As the Marketing Consultant for O2, my responsibilities involve producing a comprehensive report that includes a detailed market analysis and strategic recommendations. The main goal of this report is to ensure the company’s sustainability in various time periods: the short term (1-3 years), medium term (3-5 years), and long term (5+ years). To accomplish this objective, I will utilize relevant marketing theory and current market data.
The report will contain an organization profile that outlines O2’s history, market position, and other factors such as product range. It will also delve into market analysis, specifically focusing on how the market is affecting the organization. This component will include discussions on both the macro and micro factors.
The next stage in the process will involve utilizing market intelligence to shape strategic decision making. Specifically, this will involve using marketing models and frameworks based on the data that has been collected about O2. Prior to reaching a conclusion, the final component will consist of providing strategic recommendations. As the consultant, my role will be to offer O2 my perspective on how they should proceed. This will include addressing immediate factors as well as focusing on future factors. All of my recommendations will be informed by the analysis conducted throughout the entirety of the report. O2 was established in 2001 as a result of separating from British Telecom’s former mobile business. It operates as a provider of mobile communications services in Europe and also has a prominent 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 achieved revenues of 6683 million during the fiscal year ended March 2005, representing a 17.4% increase from 2004. The operating profit for fiscal 2005 reached 341 million, marking a 115.8% increase from fiscal 2004.
In fiscal year 2005, O2’s net profit was 301 million, representing an increase of 81.3% compared to the previous year (2004). By June 2008, O2 had achieved a significant milestone with 1,070 unbundled exchanges, covering over 57% of the UK population. Furthermore, O2 held a market share of 25%, making it the largest company among all network subscribers. With extensive national outlets, O2 accounted for 13% of the market share as well due to its strong consumer penetration. Providing a wide range of products, O2 offers everything from basic mobile phones to high-end devices such as the iPhone.
Source: (datamonitor, O2)
The mobile phone industry started in the mid 1980’s, but it rapidly gained momentum in the early 1990s thanks to the introduction of digital networks and more service providers entering the market. These developments led to increased investment in technologically advanced mobile phones that we see today. Currently, the UK mobile phone market is saturated, with 76 million subscribers in 2008 (Mintel 2009).
Experts believe that the growth in volume will decrease as penetration levels reach a plateau. Instead, the growth will be focused on upgrading to more expensive phones once the economy improves. As o2’s marketing consultant, my analysis will consider both the overall market factors (macro elements) and specific market elements (micro elements). The macro environment includes factors such as politics, economy, society, and technology, which are beyond the organization’s control. Of particular importance is the economic situation, including interest rates.
Higher interest rates have the potential to decrease individuals’ disposable income and consequently make them perceive mobile phone contracts as non-essential expenses. This could prompt them to either switch to pay-as-you-go plans or cancel their contracts altogether. These changes in consumer behavior might result in decreased turnover and profit for o2 and the mobile phone industry as a whole. Additionally, o2 may face challenges if they need to borrow money and consequently reduce expenses, such as advertising. This situation could potentially give an advantage to competitors like Vodafone.
Consumer spending is expected to decrease in 2009 as individuals opt to save money or reduce their debts. This economic climate may challenge the notion that Telecoms are unaffected by recessions. Investor confidence and the industry’s ability to secure funds for investment in mobile internet services, which are intended to drive future profitability, will be tested in the tough market of 2009. All players in the market, particularly o2, must prioritize cost control while offering a range of high-quality products to satisfy consumers.
According to Jordan (2003), changes in the UK’s population demographics, such as age and sex, affect o2. The UK population is increasing, which creates more sales opportunities. However, it is predicted that the over-65 age group will have the highest growth in the next five years. Historically, this age group has not contributed significantly to consumer spending. Nonetheless, a considerable number of these new over-65s are baby boomers who have adopted technology as they’ve gotten older. As a result, they are more receptive to new product launches and technological advancements.
The 25-34 age group is projected to experience a substantial rise, making it a pivotal category for different technology sectors. Technological factors significantly influence the market. For example, E-commerce has already become a primary way of distributing mobile phones, with over one-quarter of consumers choosing to buy online instead of going to a brick-and-mortar store. E-commerce is already an essential distribution channel for retailing mobile phones, as verified by 27% of consumers who bought their latest phone online (Mintel 2009).
The increasing internet penetration trend may lead to a decrease in the need for face-to-face customer service for o2, which could also result in a reduction of in-store jobs if this continues. However, older consumers, who prefer purchasing items in physical stores rather than online, are less likely to adopt this channel. Nevertheless, the expanding reach of the internet should be seen as an opportunity to empower shoppers with competitive prices and offer potential mobile buyers product knowledge. This highlights the importance for o2 to surpass competitors through innovation and design.
O2 will face various challenges due to macro elements, but these challenges are not exclusive to O2 and will affect other competitors as well. On the other hand, micro elements refer to the factors within a company’s immediate environment that impact its operational effectiveness. In this regard, O2 will focus on its customers, employees, suppliers, media, shareholders, and competitors. Shareholders primarily seek to generate profits and receive dividends. Given the current economic conditions, O2 will need to exert additional effort to achieve this goal, which may result in different decision-making strategies and tactics.
An increase in raw material costs will impact the marketing mix strategy of o2. Prices may increase, potentially leading to a decline in sales. Establishing stronger relationships with suppliers could result in higher quality mobile phones, giving o2 a competitive edge over rival brands. The success of o2 is dependent on its employees, making it crucial to hire and motivate the right staff during the organization’s strategic planning process.
Training and development are crucial in the mobile phone industry to maintain a competitive advantage. O2’s success depends on meeting customer needs and providing benefits. If they fail to do so, their business strategy will fail and customers may switch to a competitor. Competitors are a significant aspect of the micro environment, and O2 must differentiate their marketing to remain successful.
In order to maintain its leading position in the market and stay ahead of competitors like Orange and Vodafone, o2 needs to prioritize competitor analysis and monitoring. Additionally, it is important to consider the impact of the media on o2 within the micro environment. The media’s positive or negative attention towards o2 products or services can greatly influence future sales. To guide strategic decision making, referring to a SWOT diagram is a helpful approach. This diagram illustrates the company’s internal strengths and weaknesses, as well as external opportunities and threats that o2 faces.
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: O2’s churn rate in the UK market has experienced a significant increase. In 2003, the churn rate was 30%, but it rose sharply to 35% by fiscal year 2005. In comparison, Vodafone, the largest telecommunications operator in the UK, had a churn rate of approximately 27% in 2005 (datamonitor 2009). This rise in churn rate for O2’s post-pay segment would negatively affect its average revenue per user.
The company’s profitability is influenced by the growing churn rate and higher costs of acquiring subscriptions. O2 faces fierce competition from various European and international mobile telecommunications providers, including Vodafone, T-Mobile, TIM (Telecom Italia Mobile), and Hutchison, all possessing global networks. The ongoing consolidation in the telecommunications industry would increase competition even more, possibly affecting the group’s margins and profitability. The European mobile markets have reached market saturation due to high penetration rates.
In 2005, the market penetration rates in the UK, Spain, Netherlands, and Switzerland were 110.6%, 105.3%, 102%, and 95.5% respectively (datamonitor 2009).
This indicates that a large majority of Europeans now possess mobile phones, leaving limited potential for further expansion.
As a result, this could negatively impact the company’s future earnings in this sector.
To capitalize on possible opportunities, it is essential to utilize the company’s strengths while addressing threats by leveraging those strengths or reducing areas of weakness.
At o2, it is crucial to introduce strategies that can either minimize weaknesses or transform them into strengths. Benchmarking, a marketing model, involves identifying, understanding, and adopting exceptional practices from both within the organization and other businesses. This technique, as described by Cook (1997), aids in enhancing performance by allowing o2 to concentrate on the external environment and enhance process efficiency.
After my investigation and analysis of my client, I will now present my recommendations, starting with the immediate factors to consider. O2 operates in an oligopoly market, which is a highly competitive market where a small number of participants collectively control supply and market prices (Salvatore 2006). Therefore, simply offering lower prices will not be enough for O2 to attract customers away from competitors like Orange and Vodafone. Instead, they must offer additional benefits to their consumers, such as contracts that come with added extras.
O2 needs to consider the iPhone and explore new options, such as an advertising campaign and revised pricing strategies. This is crucial because Tesco has obtained a contract to sell the 3G handset, and O2 will face consequences if they fail to adapt promptly. In the coming future, I recommend that O2 connect with their target audiences through alternative media platforms like Facebook and Spotify. By doing so, they can appeal to a wider range of consumers who typically do not encounter or listen to their advertisements.
According to datamonitor (2009), o2 and other telecommunication service providers should consider the economic conditions in East European countries, particularly Poland and Hungary, when making long-term recommendations. In 2006, it is projected that Hungary’s GDP will grow by 3.9%, while Poland’s GDP has been consistently increasing at a rate of 4.4% and is expected to reach 4.5% in fiscal year 2006. The improvement in economic conditions in these countries will lead to an increase in trade and business activity within the region.
O2 faces a considerable decrease in profits in emerging markets, where Vodafone and T-Mobile have already established their presence. This decline is attributed to the absence of oxygen. To mitigate potential difficulties brought by the declining Western European economy, it is imperative for O2 to expand into the East European market. Moreover, they can bolster their brand recognition and improve customer satisfaction by continuing long-term initiatives such as sponsoring England Rugby, Arsenal Football Club, and the O2 arena.
O2’s sustainability-focused advertising campaign utilizes bubbles as a symbol closely associated with the O2 brand. This idea can be extended to other advertising efforts within the O2 group. Effective communication is crucial prior to implementing strategic choices, guaranteeing that all internal and external stakeholders are properly informed about the decision and its possible consequences for them.
Once the decision is made, the business will utilize its resources to implement it. Subsequently, managers and other key personnel should evaluate the outcomes and gather feedback to assess the effectiveness of the decision. It is crucial to determine if it was the optimal choice and, if not, find ways to improve it in future situations and enhance the overall situation.