Emerging markets are the solution most often cited by Western European mobile operators in their urgent search for sources of growth. The characteristics of these markets are, however, quite different from those in Europe and, in particular, loyal average revenue per user (ARPU) is harder to find.
As mobile markets in developing countries start to resemble their Western European counterparts in terms of penetration, they also present new challenges. These markets are predominantly prepaid, and in recent years operators have been focused on attracting as many subscribers as possible. Now they must find ways to increase revenue per head, raise margin volumes and reduce customer churn.
While subscriber figures in these countries often sound impressive, the majority of new customers have often brought little income to operators, with ARPU typically between â‚¬2 and â‚¬10. Loyalty has also remained very feeble, with subscriber churn sometimes reaching 60% per year. As penetration levels now begin to plateau, operators are looking for new revenue streams and focusing on increasing their margins in absolute terms, not simply as a proportion of their revenues.
Loyal customers with high ARPU potential in emerging mobile markets are likely to be attracted by two kind of initiatives: customer retention (loyalty) programmes and price-optimised plans.
Loyalty programmes are often considered as an artificial add-on to postpaid packages, without real strategic objectives, and they have produced few results. This must change, as operators can no longer afford to attract their entire customer base again every 18 months. During the early years, subscriber acquisition costs were kept to the bare minimum (attracting millions of low value customers every quarter did not leave much choice), but costs are likely to increase dramatically as the market saturates and operators need to attract existing competitors' customers to grow their own base.
The operators should take a careful look at other industries (such as airlines, supermarkets and, in general, the fast-moving consumer goods sector) which have more experience in loyalty programmes and can give insight into what works and what does not.
Pricing optimisation is a complex process involving the analysis of call data receipts (CDRs) - the basic information on each call made and received stored in large databases - in order to segment customers, understand the contributors to ARPU and margin, measure elasticity (such as after seasonal promotions) and rebalance tariffs accordingly. Engineering promotions and special discounts should be designed following the same method.
However, it is not just a data crunching exercise: expert knowledge of the local market is key to success, and understanding the levers for additional usage and revenue quickly turns into an art. For example, in prepaid markets, the size, validity and grace periods of recharge cards, as well as their value and bonuses, must be carefully chosen to suit customers and encourage usage and spending.
David Eurin, Senior Consultant, Analysys