Vodafone Case Study

Situation Summary

The Vodafone case study has given us a good overall view of the company and shown the companies good and bad points, whilst showing the mobile phone business as a whole and explaining the ups and downs of the industry.

The SWOT analysis included in the appendix helps us see the situation of Vodafone and describes the strengths, weaknesses, opportunities and threats. This is an aid when looking at the internal and external aspects of the company.

Although Vodafone are the biggest mobile network in the world, they also have their problems. As a global organisation Vodafone have learnt how to acquire customers, building up a customer base in the UK of 13 million. But, they have become far too focused on acquiring customers, and they forgot about the need to retain them. In 2003 77% of people in the UK were already signed up to a network. Therefore the retention of existing customers must be focused on, rather than the acquisition of new ones. This has led to a high churn rate of 28%, a level of customer turnover very high for the company and much more than Orange who have the lowest churn rate of all mobile networks. This leads to great losses in revenue, and is a problem that Vodafone have needed to address.

Vodafone realise that one month before a contract ends is the danger zone for losing customers, and it is at this point they must take action to ensure they do not lose the customer. This is where a direct marketing strategy may be effective in order to target customers more efficiently.

If Vodafone know the reason why customers are leaving, they are able to adjust the problem and solve it. Vodafone are able to attract customers with their image of quality and a strong visual identity that makes them instantly recognisable, but because of the level of competition in the market and the number of price offers available to customers from different networks, more needs to be done for the consumer to choose and remain with Vodafone.

Vodafone have had problems with brand loyalty in the past, with low success rates with loyalty schemes (BA air miles), and their new Nectar points scheme is another attempt to retain customers, but more must be done. Price, new products, branding and service delivery are all factors that will affect a customers decision, and CRM is a major factor that Vodafone are trying to improve and integrate into their data knowledge. The organisation are building up a database in order to gain a better picture of customers in order to predict customers needs and target them with direct marketing specific to that customers requirements.

The ARPU is higher for contract telephones than for pay-as-you-go, therefore Vodafone's current target group of 15 - 19 year olds may be inefficient, as 15 year olds are not allowed to have contract telephones, and people of this age have little money - a low disposable income. This is a factor that may affect the churn rate, as it is easier to switch networks on pay-as-you-go then on a contract mobile phone.

It has been acknowledged that all mobile operators, not only Vodafone, have been over-focused on new technology and the mainstream customers have been left behind, not knowing how to use it. This is a problem, and needs to be altered to become more customer based. Direct marketing may be a source that can solve this problem, with information being sent to consumers so they are able to understand the new technology being offered to them and realise its uses.

The database Vodafone are building up will be of great use, allowing segmentation using both the information on customers gathered (call habits, customer value, loyalty etc), and geodemographic and lifestyle methods to approach existing customers more confidently and give them the information they need in accordance with their uses of Vodafone's technology. The data will also show if they have switched networks before, making them potentially more likely to switch again, and more attempts to retain this customer can be made.

Segmentation

Segmentation is defined as 'the process by which a firm partitions its prospective customers in to sub groups or sub markets.' "It is becoming increasingly evident that most markets are not homogeneous but are made up of different individual customers, sub markets or segments" (Pickton 2004, p344) This process means that companies can target specific groups more effectively through their marketing communications and may even establish a degree of dominance which would not be possible with mass marketing. Offering one generic product for all segments means the needs to some users are not wholly satisfied and it is also wasted on resources. Segmentation can be based on a number of variables and can be highly beneficial to a company as part of their marketing strategy.

Vodafone segment their market based on a number of key variables (mainly demographic and behavioural). Firstly, Vodafone segment their market by age. There are a variety of different age ranges which Vodafone cater for, e.g. 16 - 24, 25 - 35 etc. It is important that Vodafone segment their market by age for a number of reasons. To begin with the mobile phone usage rates of different age groups differ. Over 35's are less likely to keep their mobile phone on and are also less likely to send text messages than younger age groups. Furthermore, individuals in the younger age groups are more likely to change their mobile phones to keep up to date with the latest technology e.g. picture messaging and video calling. Young people are more likely to use their phones as part of their social life through text messaging or to keep in contact with their parents. Through segmentation of the market by age, Vodafone can target each specific segment effectively, providing what the consumer desires most.

Vodafone also segment their market based on the lifetime value of their customers. Individuals who have a mobile phone on a contract payment plan are of higher value to Vodafone than an individual who is on a pay as you go payment plan. This is due to the fact that Vodafone are guaranteed a certain level of income from their customer for a period of 12 to 18 months. This can then help determinate the allowable spend per customer on marketing to help determine return on investment.

Finally, Vodafone also segment their market by usage rates of their customers. Vodafone offer a variety of calling plans to suit customer's usage rates. They even offer specialist calling plans which are tailored to suit businesses. Through this method of segmentation Vodafone are able to identify their most valuable customers.