Research Notes

Managing marketing costs is high priority

– when working with Micro-Segmentation and Sub-Branding
In the “good old days” the handset manufacturers and the mobile operators were like your local grocery store, they could easily handle the marketing needs of their relatively limited selection of goods by advertising in the local newspaper. Today the handset manufacturers and mobile operators are no longer local grocery stores, but are more similar to a number of small shop-in-shops in a department store, with a large selection of goods targeted towards many different customer segments. This development has had a negative effect on the marketing budgets.

In fact it is not that many years ago that the handset manufacturers only announced a relatively few number of new mobile handsets each year and the variation in the design and functionality of the products was somewhat limited and easy to comprehend for mobile customers. The mobile operators’ selection of subscriptions and types of services was also manageable, because the selection was not especially varied and all the types of subscriptions and services were targeted at all mobile customers. The few variations amongst the handsets, subscriptions and services were partly a consequence of the limitations of the technology at that time and partly due to the total customer mass still being reasonably homogeneous.

Much has been said over the mobile phone since then. Mobile telephony has become a modern mass-market product that is in demand from an inhomogeneous customer mass, where the handset manufacturers and mobile operators can no longer survive on just delivering “one-size-fits-all” mobile handsets and services. Mobile markets in many places around the world are already mature. This is especially due to mobile penetration on those markets has reached around 85-100%, which means that the total customer base consists of very different customer segments with very different prerequisites and needs in connection with their use of mobile telephony.

That the total customer mass in the mobile industry has become so inhomogeneous has meant that the handset manufacturers and mobile operators have had a significantly increasing tendency to focus on using micro-segmentation and sub-branding. In other words mobile users are demanding variation – and the development of the mobile technology has made variation possible. To be able to attract all types of customers, the handset manufacturers and operators have to be able to offer an increasing number of different types of services and products, with the knowledge that each individual service/product category needs to be marketed to a specific customer segment.

This development towards micro-segmentation and sub-branding will put pressure on the manufacturers and operators marketing budgets! Higher marketing costs will be a natural consequence as market players launch a larger number of advertising campaigns than they used to when addressing the mobile market. Previously most of the manufacturers and operators could reach the whole mobile market with one individual advertising campaign. Today there are much larger demands on each individual campaign to ensure that they are specifically targeted towards the correct customer segment. Therefore the mobile players have to create many more different marketing campaigns for different types of products and services targeted at different customer segments.

Many mobile operators have in this connection had to admit that their single brand strategy no longer has a wide appeal to the total customer mass. Therefore operators need to launch a number of different sub-brand offerings, that each need to be marketed with advertising campaigns created specifically for a limited number of customer segments. In this connection it is interesting to note that the mobile operators in South Korea have been working for a number of years with sub-branding and that they have been unable to avoid increasing marketing costs.

The handset manufacturers will also experience increasing marketing costs as a consequence of having to market an growing product portfolio of different handset models to an increasing number of different customer segments. One of the reasons for this is that the mobile telephone has – certainly for many mobile users – become an important and very personal item, that does not just cover a customer’s individual needs for mobile communication, but also visualises the customer’s identity and personality. Mobile users have very different needs and they need to be able to show that they are also different as individuals. This is why handset manufacturers are currently splitting mobile users up into micro segments, so their development, production and marketing of new mobile handsets is deliberately focused towards specific customer segments.

Mobile players would prefer to avoid increasing marketing costs – especially the mobile operators that are very focused on minimising their OPEX. So the optimal sub-branding strategy will therefore depend on an evaluation of how much extra revenue the segmented brands/handsets are expected to generate, compared to the extra costs in connection with the introduction and operation of the brands/handsets.

Due to the increasing tendency to use micro-segmentation and sub-branding, the administration of marketing budgets will become a business discipline that will both require competency and awareness. This interesting trend of a rather significant increase in mobile players marketing budgets will however not be the only tendency that will result in the paradigm shift in the mobile value chain.

Strand Consult has identified a total of 10 Mega-trends that are all analysed in depth in a new report “Mega trends in the mobile industry – a question of life and death” (300+ pages). These 10 Mega-trends, will cause turmoil in the market for mobile telephony and lead to major changes across the whole value chain, changes which will lead to the launching of new business procedures and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on handset manufacturers, content providers, mobile operators and dealers and the report puts forward suggestions on which considerations and initiatives each market player must examine to prepare themselves for the effect that the 10 Mega-trends will have on the mobile market.
Mega trends in the mobile industry

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