Description of the general trends for cellular telephones and cellular telephone usage in Europe in 1995
European cellular industry was considered new technology in 1995 since penetration rate was still low recording as low as 5.0% compared to huge available customer base. A high level of penetration rate was only realized within Scandinavian countries. The market for cellular technology in Europe depended upon quality services, reduced costs, and the nature of technology applied. High penetration rates in Scandinavia are attributed to the enlightened population with the majority in the high-end market segment. Within these regions, cellular phones were considered cost-effective as compared to fixed-line phones owing to low population density.
Finland recorded a penetration rate of approximately 20% by the year 1995. The market was initially dominated by Telecom Finland followed by Finnet group, penetration rates are aided by the presence of popular mobile phone vendors such as Nokia. The competition was mainly based on service quality and prices. Swedish market recorded cellar phone penetration rates of approximately 23.4% by 1995. However, acquisition costs were higher due to dealer commissions, subsidies, and churn rates. Major players within the Swedish market included Telia, Europolitan, and Comviq. Norwegian cellular phone penetration rate was recorded to be approximately 25% by 1995. Major dealers within the market included Telenor and Netcom Asa, however, both dealers experienced a high churn rate during the 1995 financial year. This initiated creation of consumer loyalty amongst high-end consumers by offering quality customer services.
The liberalization of cellular telephony by the European Union occurred in the year 1994. There existed many providers within the market some of which included; Italia Telecom and Omnitel which later operated with GSM license within the Italian market. With the entrance of Omnitel, the increased competition was realized in cellular products within Italy. The increase in the use of cellular phones increased in entire European countries in 1995/1996 financial year with Italy recording 7.5% penetration rates.
Analysis of Great Britain
In Great Britain, penetration rates were recorded at 9.3% in the year 1995 with dominant dealers being Vodafone, Cellnet operating alongside Orange and Mercury One2One. Vodafone and Cellnet enjoyed wider coverage compared to the other two. However, the emergence of Orange caused a pricing roar as well as usage rates of wireless phones. Most of the firms initially targeted high-end business users, however, the trend changed following the emergence of many dealers. The region recorded the highest churn rate within Europe approximated at 28%.
Description of the mobile telephony market in Italy and the nature of competition
Italy had one state-owned telephone operator known as Telecom Italia by 1994. The market was monopolized by Telecom Italia for a fairly long time since trade laws did not permit the operation of foreign firms within the Italian market. This was until 1998 when European Commission declared that all member states should open their markets and guarantee competition within the cellular phone industry.
Completion in Italy’s phone market began with the entrance of Omnitel in 1995. Two telephone operators TIM and Onmitel dominated the Italian market, first stages of Omnitel’s operational strategy were considered similar to that of TIM despite Omnitel focusing so much on high-quality customer service. The entry of Omnitel into the Italian market created awareness of the existence and efficient use of cellular products. By the end of 1996, cellular penetration was rated to be approximately 7.5%. This was considered lower than the rate within other European countries. Market competition was based on either pricing of services or the level of quality customer services. Despite quality customer services, Omnitel did not realize an anticipated increase in market share for a fairly long time their market share remained at 4%. They basically used the change in operators’ language and minimization of customers’ hold-on time during calls. There was the use of zero-waiting time and no transfer of calls to other operators.
Description of the product offering and the multipart pricing scheme for Telecom Italia Mobile and the results in terms of market penetration
The year 1995 experienced the formation of Telecom Italia Mobile (TIM) with increased strength on consumer markets. TIM offered consumers affordable rates during off-peak and peak hours, calls were made from both sides i.e. made by European families as well as those made to European subscribers. This was a bit different from that used by Euro-professionals which had different rates charges over five small time intervals. TIM monopolized the Italian market for a fairly long time before the entry of Omnitel. However, TIM operated on lower marketing costs compared to other competitors and never bothered to exploit the handset consumer market. Competition between TIM and Omnitel increased customer acquisition costs within the European market.
TIM focused on offering affordable services to all consumers both high-end and low-end. They focused on benefiting from calls made within Europe and outside the region. The tariff system targeted professionals in the business field, hence focused on using fixed lines at affordable costs during peak and off-peak hours. TIM also considered consumers who happen to suffer from credit histories as well as those with low-income sources, they were offered cards valid for 3 months but having affordable tariff rates. Their stronghold of over 4 million customers within the Italian cellular market encouraged TIM to utilize European families most. The first tariff offered by TIM known as Euro family charged Lit 1,524 per minute during peak hours and Lit 170 per minute during off-peak hours with additional monthly charges of Lit 10000. The second tariff referred to as, Europrofessional, targeted business people with peak rate charges standing at Lit 663 per minute and Lit 206 for off-peak hours.
The ultimate result was increased penetration rates valued at 97% of 7.5% overall penetration. However, the number one competitive issue for Caio was pricing methods; this was since their fellow competitor had the capability of reducing prices without feeling any effects owing to their strong financial and customer base. Such a wave of competition compelled TIM to offer customers ordinary shares as a reward for loyalty to the company. This also made the company launch prepaid cards amongst the low-end customers with irregular sources of income.
What was Omnitel’s initial strategy? Use a 4-P analysis to describe that strategy
The product offered by Omnitel included handsets, affordable call tariffs, and customer services. Omnitel’s initial strategy was focused on granting consumers high-quality services at affordable prices irrespective of the region of operation. Customers were charged a monthly fee of Lit. 10,000 on top of charges on off-peak and peak hours call at Lit 1,524 and Lit 170 respectively. Other costs included setup fees charged per call which increased monthly revenue obtained from customers. However, the price war strategy could not work since fellow competitors TIM applied the same approach within the Italian market. This made Omnitel’s focus shift towards the provision of excellent customer services at a reduced churn rate within the Italian market.
TIM had shareholders from as far as America. The promotion was done by offering subsidies on phones which increased customer acquisition costs. This was necessary since customers within the Italian market were willing to pay full costs on quality services and products provided. Handsets were considered technologically advanced hence charged at fairly higher prices but worth paying for based on the fashion-conscious market. The market comprises consumers who are associated with impulsive buying habits, this is made possible by the kind of product displayed along the streets and stores.
How did Omnitel determine customer needs? Briefly describe those needs
Omnitel determined needs by reading Italian mindsets and the kind of lifestyle within their cities. At the same time interview was conducted with over five thousand potential customers. Results were collected and analyzed based on consumers’ thoughts about Unitel’s positioning and their expectations from pioneer cellular telephone operators within the Italian market. Some consumers described their displeasure with the monthly fee levied on the usage of cellular phones, these charges further included connection and activation fees. Elimination of the fee would grant consumers reprieve in the use of phones within the industry. At the same time survey conducted indicated times of the day when consumers used their phones the most; this revealed that fixed-line phones were majorly used morning hours and evening before the start of off-peak hours. Consumer perception towards cellular phones was also revealed through market surveys of which they associated them with a status symbol. This perception was perpetuated by TIM since they marketed their phones as a status symbol. In this case, Omnitel saw an opportunity to bring aboard available markets from low-end consumers.
Besides, conjoint analysis was conducted to reveal consumer preferences on products as well as commodity prices. From this method, Omnitel was capable of identifying various consumer attributes towards cellular services such as tariffs, peak, and off-peak rates as well as consumer services. Basically, consumers were in need of different tariffs both for local and international calls. For example, TIM offered consumers a constant rate regardless of whether they were making local, long-distance, or international calls.
What were Omnitel’s two competing ‘pricing’ strategies (Note you should include an analysis of channel pricing as well as end-user pricing)? Which would you favor? Defend your conclusions.
Omnitel was not focused on using a pricing strategy for market penetration within Italian Market. In the end-user pricing, Omnitel charged consumers a monthly fee of Lit 10000, peak hours Lit 1524 and off-peak charges remained at Lit 170 per call. Within their supply chain, there were charges on set-up which amounted to Lit 10000 on each customer per month. The company strategized on eliminating the monthly fee to increase the volume of usage as well as subscription rates; this was based on LIBERO strategy. Within this strategy charges would be Lit 195 per minute but full of efficiency.
I would favor international pricing based on LIBERO since most participants within the Italian market like TIM charge different prices on the same products and services depending on consumers’ responses towards quality. Such pricing decision is based on various prevailing factors such as economic and political conditions. At the same time, it is easier for such a strategy to be driven by different marketing objectives within the country. The setting of prices within such markets is dependent on consumer perceptions and reactions towards services compared to overall costs. In many instances, multinationals realize that services that appear relatively inexpensive at home carry higher price tags within other countries based on prevailing market conditions.