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Omnitel Pronto Italia

The case study “Omnitel Pronto Italia” describes the company’s situation soon after its launch of

its mobile telecommunication offerings in Italy in 1995. Omnitel had decided to focus on improvements on the quality dimension in competing against the Italian monopoly (TIM). However, the results were not very positive. Therefore, Omnitel conducted various marketing

research activities in order to create a new business strategy. Various needs of the individual customer segments were identified. Omnitel now had to decide whether the new service plan,

“LIBERO”, was the right move to attack a new segment and improve on prior performance.

Citation:

Lal, Rajiv, Carin-Isabel Knoop, and Suma Raju. “Omnitel Pronto Italia.” Harvard Business School Case 501-002, August 2000. (Revised September 2005.)

Case questions and answers:

  • 1. What was Omnitel’s competitive advantage when the service was launched in December

1995?

  • 2. Why did the launch not perform to expectations?

  • 3. What are the economics of LIBERO?

  • 4. Why is the churn rate so high for many European countries?

  • 5. Do you expect the churn rate to increase or decrease with the launch or LIBERO?

  • 6. What do you learn from consumer research? What do you learn from the results of the conjoint analysis in Exhibits 5 to 8?

  • 7. Will LIBERO lead to a price war? If yes, what could Omnitel do to avoid one?

  • 8. If you were Fabrizio Bona, what changes would you make to LIBERO and why?

Omnitel Pronto Italia Case Study Analysis

Omnitel Beginnings

Omnitel was launched in late 1995 as Italy’s second mobile phone service provider at a time when TIM, Omnitel’s sole competitor, generated 97% of the cellular market penetration. Omnitel’s entrance to the Italian telecommunications market offered a new way to increase competition and enhance awareness about cellular products among Italians.

When Omnitel finally launched, the company felt that its superior customer care would be its competitive advantage. By having a polite operator answer the phone Omnitel gained an

advantage over TIM’s operators who were known to be very impersonal. Furthermore Omnitel’s

service calls were answered rapidly and operators avoided transferring calls. Omnitel was

working to differentiate itself from TIM whose own customers stated, “I have never heard a polite word from TIM’s customer service” (6).

Omnitel also believed that this advantage would allow the company to maintain a low churn rate of 10-15% per year. A high churn rate indicated customers were dissatisfied, and Omnitel was

“obsessed about churn” (5). By keeping their customers satisfied Omnitel would not have to face

losing customers or the costs that came with this.

By May of 1996 even with its superior customer service, the Omnitel launch had only signed 180,000 subscribers and held merely 4% of the market share. The market analysis showed that although customers valued customer service, they did not choose a cell phone provider based on this value. Good service was only seen as an appreciated added feature. Exhibit 6 indicates that

the “Service” and “Included Service” categories are ranked 7th and 8th in importance out of 8

possible values. Furthermore only 19% of personal users were service sensitive while 35% were

sensitive to charge and fixed costs. Exhibit 7 shows that “Service” is ranked 7 out of 7 possible

values behind values like brand, monthly charges, and peak and off-peak tariff charges

Diagnosis:

Telecom Italia Mobile (TIM) had a monopoly over the Italian Communications Market. It generated 97%

of Italy‟s 7.5% market penetration, also until Omnitel‟s entrance into the market because of the

lack of thecompetition, TIM didn‟t incur the huge marketing costs. TIM‟s marketing strategy

was primarily directed towards the uppers echelons of Italian society. Omnitel entered the market in Feb 1995 but they could start the commercialservices in December 1995 with network coverage of 40% of the Italian territory. Ominitel thought of its superiorcustomer care as its competitive advantage over TIM, however they could only acquire 1,80,000 subscribers by May1996. Omnitel was looking for methods to differentiate itself from TIM but at the same time avoiding a price war.

Problem Identification The problem was twofold, that of building Omnitel‟s market share while avoiding a price war with TIM, and differentiating brand Omnitel from brand TIM. 5 C Analysis

Company Background:

Omnitel was able to obtain GSM license after liberalization and paid Lit.750 bn in Dec

„94 to become Italy‟s second GSM operator and launched its commercial service in Dec.

95.

 Omnitel was able to obtain GSM license after liberalization and paid Lit.750 bn in Dec

They started with a network coverage of 40% of Italian territory.

 Omnitel was able to obtain GSM license after liberalization and paid Lit.750 bn in Dec

Market share was 4% of the total Italian telecom market.

 Omnitel was able to obtain GSM license after liberalization and paid Lit.750 bn in Dec

Initially they offered plans similar to TIM but prime focus was on its high-quality customer service, which

led to „happy‟ customers and low churn rates.

Diagnosis: Telecom Italia Mobile (TIM) had a monopoly over the Italian Communications Market. It generated 97%

Financial strength of Omnitel was not as strong as their competitor i.e TIL, hence they avoided getting into aprice war situation.

Competitor Analysis:

Diagnosis: Telecom Italia Mobile (TIM) had a monopoly over the Italian Communications Market. It generated 97%

The major competitor was Telecom Italia Mobile (TIM) formed in July 1995 after divested from TelecomItalia and was listed separately on Italian stock exchange.

The customer base was over 4 million by the end of first quarter of 1986 and

The customer base was over 4 million by the end of first quarter of 1986 and had strong roots in ItalianCellular market.

The customer base was over 4 million by the end of first quarter of 1986 and

They offered two types of tariffs:

o

Euro Family

o

Euro Professional

The customer base was over 4 million by the end of first quarter of 1986 and

They enjoyed monopoly over Italian telecommunication market until Omnitel‟s

recent entrance; themarketing costs had been lower than its European counterparts.

The customer base was over 4 million by the end of first quarter of 1986 and

The distribution channel of TIM was very strong as it had 1,500 exclusive dealers, 20 TIM- owned shopsand 150 Telecom Italia stores, but after the entrance of Omnitel they became more aggressive.

The customer base was over 4 million by the end of first quarter of 1986 and

Its marketing strategy was to cater primarily to the high end segment of the Italian society touting cellularphone as a status symbol.

Customer Analysis

The customer base was over 4 million by the end of first quarter of 1986 and

The Italian customer market was different from other markets as the people were willing to pay handsomelyas they like to show off as they liked show off.

The customer base was over 4 million by the end of first quarter of 1986 and

It was noticed that the customers were not interested in paying activation fees, instead they want to pay onlywhen they use the phone.

The customer base was over 4 million by the end of first quarter of 1986 and

The customers wanted a different set of tariffs for local calls, long distance calls and international calls andthey did not mind paying more. Collaborator Analysis

The customer base was over 4 million by the end of first quarter of 1986 and

The shops that sold consumer electronics goods and telecommunication goods and services sold

Omnitel‟s

handsets which were 2000 in number.

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

They paid a commission of Lit 40,000 for each account they activated and Omnitel didn‟t make any profit on the handsets sold. Context Analysis:

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

In 1993, the European Commission declared that by January 1998, all member states would have to opentheir markets and guarantee competition in telephony markets but under pressure from business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

Cellular penetration rates were relatively modest.

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

“Value for Money” of the service continued to increase because of reduced costs and improved

quality.

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

All cellular operators in Europe had adopted the GSM digital standard.

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

Many European countries began to have multiple players resulting in increased marketing. Competitive Advantage

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

Focus on Customer service

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

Polite Operator

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

Minimum waiting time

The shops that sold consumer electronics goods and telecommunication goods and services sold Omnitel‟s handsets which

One stop calling

trained operator

LIBERO

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

No monthly fee

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

No increase in commission to distribution channels

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

Increase in demand

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

Creating and promoting the brand image

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

Spending of Lit. 40 bn for advertisement

Customer Analysis

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

The Italian customer market was different from other markets as the people were willing to pay handsomelyas they like to show off as they liked show off.

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

It was noticed that the customers were not interested in paying activation fees, instead they want to pay onlywhen they use the phone.

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

The customers wanted a different set of tariffs for local calls, long distance calls and international calls andthey did not mind paying more. Collaborator Analysis

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

The shops that sold consumer electronics goods and telecommunication goods and services sold

Omnitel‟s

handsets which were 2000 in number.

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

They paid a commission of Lit 40,000 for each account they activated and Omnitel didn‟t make

any profit on the handsets sold. Context Analysis:

No monthly fee No increase in commission to distribution channels Increase in demand Creating and promoting

In 1993, the European Commission declared that by January 1998, all member states would have to opentheir markets and guarantee competition in telephony markets but under pressure from

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Cellular penetration rates were relatively modest.

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

“Value for Money” of the service continued to increase because of reduced costs and improved

quality.

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

All cellular operators in Europe had adopted the GSM digital standard.

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Many European countries began to have multiple players resulting in increased marketing. Competitive Advantage

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Focus on Customer service

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Polite Operator

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Minimum waiting time

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

One stop calling

trained operator

LIBERO

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

No monthly fee

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

No increase in commission to distribution channels

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Increase in demand

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Creating and promoting the brand image

business interests,the EC liberalized the cellular telephony by January 1994, subjected to interpretation by the countryinvolved.

Spending of Lit. 40 bn for advertisement

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.

ref: http://www.scribd.com/doc/51085275/Case-Analysis-OMNITEL-PRONTO-ITALIA