11/19/2008 11:06:00 AM
Burrows outlines Tesco Mobile’s growth plan
Tesco Mobile launched its Sim-only offers last month, and it has already proven popular with existing, as well as new, customers.
‘The Sim-only contracts have done really well,’ says Noel Burrows, Tesco Mobile’s head of marketing, during Mobile’s visit to a Tesco Extra store
For Tesco Mobile, the contract plans will help attract new customers and
gain commitment from existing pay-as-you-go subscribers. Churn at the operator is likely to fall if the company manages to move customers from prepay to monthly contracts.
Estimated to be reaching two million customers, the MVNO has managed to thrive in a difficult environment that has seen many virtual operators go bust, and is beginning to push on the heels of Virgin Mobile, the leading MVNO. Tesco Mobile’s proposition is based on offering basic services at a low price; the new Sim-only contracts follow the trend.
Customers can choose from three tariff options of £15, £20 or £25 per month. Each plan has a specific amount of credit for the month, which can be used for a combination of calls, texts, picture messages or internet browsing and downloads.
Burrows says: ‘Again, it’s about giving customers choice. Also, credit is an easy thing for them to understand.’
Competing with Asda
Competition in the low-price MVNO arena is getting tougher. Attempts to gain an increased market share has seen Tesco respond to Asda Mobile’s prepay price reductions with similarly attractive deals. In September, Asda slashed the price of calls to a flat rate of 8p and texts to 4p for prepay customers.
Tesco Mobile responded by creating a loyalty programme that gives customers free credit when they top-up and by increasing the amount of ‘favourite numbers’ (to which calls are cheaper) from three to five. Calls to these numbers cost 10p while regular calls are priced at 20p, and texts to favourite numbers are half price at 5p.
The virtual operator is also encouraging customers to spend by giving Tesco Club Card points for money spent on mobile services.
Moving into the contract area was the obvious next move for Tesco Mobile in order to diversify its product range. Sim-only is the easiest method of entering the postpay market, as it does not require extensive credit checks and subsidised handsets.
Sim-only contracts have taken off massively this year, with market research company, GfK, reporting that Sim-only connections (including prepay) made
up 19.4% of the total connections made in September.
‘The first step to the contract market for us is Sim-only. It’s a growing area and easy for us to enter into the contract market,’ Burrows says.
Contract take-up has come from new customers as well as existing pay-as-you-go subscribers. The strategy is not necessarily about trying to secure more commitment from existing customers, but to give them more choice, says Burrows.
‘There are some customers who will never go for pay monthly because they don’t trust their own spending.
But pay monthly customers get better value because of the commitment they make,’ he says.
The next logical step would be to start offering longer term contracts with subsidised handsets, but this would require carrying out extensive credit checks on customers and forging new relationships with handset manufacturers. Another concern is that Tesco Mobile’s major selling point is its cheap services, best suited to a prepay customer base.
‘Currently we don’t have plans to move into pay-monthly handsets. Moving into handsets is a totally different proposition. It means having to offer longer contracts and subsidise handsets. Our opportunity is to offer a simple Sim-only pay-monthly offer, which customers can buy off the shelf in a Tesco store,’ Burrows says.
However, he does admit that the company will review the reaction to Sim-only after a few months and re-evaluate its position on longer-term contracts.
Another new product that the MVNO has its eyes on is mobile broadband. Last month, Tesco Mobile’s CEO, Lance Bachelor, told Mobile: ‘Yes, we are looking at mobile broadband along with many other moves. We haven’t made a commitment to it yet, but we certainly have the infrastructure.’
The standalone Telecoms stores already sell mobile broadband from 3 and Vodafone.
Tesco Mobile is currently sold in the standalone Tesco Telecoms stores as well as in the main supermarket. Expansion of the standalone shops is underway with one to two new branches opening each week in the run-up to Christmas. Just over 30 standalone shops have been set up since the first Telecoms centre was unveiled a couple of years ago.
As well as selling Tesco Mobile, the Telecoms stores also offer contracts and pay-as-you-go deals from all the networks. So, why does the supermarket stock competing products alongside its own?
Burrows explains: ‘We sell Tesco’s own-brand cereal but we also sell Weetabix and Kellogg’s [in the supermarket]. It’s about giving customers more choice.’
Tesco Mobile is a joint venture with O2 and is run independently of the supermarket chain, which also sells connections and handsets from other networks.
At the moment, only prepay connections and phones from the networks and Tesco Mobile have been available at Tesco stores. With the launch of the Sim-only contracts, the virtual operator plans to get contracts into the supermarkets too.
‘We are currently trialling selling contracts in the store. The challenge
for us is to get contracts on the fixture, but it is more difficult to communicate to customers [than pay-as-you-go],’ says Burrows.
Tesco Mobile has recently undergone a change in management, with Lance Batchelor replacing Andy Dewhurst last month, who was CEO for five years. Batchelor was previously marketing manager at Tesco.
The appointment of the new CEO was part of the retail giant’s plans to grow its market share in less traditional areas, including telecoms, financial services and internet shopping.
Gearing up for Christmas
Prepay is what the Christmas market is all about and Tesco Mobile has launched promotions so as not to miss out on festive spending. The MVNO is offering a £25 discount on the majority of its prepay phones when customers top-up by £10. The discounted line-up includes handsets from £35 to £115.
The company is offering £10 off cheaper handsets, pricing some models, such as the Nokia 1208, at less than £10.