5/28/2008 12:21:00 PM
Margins hit by consumer belt tightening
It seems everyone is swapping cost-saving tips at the moment. Getting rid of the Chelsea tractor for a more fuel-efficient alternative, cancelling that gym membership or discovering the joys of Aldi, large numbers of Brits are poring over their expenditure with a level of scrutiny not seen for years.
How this affects the mobile market has been a moot point, as the industry tries to assess the gravity of the economic climate. Vodafone’s UK management is believed to be telling the group that there is a recession in the UK, with consumer belt-tightening hitting its profits. The sharp rate of that decline in margins has been fascinating.
Consumer excitement around handsets appears to be diminishing and replaced by a bigger concern: getting bills down. The new price-conscious consumer is looking at offers, comparing deals and applying pressure on network providers to cut their bills or risk jumping ship. It has created a dilemma within networks of how far they should go to balance churn with margin.
How big a hit are networks willing to take on their margins to keep their churn level down? One Vodafone customer I know said his bills were around £60-£70 per month. He told Vodafone he would join 3, and Vodafone offered a more attractive deal. His bills are now £30 per month. Imagine this replicated for even a small fraction of Vodafone’s eight million contract customers. The operator is now making half the money from him this year as they were over the last 18 months. What happens next year when he has to renew? Will they cut prices again?
And you can bet Vodafone isn’t alone in having a tough time balancing churn and margin.