Research Notes

“When Less Means More” – Micro Segmentation becomes a Necessity

If You Want To Think Big In The Future Mobile Value Chain.

Children, young people, old people, men and women – everyone has their own mobile telephone and some have more than one. Some mobile users use their mobile telephone a lot, while most only use it a little. Some only use their mobile telephone for private calls while others use them for their work – and some independently of time and place. Mobile telephony has become a mature mass-market product with a non-homogeneous customer mass – where handset manufacturers and mobile operators can no longer survive on the “one size fits all” motto for mobile services and mobile handsets. This is the reason why the players in the mobile value chain are more or less forced to increasingly use micro-segmentation.

In the near future there will be a strong tendency for both handset manufacturers and mobile operators to increasingly focus on micro segmentation of their customer target groups and customer bases. This is especially due to the very high mobile penetration that many markets now have. The high penetration means that the total customer base consists of very different types of mobile customers with completely different prerequisites and needs in connection with using mobile telephony.

One of the consequences is therefore that handset manufacturers and mobile operators need to be thinking about micro-segmentation when they in the future want to think big. Compared to today, handset manufacturers and mobile operators will in the future have to offer an increasing variety of services and products, that individually might only appeal to a few narrow customer segments. This will be unavoidable if you have a large total customer base that consists of many different customer segments.

For the mobile operators, micro-segmentation will especially be visible when launching different sub-brands targeted at different customer segments. This will be a direct consequence of the operators single brand strategy no longer being able to attract the many different types of mobile customers with many different needs. Some of these sub-brands will be launched by the operators themselves, while others sub-brands will be a result of a close cooperation between the operator and various MVNOs and/or Service Providers that can attract those customer segments that the operator has difficulty attracting themselves using their own operator brand/sub-brand. Without this focus on micro-segmentation and sub-branding the mobile operator will have great difficulty differentiating themselves from their competition and without sub-branding, the mobile operator will be in a relatively weak position regarding increasing their customer satisfaction and decreasing churn.

It is worth mentioning that the South Korean mobile operators have been working intensely with sub-branding for years. The main characteristics of the South Korean sub-brands is that they have focused on generating data traffic, where previously mobile operators with their single brand strategy had mainly focused on generating voice traffic. Is it necessary to remind you that the European mobile operators are currently battling against decreasing revenue margins on voice telephony due to the competition from amongst others the mobile discount companies?

But also the handset manufacturers will increasingly be forced to improve their competencies regarding micro segmentation of mobile customers. Very many mobile users perceive their mobile telephone as one of their most important and personal possessions, that both needs to cover the customer’s individual needs for mobile communication, but also needs to visualise the customer’s identity and personality. Therefore the handset manufacturers need to split mobile users into micro segments, so their development, production and marketing of new mobile handsets can be focused towards specific customer segments. For the handset manufacturers, micro-segmentation will thereby become visible through the launch of an increasing number of different types of handset models per year. For example, Nokia Mobile Phones launched 18 different new handset models in 1999 – in 2005 they launched 41 new models!

Micro-segmentation will also lead to both mobile operators and handset manufacturers starting to work with segmentation in relation to their distribution of both mobile services and mobile handsets. For example, mobile operators and manufacturers will focus on exactly which handset models will be sold in which types of stores and mobile operators will focus on which types of mobile services should be offered to different types of mobile customers.

The mobile operators and handset manufacturers’ use of micro-segmentation and sub-branding will without a doubt have large consequences for both the distributors, content providers, dealers and end-users. But it is very important to realise that micro-segmentation is far from the only significant trend that will affect the mobile market in the near future.

Strand Consult has identified a total of 10 Mega-trends, that each is analysed in depth in a new report “Mega trends in the mobile industry – a question of life and death” (300+ pages). Because of these Mega-trends, the market for mobile telephony is in the middle of a Paradigm shift that will affect the whole value chain and force the implementation of new business methods and revenue sharing models. The report analyses the effect that the 10 Mega-trends will have on the handset manufacturers, content providers, mobile operators and dealers. A “business as usual” approach to the future will for the same reasons mean the start of the end for those mobile players that do not react to these trends and therefore the report puts forward suggestions for which considerations and actions each market player should examine and launch to prepare for the effect of these 10 Mega-trends. 

Mega trends in the mobile industry

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