11/24/2010 11:14:00 AM
Mainline chiefs: ‘You cannot churn your base anymore’
‘We like revenue share,’ says Mainline MD Andrew Boden. ‘We had some concern about the transition period between the old commission method and revenue share coming online, as your upfront revenues take a hit, but it has gone well up to now and we expect bigger returns in the future.’
Orange, which part owns Mainline, ramped up the revenue share model in July, although the distributor had introduced it before that date. Boden says revenue share has changed the focus of the business. Before, it used to be about achieving large volumes of connections; now it’s about how much the customer spends. ‘That said, the goal is to get high value customers and lots of them,’ says Boden.
‘Dealers recognise they are getting quite a good share of the pot, so that makes them concentrate on trying to get higher spending customers. That
is happening, so revenue share is doing what it was supposed to do – drive higher revenues,’ he says.
Gail Hollinshead, director of dealer sales at Mainline, adds: ‘There was nervousness in the dealer base. They were worried about how they reported revenue share and accounted for it; how would they reward their sales staff; how to bundle deals; how they dealt with VAT issues and so on.
‘So, there was a lot of handholding on our part. We had to provide a lot of internal education on the revenue share model to our sales teams, so they were equipped to advise dealers. We then provided workshops at our headquarters, at their premises, explained how they could add value, what kind of margin to expect and how they could make money,’ she says.
Boden says revenue share is much better for retention of dealers. ‘You cannot churn your base anymore,’ he says. ‘We rarely see multi-network promotion now. Most dealers have a lead network and a secondary one.’
Hollinshead adds: ‘Dealers are starting to want to become specialists in one network or proposition now. The networks offer much the same proposition. What differentiates them, as far as the end user is concerned, is the service they get from the dealer. What we do is help dealers tailor their offerings.’
The networks describe the new model as a better sharing of risk and reward, but there is no doubt that it in fact shunts risk down the supply chain, as distributors now have to provide a lot of funding upfront.
‘We do now carry quite a lot of risk compared with the old model,’ says Boden. ‘For example, on a 24-month contract, we advance our dealers 19 months’ revenue for the basic line rental. So, it is a risk if the customer pulls out of the contract.’
Mainline has found that it is the SoHo customers who are the most lucrative. ‘They are not that cost conscious, unlike bigger firms, who tend to come down harder on staff who are spending a lot on their mobiles,’ says Boden
However, SoHo customers are very difficult to target as they are so diverse.
But Mainline now has another string to its bow. It used to sell Orange exclusively, but the merger of Orange and T-Mobile has given the distributor and its dealers the ability to sell both brands.
‘We have been amazed at how popular T-Mobile has been,’ says Hollinshead. ‘It’s been overwhelming. We’ve had over 100 dealers wanting to sign up T-Mobile and we haven’t even really started marketing the brand yet. Demand is coming both from our existing Orange dealer base and from new dealers.’
Boden adds: ‘Technically it is the same network, or will be, but it gives
us a wider range of tariffs and a different range of handsets, so that’s good for us. Before, dealers who like to quote on two propositions would offer Orange and, say Vodafone, but now they can offer Orange and T-Mobile, so that’s a win-win for us.’
The rise of the smartphone
Mainline has decided to concentrate on selling a smaller range of products than many of its rivals. ‘We’ve taken the view that we should not flood the market with a lot of offerings,’ adds Boden. ‘Many of our competitors come to market with a lot of different offerings, but a lot of those products don’t have enough demand, enough profit margin or enough support from the operators.’
The rise of the smartphone is also changing behaviours and sales. 78% of Mainline’s customers are now on 24-month contracts. The next most popular contract length is 36 months. One in two handset sales is now a smartphone, with RIM’s BlackBerry taking 28% of total sales, closely followed by Apple.
Boden says iPhone sales are limited by the number of Apple authorised dealers the distributor is allowed to use. HTC products are also in high demand in the enterprise sector. Mainline is selling everything it can get, but HTC’s problems with supplying enough stock at the moment is inhibiting sales.
Mainline currently has two main dealer programmes. The consumer-based m-viron accounts for just 5% of the business, but Boden says Mainline is looking to find appropriate niches for it, be they geographic or targeting SoHo customers.
On the enterprise side, the distributor has its Business Mobile premium programme for top performing dealers, but it is looking to expand this.
Mainline will unveil its new tiers in the first quarter of 2011. Hollinshead says: ‘We want to make sure we incorporate Orange’s partner programme so the two complement each other.’
Looking ahead, Boden thinks the overall economy ‘could be ugly next year’, adding: ‘But we are aligned with Everything Everywhere and it is very ambitious, it wants to go places, so that’s good for us. And the channel
is remarkably resilient.
‘This year our results are holding up, but we found we had to work harder just to stand still and I think everyone is in much the same boat. Dealers are well placed to help businesses with their costs by advising them on the right tariffs or by helping them drive efficiencies through investing in improved technology.’