18 Nov 2011, Shankaran Nair, Voice-Data
Over the last 15 years, perhaps the most important revolution that has played out in India has to do with the telecom industry. It has impacted many facets of life in India. Any student of business and marketing can draw multiple insights from the progression of events during this period. I certainly did. Let's take a look at some of the fascinating plots, sub-plots, and lessons drawn from them.
Back when I got hold of my first cherished mobile phone (Skycell was the service provider-remember them? My SIM card still says Skycell, albeit in faded lettering befitting its age!), as entrepreneurs alive to business and markets we played games trying to forecast where this market would peak and flatten out. It was and has continued to be a humbling experience-not in my wildest dreams back in the mid-90s did I foresee that a confluence of market need, competitive dynamics, and technology would drive this market to a subscriber base of 800 mn. My best guess back then (back in 1995 in my defense-when I was paying `16 per minute for the outgoing and incoming calls) was 200 mn and I thought I was being super aggressive.
This single industry has lived out the whole theory that Professors Prahalad and Hart first articulated in 1998 and then wrote about it in their books Fortune at the Bottom of the Pyramid and Capitalism at the Crossroads, respectively. Consider how the telecom revolution has mirrored the thought that the economically weaker sections are actually a large market base of demanding value-seeking consumers and offer significant value to large enterprises. Even more interesting is the fact that the telecom saga has in fact played out almost in parallel, chronologically speaking, to the development of the thought of value at the base of the pyramid. Students of business history will also see the parallels with the revolution that Karsanbhai Patel of Nirma fame engineered in the detergent industry back in 1969. Forcing the giant Unilever brand to blink and look towards altering its marketing strategy, thus creating an entire new segment in the Indian industry. This was followed by the sachet revolution of Velvette and Chik in the healthcare and shampoo segments once again forcing the industry giants to blink and open up new segments.
Lesson: There is indeed massive value to be had at the base of the pyramid and canny marketers have cashed in on this thought over and over again in the last 50 years. Plenty of case studies to learn from!
Here is another interesting data point. airtel and Vodafone have a disproportionate revenue share of the market in relation to their subscriber share. airtel clocks 20% subscriber share to 31% revenue share. And, Vodafone clocks 21% revenue share to their subscriber share of 17%. If someone were to ask me which are the 2 strongest brands in the industry, in terms of emotional connect, I would probably say airtel and Vodafone, except that I confess I would probably rank Vodafone ahead on that score. And in case you are thinking 'hey, Idea is a pretty strong brand too'-I agree. Idea is the only other company with a higher revenue share in relation to subscriber share-11:10.
This brings to the mind the whole question of 'brand' to the student of branding. How do you build a brand in what is very obviously a 'commoditized' business? Is it worth even trying? After all, the footprints of the big players are all more or less the same, all of them have pretty bad quality of service, I am yet to meet a mobile phone user who sings the praises of his service provider, and the prices are more or less the same. From another perspective, the customers are disloyal, the large chunk of the market is prepaid, and churns at the drop of a hat-raising again the question-does branding even matter?
Lesson: Even in a commoditized business and industry, building a strong brand can lead to a disproportionate value creation.
Let's continue on our learning journey. Given the terrible state of customer service across service providers and the overall parity on all other parameters, I confidently expected a tsunami of churn once number portability came in. Guess what it turned out to be? Less than 2% of the total active subscriber base (which is significantly smaller than the total subscriber base of 800 odd mn at around 600 mn). Why is this? Is it because brand loyalties are so strong that even with all the aggravation being created (poor networks, SPAM sms, and poor customer service) subscribers remain loyal? Is it because there is such inertia that customers cannot be bothered to go through the whole process? Is it because it is such a non-issue with customers who the service provider is – in direct contrast to the first point of deep loyalty? Is it because customers know that everyone is as bad or good as the other? A friend working in a senior position in one of the leading telecom company once told me in a burst of candor, “We are the least bad of the less than good!”-have consumers tumbled to that? Honest answer to these questions is that I don't know-I will take the time honored way out and say probably a combination of all these.
Lesson: If I were forced to commit, I would probably say that brand loyalty still played a significant part in this-backed by customer inertia. Have you changed your service provider post MNP? If not, why not? The biggest and perhaps the most unfortunate lesson here is that it is really hard to alienate the customers and drive them away for good. This perhaps explains why companies across the spectrum of industry dish out a terrible service.
There have been so many other valuable lessons that this industry has taught us-outsourcing of core components of the business including the networks, competitors collaborating and sharing 'upstream' resources while fighting bitterly in the market-to name a couple. But looking forward to the future, I believe this sector is today entering into the next fascinating phase of its evolution. For the very first time, the market is showing signs of fatigue with August bringing in the lowest number of net adds to the subscriber base in a very long time. Coupled with the pressure on margins and increasing prices and the advent of 3G and smartphones-the market is poised for some fundamental changes in dynamics.
The marketing challenge has now changed. The question is who is going to be able to leverage the situation to create another cycle of value? Who is going to anticipate customers' needs, build exit barriers, and keep their captive customer flock intact? Who is going to prise open new segments and own them-for example, can one of the laggards today 'flank' the leaders and grab leadership in one or more segments? Will it be one that offers differentiated customer service? Will customer experience be the key determinant that would wow the customer and turn the table? Does customer experience really matters?
Watch this industry closely. It is going to generate much more by the way of valuable insight more so for the students of business and marketing.