As a Marketing Consultant, my client, which operates in the Mobile phone and Network providers sector of the market and the organisation trades under the name of O2 has asked me to generate a report, including a full market analysis and a set of strategic recommendations. This is to help secure their short (1-3 years), medium (3-5 years) and long term (5 + years) future. I will be using relevant marketing theory and also recent market data to help complete this report.
The report will include an organisation profile, outlining O2’s history, position in the market and many other factors, including product range. The report will then go on to market analysis, where it will concentrate on the impact that the market is having on the organisation. The two main elements of this component will be discussing both the ‘macro’ and ‘micro’ factors.
The next stage will be using market intelligence to shape strategic decision making. This will be done using marketing models and frameworks from the data collected about O2. The last component before the conclusion will be the strategic recommendations. Here, as the consultant, I will be offering O2 my opinion as to how they should proceed, firstly with the factors that need to be addressed immediately and then factors to concentrate on in the future. My recommendations will be based upon the analysis undertaken throughout the whole report. O2 was formed in 2001, following the demerger from British Telecom of its former mobile business; it is a provider of mobile communications services in Europe and also has a leading mobile Internet portal business.
The company operates in the UK, Germany, Ireland and the Isle of Man, employing 25,000 people. It is headquartered in Berkshire, UK. The company recorded revenues of 6683 million during the fiscal year ended March 2005, an increase of 17. 4% over 2004. The operating profit of the company during fiscal 2005 was 341 million, an increase of 115. 8% over fiscal 2004.
The net profit was 301 million during fiscal year 2005, an increase of 81. 3% over 2004. By June 2008, O2 had 1,070 unbundled exchanges covering over 57% of the UK population and having a 25. % market share of the total network subscribers. O2 is the largest company in terms of consumer penetration, with 13% of the market, due to having a very large number of national outlets. O2 has a wide product range, varying from basic mobile phones to the top quality, such as the iphone. Source (datamonitor, o2)
The mobile phone industry began in the mid 1980’s, however, due to the developments of the early 1990s, such as the introduction of digital networks and the introduction of additional service providers into the market it took off very quickly. This generated extra investment for the mobile industry to develop the technologically advanced mobile phones for consumers today. At this current time the mobile phone market is saturated; with 76 million subscribers in the UK in 2008 (Mintel 2009).
Looking forward in time, it is thought by experts that volume growth should slow as penetration levels plateau and the growth will be focused more on the upgrading to more expensive phones once the economy shows signs of recovery. As o2’s marketing consultant I will be carrying out an analysis of the current market, concentrating on both the ‘macro’ and ‘micro’ elements. The macro environment includes all factors that can influence the organisation, but that are out of their direct control, including PEST analysis (political, economic, social and technological). A very important macro element is the economy and the economic situation, particularly the state of interest rates.
If interest rates are high, individuals with mortgages will have less disposable income and therefore the concern for mobile phone retailers is that consumers may view a mobile phone contract as non-essential spending and either trade down to pay as you go or cancel it all together, leading to less turnover/profit for o2 and the industry in general. It will also affect o2 if they are borrowing money and may have to cut down on other costs, such as advertising, possibly leading to other competitors, such as Vodafone having an edge.
Consumer spending will decline during 2009 as consumers cut back and choose to save or pay down their debts. The current economic situation may lead to the first serious test of Telecoms as being ‘recession proof’; 2009 will be a tough year for the market in terms of investor confidence and the ability of the industry to raise capital for investment in mobile internet services which are hoped will create future profitability. Controlling costs while maintaining a quality product range to keep consumers happy is a key strategic issue for all operators and market players, especially o2.
From a social side of things, a change in the demographic structure, which can be described as the changes within the UK’s population, including age and sex (Jordan 2003) also affects o2. In absolute terms, the UK population is expanding, producing further sales opportunities. However, the age group forecast to grow the fastest over the next five years are the over-65s, who traditionally have counted for a low proportion of consumer spending. Having said that, many of these new over65s are baby boomers who have “grown older with technology” and will therefore be more receptive to new product launches and new technology.
The 25-34 age groups is also forecasted to grow strongly and this is a core category for many technology sectors. Technological factors play a major role in the market, for example, E-commerce has already become a key channel for the distribution of mobile phones with over a quarter of consumers shopping online without reference to a store. E-commerce is already an important channel of distribution for mobile phone retailing, with 27% of consumers buying their latest mobile phone online (Mintel 2009).
This will result in less face to face customer service required for o2 and may result in a reduction of in store jobs if this trend continues. This channel is predictably less popular with older consumers, who are conversely more likely to buy in store without looking online. Increasing internet penetration should also be looked at as a tool that not only empowers the shopper on a price perspective, but also as a way of providing the potential mobile buyer with knowledge about particular handsets. This gives o2 even more of a reason to ‘outdo’ other competitors in terms of innovation and design.
Macro elements will generate many issues for o2, but none that other competitors will not avoid either. The micro elements are the factors in a company’s immediate environment that affect its capabilities to operate effectively. O2 will be concentrating on their customers, employees, suppliers, media, shareholders and importantly their competitors. Shareholders number one aim is to make money and receive a dividend, considering the current economic climate this will require more effort from o2, leading to some different strategies/ tactics concerning decision making.
An increase in raw material prices will have a knock on affect on the marketing mix strategy of o2. Prices may be forced up as a result, leading to a possibility of a drop in sales. If o2 have a closer relationship with their suppliers then that could lead to higher quality mobile phones and therefore a competitive advantage over other brands. Employees are key to o2’s success and employing the correct staff and keeping these staff motivated is an essential part of the strategic planning process of an organisation.
Training and development plays an essential role particularly in the mobile phone industry, in-order to gain a competitive edge. O2’s survival is based on meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy and also consumers are likely to move to a competitor. Competitors are a crucial area of the micro environment and O2 need to establish differentiation in their marketing in order to continue in the way they are.
Competitor analysis and monitoring is crucial if an o2 is to maintain its number one position within the market and keep competitors such as Orange and Vodafone below in terms of market share. Lastly within the micro environment is the effect the media have on o2. Positive or adverse media attention on my client’s products or services can in some cases determine the future sales. A good way to shape strategic decision making is to first look at a SWOT diagram. This is a diagram showing the strengths and weaknesses (factors relating to the company) of o2, compared to the opportunities and threats (factors out the company) for o2.
Strengths: O2 has a wide customer reach in most of its markets. As of September 2006, the company’s subsidiaries O2 UK and O2 Germany have approximately 17. million and 10. 6 million customers respectively. Similarly, O2 Ireland, with 1. 6 million customers has the second largest market share (40%) in its domestic market; and Telefonica O2 Czech Republic has approximately 1. 8 million customers. The company’s wide customer reach increases the cross selling opportunities for the company (datamonitor 2009) The most significant strength of O2 is its brand equity. A strong brand enables a significant price premium in the market, which leads to a sustainable long-term increase in margins.
Weaknesses: Churn rate, which is the number of disconnections for the preceding 12 months as a percentage of the weighted average number of active customers for the same period has seen a large rise in O2’s UK market. The churn rate was 30% in 2003 and sharply rose to 35% in fiscal 2005. In comparison, Vodafone, the largest telecommunications operator in the UK had a churn rate of about 27% in 2005 (datamonitor 2009). The rise in the churn rate in the post-pay segment would adversely affect the company’s average revenue per user.
Rising churn rate also imply increasing subscription acquisition costs, which directly affect the profitability of the company. Threats: O2 faces intense competition from European and international mobile telecommunications providers, such as Vodafone, T-Mobile, TIM (Telecom Italia Mobile), and Hutchison, all of which have international networks. Increasing consolidation in the telecommunications industry would further intensify competition putting pressure on company’s margins, which could affect the profitability of the group. European mobile markets have become saturated as a result of high penetration rates.
In 2005, the market penetration in the UK, Spain, Netherlands, and Switzerland was 110. 6%, 105. 3%, 102%, 95. 5% respectively (datamonitor 2009). This means that most of the population in Europe now owns a mobile phone and there is little room for any future growth. This can threaten to erode company’s revenues in this region in future. The identification of opportunities might be exploited using company strengths, whilst the identification of threats that must be addressed either using company strengths or through minimising areas of weakness.
Introducing strategies that can either minimise the areas of weakness or turn areas of weakness into strengths is very important for o2 as a group. Benchmarking is a marketing model and is the process of identifying, understanding and adapting outstanding practices from within the same organisation or from other businesses to help improve performance (Cook 1997) It will help o2 to focus on the external environment and improve process efficiency.
After carrying out my investigation and analysis on my client, I will now put forward my recommendations, starting with the immediate factors to consider. O2 are in a very competitive market called an oligopoly, “A market dominated by a small number of participants who are able to collectively exert control over supply and market prices” (Salvatore 2006), so in order to get customers from the likes of Orange, Vodafone and other competitors cannot be achieved through just price. To do this O2 will have to offer other benefits to their consumers, such as, contracts with added extras.
Along with this, o2 will need to consider options concerning the iphone, such as a new advertising campaign and maybe different pricing strategies, due to Tesco now having a contract to sell the 3G handset. O2 will feel the power of Tesco if they do not adapt to the situation immediately. Looking at the medium term, I believe o2 need to communicate to their target audiences through new forms of media, for example, Facebook and Spotify. This would attract more consumers who wouldn’t usually see or hear the advertising.
Long term recommendations would involve looking at the rising economic conditions in East European countries, especially Poland and Hungary. They provide a huge market for telecommunication service providers such as o2. GDP of Hungary is expected to increase by 3. 9% in 2006, similarly in Poland the GDP has been growing at 4. 4% which is estimated to reach 4. 5% in fiscal 2006 (datamonitor 2009). With the improving economic condition in these two countries, the trade and business activity in the region would escalate.
The lack of presence in these emerging markets, where other players such as Vodafone and T-Mobile have already made a mark, deprives o2 of substantial revenues. Considering the weakening of the Western European economy, unless o2 moves into the East European market, the company would face serious problems in the future. Other long term strategies would be to continue with the sponsorship of England Rugby, Arsenal Football Club, 02 arena, as this is adding value to their brand name and also creating.. “better experiences for our customers.
O2 have a very ‘sustainable’ advertising campaign with the bubbles that might be subtle but has become clearly linked to the O2 brand name and so could be used in other ways to advertise the o2 group. Before carrying out the strategic decision it is important to communicate. The relevant people, both inside and outside the organisation, need to be informed about the decision and how it may affect them.
After this is done the decision will be implemented using the resources of the business. After a while, managers and other key members of the work force should look at the results and obtain as much feedback as possible and finally see if the decision worked. It is important to see if it was the best decision and if it wasn’t how it could be improved on for next time to improve the situation.