Finding value for consumer

by Bharti Gupta Ramola,
   Sivarama Krishnan,
   Mohammad Chowdhury, and Anuj Jain
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While a fair amount of research has been done on brands and customer satisfaction, little meaningful research exists on core consumer value. In the telecom industry, many will argue that brand and customer satisfaction are critical elements for success in this evolving and increasingly competitive market. However, without understanding what value consumers place on what is being offered, it’s difficult for operators to effectively build and modify their strategies for the future.

With this in mind, last fall, PwC’s telecom practice in India teamed up with a leading Indian business school to understand consumer value. What is it that mobile users value most and how much value do they place on what is being offered to them?

The result was a study of usage patterns and consumer value in the Indian mobile telephony market, conducted in conjunction with the Indian Institute of Management, Ahmedabad. Since it was launched, the study has generated interesting insights about consumer value in general and value for the mobile user in India in particular. While the study focused on the Indian market, we think the findings will be of interest to operators in other markets - if for no other reason than to get them thinking from a different point of view about the consumer and their service offerings.

The telecom industry is at a crossroads today as subscriber growth has tapered off. Operators are now more focused on reducing churn and increasing average revenue per user (ARPU), rather than concentrating on adding subscribers as in the halcyon period up to 2010, when India added up to 20 million subscribers in some months.

To gauge the value consumers place on mobile services, we conducted the PwC-IIMA Survey on Consumer Value. We interviewed 2,152 consumers across 17 locations and six telecom circles in India. The interviews were conducted across different socio-economic classes, age groups, genders, and professions[1].

We asked mobile telephone users to rate the economic, social, and personal benefits they derive from telecom services. At an aggregate level, respondents reported deriving more social and economic value followed by personal value. Eighty-four percent of consumers feel that mobile is good value for money and 80% believe that mobile is important to them. Mobile consumers see most value in a feeling of security, being in touch with their family, helping them co-ordinate with others, saving time, and expanding their social network.

Are operators leaving money on the table?

In a perfect world, brand, price, and value would be in equilibrium. However, brand consciousness for telecom services is significantly lower than price and value.

[Editor’s note: The socio-economic classification (SEC) system in India is used to classify households based on education levels and asset ownership.]

Within socio-economic segments, SEC C has the lowest brand consciousness but the highest price and value consciousness. This segment, comprising the skilled working class, appears to be a tough-to-crack market as consumers are focused not only on the sacrifice (price) they are making in owning and using a mobile but also on the return they get (value). They are not looking for brand intangibles. According to our study, some unique characteristics of SEC C are: highest propensity to churn (switch provider); lowest propensity to migrate to postpaid; less than expected propensity to shift to 3G. Yet, they make use of the most features in a smartphone.

For SEC A, since price consciousness is lower than value consciousness, marketers will want to examine if they can command more premium for the value on offer. SEC D and E, making up 47% of India’s population, see least value in mobile telephony. There is room to show them more value and thereby potentially improve revenue.

The survey also revealed that no segment values brand above price or value in India. Changing this view should be a top priority for marketers in order to combat long-term churn and rotation.

One of the most exciting findings of this survey is that mobile users’ aspirations to buy a more expensive phone are largely irrespective of their socio-economic status. To us, this underlines the hope and aspiration of the Indian consumer.

As they are exposed to higher value products, even when current income levels do not justify such a leap, they aspire to own them. When measured by consumer aspirations, the market looks very different from the current reality.

What determines the mobile experience?

We asked consumers about the importance of handsets versus networks in the telecom experience. The majority believe that the experience is determined by the network. This is not necessarily good news for operators, as it places the burden of delivery on them for a superior user experience. However, it also presents them with the opportunity to differentiate from their competitors on network range, speed, and quality.

When asked to recollect the brands that come to mind when they think about mobiles, almost 90% of customers had top-of-mind recall for handset brands more than network operators. So there remains a distinct opportunity for operators to differentiate the network from the device as the key to a quality experience, and thereby increase network brand recall.

When asked specifically about their perception of network brands, respondents indicated that the significant brand differentiator across circles is network coverage. In a metro market such as Mumbai customer service is most important, while in Assam network quality is the biggest driver for a differentiated brand.

Postpaid migration: Has its time come?

Given it is a largely prepaid market, most people have now forgotten that in India postpaid services were actually launched earlier than prepaid. However, it was the introduction of prepaid services that drove penetration and ushered in the mobile revolution. With subscriber growth slowing, one of the ways for networks to increase usage and revenues, reduce uncertainty of cash flows and churn is by converting selected consumers from prepaid to postpaid.

Industry data shows that, in general, postpaid consumers not only provide a steady revenue stream, but around 5x the ARPU of prepaid[2]. Postpaid subscribers also tend to spend more on other value added services and their loyalty to the network is higher. The churn rate of postpaid subscribers is only 35%[3] versus 70%[4] of prepaid.

We looked at the SEC segments, professions, and age profiles to see who were willing (likely and highly likely) to migrate to postpaid. Among socio-economic segments, SEC A and SEC B showed the highest propensity. Among professions, students and salaried professionals had a higher propensity to migrate to postpaid. By demographic profile, millennials were more ready to migrate to postpaid.

Marketers have the opportunity to target their below-the-line campaigns with much more certainty if they cross-analyse their consumers by income segment and profession in order to reduce the cost of customer acquisition.

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[1] Extensive insights on the profile of the interviewed sample can be found on our website at www.pwc.in/publications/finding-value-for-consumer.jhtml.

[2] Interim Management Statement-Quarter to 30 June 2013, Vodafone.

[3] Ibid.

[4] Quarterly Report – First Quarter Ended June 30, 2013, Idea Cellular Limited

 

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.