Omnitel Case

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

Alternatives

Omnitel conducted a market research interviewing more than 5000 current and potential customers to understandtheir 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 designand pricing option. The results indicated that customers wanted a different set of tariffs for local calls, long distancecalls and international calls. TIM, at that time had only two plans, none of which provided such variety in tariffs. Thefollowing two 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 commission

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

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 (12blocks/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 isan 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 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 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 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 through careful selection of the time block rental value and call charges.

Why did the launch not perform upto expectation

The Problem with the Plan of Mr. Bona's Plan LIBERO by waiving of monthly fees is :

1.It may lead to the onset of Price War with TIM

2.It may increase the Consumer Base as compared to if thehandset subsidy being offered .

3.The Increase in the revenues due to volumes generated evenwhen the monthly fee is waived off

Objectives :

Marketing Objective :

To increase the number of Customers in the Customer DataBase from502000 consumers(Ref Exhibit 14) to 800000 consumers in next 3 yrs .

Strategy 1: The Plan devised by Mr. Bona ,i.e. LIBERO in whichmonthly payment is done away with should be implemented toachieve the company's objectives of attracting the customers toincrease 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 allthe time & once he starts calling it is nearly impossible for himrevert back to control the impulsive calling attitude .

In support of his plan 'LIBERO' , Mr. Bona should convince hisboss Mr. Caio that the monthly payment of Lit.10000/-will bedropped down but at the same will be still there , but not as afixed payment rather the one in which the consumer is offered anequivalent talk time .Let us consider the existing plan which offers Peak Hour callingcharges at Lit.1524 as compared to Lit. 170 in Off- Peak Hours .Assuming the Data given for average consumption per month as193 minutes (93 minutes O/g & 100 minutes I/c).Out of the 93 Outgoing calls , 13 minutes are during Peak period & 80 are madeduring Off- Peak time.OmniTel should provide equivalent Talk Time for the Lit. 10000 /-that it is charging to its customers .The detailed analysis istabulated as below :

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 , which is way above the collection that was done when calls were made with the Existing Plan .Net Revenues = 10346 + 47232 =Lit.57578