Omnitel Pronto Italia
The case study “Omnitel Pronto Italia” describes the compan y’s situation soon after its launch of its mobile telecommunication offerings in Italy in 1995. Omnitel had decided to focus on improvements on the quality dimension in competing a gainst the Italian monopoly (TIM). However, the results were not very positive. Therefore, Omnitel con ducted various marketing research activities in order to create a new bu siness strategy. Various needs of the individual customer segments were identified. Omnitel now had to decide whether the new service plan, “LIBERO”, was the right move to attack a new segment and improve on o n prior performance. Citation: Lal, Rajiv, Carin-Isabel Knoop, and Suma Raju. “Omnitel Pronto Italia.” Harvard Business School Case 501-002, August 2000. (Revised September 2005.) Case questions and answers:
1. What was Omnitel’s competitive advantage when the service was launch ed in December 1995? 2. Why did the launch not perform to expectations? 3. What are the economics of LIBERO? 4. Why is the churn rate so high for many European countries? 5. Do you expect the churn rate to increase or decrease with the launch or LIBERO? 6. What do you learn from consumer research? What do you learn from the results of the conjoint analysis in Exhibits 5 to 8? 7. Will LIBERO lead to a price war? If yes, what could Omnitel do to avoid one? 8. If you were Fabrizio Bona, what changes would you make to LIBERO and why?
Omnitel Pronto Italia – Case Case Study Analysis Omnitel Beginnings
Omnitel was launched in late 1995 as Italy’s second mobile phone service provider at a time when TIM, Omnitel’s sole competitor, generated 97% of the cellular market penetration. Omnitel’s entrance to the to the Italian telecommunications market offered a new way to increase competition and enhance awareness about cellular products among Italians. When Omnitel finally launched, the compan y felt that its superior customer care would be its competitive advantage. By having a polite operator answer the phone Omnitel gained an advantage over TIM’s operators who were kno wn to be very impersonal. Furthermore Omnitel’s service calls were answered rapidly and operators avoided transferring calls. Omnitel was working to to differentiate itself from TIM whose own customers stated, “I have nev er heard a polite word from TIM’s customer service” service” (6).
Omnitel also believed that this advantage would a llow the company to maintain a low churn rate of 10-15% per year. A high churn rate indicated customers were dissatisfied, and Omnitel was “obsessed about churn” (5). By B y keeping their customers satisfied Omnitel would not have to face losing customers or the costs that came with this. By May of 1996 even with its superior customer service, the Omnitel launch had only signed 180,000 subscribers and held merely 4% of the market share. The market analysis anal ysis showed that although customers valued customer service, they did not choose a cell phone provider based on this value. Good service was only seen as an appreciated added feature. Exhibit 6 indicates that the “Service” and “Included Service” categories are ranked 7th and 8th in importance out of 8 possible values. Furthermore only 19% of personal users were service sensitive while 35% were sensitive to charge and fixed costs. co sts. Exhibit 7 shows that “Service” is ranked 7 out of 7 possible values behind values like brand, monthly charges, and peak and off-peak tariff charges
Diagnosis: Telecom Italia Mobile (TIM) had a monopoly monopol y 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 h uge marketing costs. TIM‟s marketing strategy was primarily directed towards the uppers echelons of Italian society. Omnitel entered the market in Feb 1995 but the y 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 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 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 aprice war situation.
Competitor Analysis:
The major competitor was Telecom Italia Mobile (TIM) formed in July 199 5 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 a nd 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 a s it had 1,500 exclusive dealers, 20 TIMowned 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 s egment of the Italian society touting cellularphone as a status symbol.
Customer Analysis
The Italian customer market was different from other markets as the people were willing to pay handsomelyas they like to show off as the y liked show off.
It was noticed that the customers were not interested in paying activation fees, instead they want to pay onlywhen they use the phone.
The customers wanted a different set of tariffs for local calls, long distance calls and international calls andthey did not mind paying more. Collaborator Analysis
The shops that sold consumer electronics goods a nd 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 activated and Omnitel didn‟t make any profit on the handsets sold. Context Analysis:
In 1993, the European Commission Co mmission declared that by January 1998, all me mber states would have to opentheir 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 countryinvolved.
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 Customer Analysis
The Italian customer market was different from other markets as the people were willing to pay handsomelyas 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 onlywhen they use the phone.
The customers wanted a different set of tariffs for local calls, long distance calls and international calls andthey did not mind paying more. Collaborator Analysis
The shops that sold consumer electronics goods a nd 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. Context Analysis:
In 1993, the European Commission Co mmission declared that by January 1998, all me mber states would have to opentheir 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 countryinvolved.
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 Evaluation of Alternatives Alternative 1 is risky because it is most likely to trigger an immediate price war with TIM. Also, if after the launchof LIBERO, TIM slashes its rates, it is highly probable that subscribers will switch to TIM. This is based on thefindings of the conjoint analysis (exhibit 6) which revealed a low brand loyalty of 25% as compared to cost c ost sensitivityof 35% among the customers. Since LIBERO does not involve any monthly fee, Omnitel might suffer very heavylosses. Alternative 2 on the other hand is safer as compared to alternative 1. However, it has h as nothing new to attract theexisting TIM subscriber base to itself. As has been stated in the case, this strategy has worked successfully in othercountries, 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 covered through careful selection of the time block rental value and call charges.
ref: http://www.scribd.com/doc/510 http://www.scribd.com/doc/51085275/Case-Analysis-OMNIT 85275/Case-Analysis-OMNITEL-PRONTO-ITA EL-PRONTO-ITALIA LIA
