggr aggres essi sive ve advertisements in Newspapers & weekly magazines so that the theme can be communicated .The Overall expenditure for whole of above advertising can be summed up as under : Advertisement Expenses for LIBERO TV Channel Stripes @Lit.15000/stripe* 5 stripes/day*15days*3Months TV Commercials @75000/5s
=
3375000
*5times/day*15days*3months Sponsoring a Soccer Event PrintMedia Advertisements
= =
16875000 1503000000
@7000*5Sqcm*30Days*6papers*2months
= TOTAL
70001800 1523250000
Profit & Loss Account : S.No.
Description (all figs. In Lit.)
Amount
Total Sales (With a base of 502000 customers & 1 ARPU of Lit.57578)
10364040000
(-)Cost of Sales (With a base of 502000 customers& 2 ARPU of 43802)
7884360000
(-) Advertisements( Including all the Print ,Media, 3 Sponsorships etc.)
1523250000
(-)Miscellaneous expenses(Administrative,Stationery expenses(Administrative,Stationery 4 etc .) 5 Net Profit (in Lit)
10000000 946430000
Review :
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The Above marketing & advertising strategies should be reviewed on a monthly basis & a final assessment assessment should be made made after three months for the after effects of the policies & strategies .The retaliations of TIM if any should be analysed critically & hence a future course of action should be decided .
Contingency Plan : If the above proposed plan is implemented & the results are not as per the the expe expect ctat atio ions ns ,the ,the mana manage geme ment nt shou should ld take take a prom prompt pt acti action on in deciding the future course of action .They may decide to rollback the LIBERO Plan & may decide to have a strategic tieup with the TIM .
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