Uplifting ARPU By Designing Customer-Specific Handset Strategies

While mobile operators spend a great deal of effort and energy in trying to boost ARPU through various marketing initiatives, few have customer-level handset strategies in place, strategies which allow for ARPU-boosting actions to be taken on a customer-by-customer, handset-by-handset basis…

Handsets are increasingly becoming the lifeline of the telecom industry, insofar that their importance in acquiring and retaining subscribers is increasing day by day. In most markets, handsets act as the sweeteners for acquisition purposes, wherein subscribers are lured to sign a 12 or 24 month contract in exchange for a free or discounted handset.

This trend is growing globally, with operators competing not just on price via their tariffs, but via the free or discounted handsets – as such, the handset is essentially becoming a service offering of the telecom, part of the overall benefits a subscriber gets when he or she signs on to an operator. Such offers are generally associated with postpaid tariffs, however, much less so with prepaid plans.

Such strategies / offers have helped telecoms particularly around the pursuit of two objectives – the increasing of subscribe acquisition and the decreasing of subscriber churn. They barely, if at all, help in the pursuit of a third key objective, which is existing subscriber ARPU growth.

We believe there are, in fact, significant opportunities around pursuing this objective, via the development of effective ARPU growth handset strategies – particularly, in driving voice, SMS, and data usage of subscribers on a customer-by-customer level. Driving this opportunity is a simple fact – certain handsets (due to their design, ease of use, features, etc.) in the hands of certain subscribers will be used more often than other handsets in the hands of the same subscribers. Two simple and generic examples to illustrate this point:

  • Elderly subscribers will use a mobile phone more often if that phone has large keys as well as a large screen. A Nokia e71, with its tiny keyboard, for example, simply isn’t suited for them – in fact, pushing such a phone their way via a campaign could lead to a decrease in this segments’ ARPU.
  • SMS addicts on non-Smartphones will decrease their SMS usage should they switch to iPhone or Android-supported phones, via the discovery of SMS replacing apps like WhatsApp – as such, pushing such phones to certain types of subscribers can detrimentally affect ARPU.

To most effectively ensure the protection / growth of ARPU as related to handsets on a customer-by-customer basis, we believe operators need to design their own ARPU growth handset strategies through doing the following:

1. Understand Handset Impact

The first step is to understand the revenues generated (on a customer-by-customer, segment-by-segment) by subscribers using different handsets, broken down by revenue type – voice, SMS, and data. Each brand and model should be examined, and ranked based on the findings, by customer segment.

Such an effort should become a routine exercise for a telecom’s marketing / business intelligence department, conducted quarterly, to understand in general the impact that certain brands and their models have on ARPU. An operator may find, for example, that a recently promoted handset is relatively low in the ARPU rankings and could discontinue pushing it.

2. Understand Handset Switch Impact

The second step is to then examine the changes in ARPU when subscribers switch their handset model and brand, from one to another, for every single handset brand and model. To clarify what we mean, let’s take the iPhone 3GS, as an example.

From the first step, we know how much ARPU current subscribers who use iPhone 3GS are generating, broken down in terms of voice, SMS, and data. In this step, we will examine whether this is higher or lower for subscribers that are currently using this phone, vs. the ARPU they generated with their prior handsets.

What this effort will show is that subscribers who used to use a certain handset model and brand who now use the iPhone 3GS are generating less ARPU than they used to, while others are generating more, now that they have switched to an iPhone 3GS (i.e. subscribers who used to use a Nokia e61 and now use an iPhone 3GS are showing a 25% increase in ARPU – broken down as follows – data revenues up 54%, voice revenue down 2%, SMS revenue down 3%).

Then, the next step will be to examine the opposite direction impact of subscribers switching handsets from one model and brand to another. Using the iPhone 3GS as the example once again, we will look at what happens to subscriber ARPU once they stop using the iPhone 3GS and switch to another model and brand, to again understand the bottom line impact of the handsets on driving up or down ARPU. Such an exercise may find, for example, that subscribers who switch from the iPhone 3GS to the iPhone 4 in fact exhibit a drop in ARPU, but spend more when they switch to Android-based handsets.

3. Develop / Revise Handset Strategies

With the above effort conducted, the impact of pushing certain handsets towards certain subscribers will be clear. Moreover, on a brand / model by brand / model level, a strategy can be developed that will ensure the protection / growth of ARPU by seeking to migrate subscribers from certain handsets to others. For example, the above will find that subscribers who use handset X show the highest ARPU increase when they switch to handset Y. Accordingly, a campaign can be developed targeting just handset X subscribers (below-the-line) to make the switch to handset Y. The level of change in ARPU can even dictate the level to which the operator can subsidize the switch.

On an above-the-line level, the handsets and brands the operator should push (by customer segment) can also be determined. This can reflect in the neighborhoods the operator can choose to advertise certain handsets in (based on where certain customer segments / handset subscribers reside), the handsets it can choose to promote in certain shops (again, based on where certain customer segments / handsets subscribers reside), etc.

4. Make the Practice Business as Usual

After revising below and above-the-line handset targeting / migration strategies, operators should conduct such an exercise every quarter to examine shifts in behavior and consumption patterns, so as to revise their strategies.

The introduction of new disruptive value added services (such as WhatsApp), new handsets, and new subscribers may be reasons that such strategies will need to be revised, reasons why certain migration paths from one handset to another will need to be redrawn.

We believe the above effort is one which should become practice as norm for mobile operators worldwide, as handsets continue becoming the lifeline of the industry in dictating how customers are acquired, how they are retained, and how much ARPU they generate. To learn more about developing effective ARPU growth handset strategies, please contact info@forteconsultancy.com.

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