The race is on to capture new 3G customers, but which marketing strategy will prove successful? David Adams looks at how the big players are shaping up in this crucial battleground.
No-one ever went into the mobile phone industry for a quiet life. The last three years have been just as strange and unpredictable as the three before them, and with the launch of more 3G services likely to come in the next 18 months, placing bets on how the market will look three years from now would be reckless.
What is certain is that the way that 3G services are presented to potential customers is likely to have a significant effect. Marketing these services is a real challenge, because they and the infrastructure that will be needed to provide them are still in an early stage of development, and because it will be important not to inflate consumer expectations as happened so disastrously with WAP. But even assuming that the road to commercial success in the 3G market is likely to be long and difficult, operators will want to start travelling along it as soon as they can, lest they give faster moving competitors too much of a head start.
Oddly, the fact that it seems to have taken so long for 3G phones to get off the ground at all may actually work to many operators’ advantage, as it has served to deflate some of the hype and the novelty factor. Operators could even benefit from the way 3 is introducing the public to 3G. Although some have criticised 3 for promoting its packages on the basis of cheap voice rates rather than the 3G services themselves, arguably the conditions in which the company found itself at launch, with a limited infrastructure and with no single 3G application likely to capable of driving demand on its own, meant they had little choice. Nor should the success they have already had be belittled, according to Mark Cook, executive consultant at Cap Gemini. “It’s easy to bash 3 and it’s not always fair,” he says. “They’ve set themselves some extraordinarily difficult targets and come a long way in a short time. Remember that it took cellular phones four years to reach half a million customers.”
Others are less generous. Andrew Wyatt, VP of marketing at Intuwave, can’t understand why 3 didn’t start by concentrating on business customers. “I think you have to go back to basics and ask what 3G provides, then identify the people to whom you think that thing would be useful,” he says. “Basically, it provides increased bandwidth, and that’s most useful for business customers. They’re also the people who can afford to pay the sort of money that will make this profitable for the operators. It’s much harder to see the consumer proposition. There are ways 3G could be useful, but there’s no one dominant service, so you need to build a portfolio of services and sell them through the value they offer, rather than for the technology itself.”
3 is also handicapped (for the moment), by the fact that it is the only show in town. Who can you send your video messages to? SMS is popular because it is ubiquitous, because consumers know how to use it and they know how much it costs. It could be some time before you can say that about 3G services. On the other hand, many of the services don’t depend on ubiquity, a message that the next entrants in the market will surely have to push harder. Andrew Wyatt uses the example of Traffic-i, available on the Symbian platform, which allows users to monitor traffic problems wherever they are. “I love it, and I don’t need anyone else in the world to have that on their phone for it to be useful to me,” he says. But services like this cannot deliver the usage figures that operators will need to justify their investment in 3G licenses. Nor can “goals, gambling and girls”, as the phrase goes, and a target audience of ‘young males with money to burn’ sustain the market forever.
There technical issues to overcome too. Recent research suggests that most consumers base their initial buying decision on the handset, but base loyalty to a network on the level of reliability it provides. This has serious implications for 3G services, because even the boys with toys will give up on phones that don’t do what they’re supposed to, or are too difficult to use. Intuwave has recently completed research that showed 30 per cent of customers who’d bought a smartphone didn’t understand all its features, and that 29 per cent didn’t know how to load the applications. And these are the technologically literate early adopters.
The other problem with having overly complicated phones is that it takes longer for call centre staff to help customers solve problems, if they are able to do so at all. “Quite often these turn out to be problems with the network,” says Andrew Wyatt. “That’s hardly encouraging the customer to trust the service.” Consumers will compare the new phones with what they already have, and all the new features in the world won’t make up for a simple lack of reliability from handset or network.
And of course the network itself is still under construction. A look at the map of 3’s video mobile network on its UK website reveals a spindly twist of threads stretching from the south-east through most of the UK’s major conurbations that will look familiar to industry veterans. True, this delicate looking web now covers 70 per cent of the population, as the company announced triumphantly in December, but there are vast tracts of the country where it won’t be possible to use many 3G services for quite a while.
So, if the value of 3G services is difficult to quantify in anything other than abstract terms, if individual applications only appeal to quite different niches of people, and if technical limitations will continue to dog some services for the foreseeable future, then the strategy 3 has pursued of using cheap voice packages as a main marketing tool suddenly looks perfectly logical. And effective. By mid-December it could point to 220,000 customers, with revenue per user of £44.56 per month. The company has supplemented its marketing drive with an effort to make its pricing plans unusually simple and easy to understand, as well as inexpensive, to try and capture as many customers as possible.
“Fourteen per cent of our revenue comes from data services, and that’s in line with our business plan,” claims 3 spokesperson Ed Brewster. “Over the next few years we expect to see the proportion between voice and data revenues to change until eventually it’s something like 50/50, with the usage of both voice and data having grown and with the customer not spending any more money.” But Cap Gemini’s Mark Cook doesn’t think that can be sustainable forever. “Those prices are based on a need to grab customers,” he says. “At some point those tariffs are going to have to go up, otherwise you can’t stay in that market in a competitive way. And you’re going to have to find a new way to market these services to more people other than boys with toys.”
This should become easier as more operators enter the market and more services are developed. Vodafone is expected to be the first. Like T-Mobile and O2, Vodafone isn’t saying exactly when services will launch, but it seems likely it will happen at some point in the new financial year. (By the time you read this announcements may have been made at Cannes.) Its data services are up and running already, and, perhaps more significantly, its brand awareness is unmatchable. Chris Solbe, communications manager at the UMTS Forum, believes the brand will continue to grow in importance as a means of differentiation. “If you look at the way Vodafone is selling its Live package at the moment, there’s almost no mention of the technology at all,” he points out. Vodafone and the other operators won’t have to spend as much time brand-building as 3 and already have structures in place to sell to consumer and business users.
This leads Solbe to speculate that maybe the operators that follow 3 won’t make anywhere near as much of a fuss about launching the new services. “3G may roll out almost by stealth, as the latest stage of a journey that the operators and their customers started some years ago,” he says. He suggests some may try to avoid the technical difficulties of trying to build too broad a customer base too quickly by keeping prices high and concentrating on serving smaller customer bases to start with.
Solbe also thinks that the way the operators target the new services may have to change. “I think the old idea of consumer segment and a business segment needs to become a bit more sophisticated,” he says. “There are a lot of people who aren’t really one or the other in the way they use their mobile phones. The operators may have to be a bit smarter.”
If the operators want to capture more of the mainstream consumer market then retailers will have to carry more of the marketing burden. At present, according to recent mystery shopper-based research, most mobile phone store sales are still made on price, not services — yet another piece of evidence that seems to vindicate 3’s decision to concentrate on cheap rates for voice, as is recent research carried out by the UMTS Forum and the Digital World Research Centre at the University of Surrey that suggests voice remains by far the most important function of a mobile phone to a majority of users.
Meanwhile, the way marketing reacts with cultural factors also has important effects in the longer term, as is illustrated by changing attitudes to mobile phones in the past decade. Using a phone in public has become more socially acceptable (although within the last year my partner has been thrown out of a pub in Cornwall for answering a ringing mobile) and people in their 20s and 30s who don’t own a mobile are regarded as deeply eccentric by their peers. The UMTS and DWRC research also confirmed that people have closer emotional ties to their phones than to any other piece of technology. Somehow the operators will have to tap into this sentiment.
Marketing has played its part in these changes. In future it may even be directed at those groups of the population who haven’t yet bought into the mobile dream. “I think as other operators enter the 3G market they may segment consumer offerings in more sophisticated ways,” says Chris Solbe. “At the moment most mobile phone adverts are all pretty much the same, it’s all about young, lively people. I would predict that we’ll start to see some more subtle segmentation, by age, by gender, by all kinds of things. You might start seeing mobile phone adverts aimed specifically at the over 60s. Why not?”
Further into the future, the levels of technical support operators can offer will have to become a selling point. “If we get to the stage where there’s a mass market then there will be a degradation of the 3G service as more users come onto the network and fight for bandwidth,” says Cap Gemini’s Mark Cook. “How the operators cope with that will provide an opportunity for differentiation.” Andrew Wyatt believes the first operator able to offer some kind of service level agreement will pick up customers.
It seems likely that by the end of 2004 many operators will have launched or be preparing to launch commercial 3G networks. Doubtless each will be monitoring the activities of its competitors even more closely and suspiciously than before. But although it remains to be seen how many 3G operators the market can support, in the short term the expansion of services and networks can only help make marketing easier. As 3’s Ed Brewster says: “We’re very supportive of a new entrant in the market: two companies driving 3G is better than one.”