This case is about

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 the competition, 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 commercial services in December 1995 with network coverage of 40% of the Italian territory. Ominitel thought of its superior customer care as its competitive advantage over TIM, however they could only acquire 1,80,000 subscribers by May 1996. 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.

Company Background

Omnitel was able 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 a price war situation.

Competitor Analysis

The major competitor was Telecom Italia Mobile (TIM) formed in July 1995 after divested from Telecom Italia 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 Italian Cellular market.

They offered two types of tariffs:

Euro Family

Euro Professional

They enjoyed monopoly over Italian telecommunication market until Omnitel‟s recent entrance; the marketing 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 shops and 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 cellular phone as a status symbol.

Analysis

Customer Analysis

The Italian customer market was different from other markets as the people were willing to pay handsomely as they like to show off as they liked show off.

It was noticed that the customers were not interested in paying activation fees, instead they want to pay only when they use the phone.

The customers wanted a different set of tariffs for local calls, long distance calls and international calls and they did not mind paying more.

Collaborator Analysis

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which were 2000 in number.

They paid a commission of Lit 40,000 for each account they activated and Omnitel didn‟t make any profit on the handsets sold.

Analysis: (Continued)

Context Analysis:

In 1993, the European Commission declared that by January 1998, all member states would have to open their markets and guarantee competition in telephony markets but under pressure from business interests, the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the country involved.

Cellular penetration rates were relatively modest.

“Value for Money” of the service continued to increase because of reduced costs and improved quality.

All cellular operators in Europe had adopted the GSM digital standard.

Many European countries began to have multiple players resulting in increased marketing.

Competitive Advantage

Focus on Customer service

Polite Operator

Minimum waiting time

One stop calling – trained operator

LIBERO

No monthly fee

No increase in commission to distribution channels

Increase in demand

Creating and promoting the brand image

Spending of Lit. 40 bn for advertisement

Usage Peak Hours Off Peak Hours

Minutes

Charge Total Value

Minutes Charges Total Value

Outgoing (93 minutes)

13 1595 20735 80 195 15600

Setup Costs: 10,000 Total Revenue generated per customer: Lit. 46,335/-

Alternatives Omnitel conducted a market research interviewing more than 5000 current and potential customers to understand their expectations. The results reflected that customers were not particularly happy with the concept of monthly fee. They also conducted a conjoint analysis to uncover the preferences of their customers for alternative product design and pricing option. The results indicated that customers wanted a different set of tariffs for local calls, long distance calls and international calls. TIM, at that time had only two plans, none of which provided such variety in tariffs. The following three alternatives were proposed:

Alternative 1

LIBERO: A plan free from taxes and monthly fees.

Per minute charge of Lit 195/min (higher than TIM‟s Lit. 170/min)

No handset subsidies.

No increase in dealer commissions

Extensive campaigning to create demand so as to facilitate increase in customer base.

Alternatives (Continued)

Alternative 2

Recurring monthly fee - guaranteed constant revenue.

Handset subsidies in exchange for signing a contract, to entice more no. of customers.

Tried and tested strategy, successful in several countries.

Alternative 3

Monthly rental calculated at the end of the month based on usage

Time period of the day divided into time blocks. For example 3 hourly (8 blocks /day) or 2 hourly (12 blocks/day).

Customer pays rental only for each time block during which his phone is “active”. By definition, active means when one makes a call or receives/attends a call. A missed call or a rejected call doesn’t qualify in this category.

The rental is calculated at the end of each month, depending on the no. of active blocks, multiplied a suitably increased block rental plan so as the net revenue generated out of all categories of customers, taken together is an affirmative figure.

Evaluation of Alternatives

Alternative 1 is risky because it is most likely to trigger an immediate price war with TIM. Also, if after the launch of LIBERO, TIM slashes its rates, it is highly probable that subscribers will switch to TIM. This is based on the findings of the conjoint analysis (exhibit 6) which revealed a low brand loyalty of 25% as compared to cost sensitivity of 35% among the customers. Since LIBERO does not involve any monthly fee, Omnitel might suffer very heavy losses.

Alternative 2 on the other hand is safer as compared to alternative 1. However, it has nothing new to attract the existing TIM subscriber base to itself. As has been stated in the case, this strategy has worked successfully in other countries, it might work in this case as well, although the extent to which it is successful might be less.

Alternative 3 appears to be the best solution for Omnitel. It will appeal to the potential subscribers psychologically, as they will no longer have to pay a fixed monthly fee. They will pay only for the time blocks in which they are using the operator‟s services. The costs will easily be covered through careful selection of the time block rental value and call charges.

Thank You