Omnitel Pronto Italia

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CASE OVERVIEW
Omnitel entered the Italian telecommunication market in February 1995. Till then the Italian telecommunication market was dominated by Telecom Italia Mobile which had a monopoly in this market.
The rst private company to enter the Italian telecommunication market was Omnitel. This was facilitated by the decision taken by the European Commision (EC) in 1993 that all member states should open their markets and guarantee competition in the telephony market by January 1998. Omnitel had to purchase a license for the GSM network for 760 million dollars. Currently the biggest competition for Omnitel is Telecom Italia Mobile (TIM) which was formed in July 1995 and was listed in the Italian stock exchange after splitting from its parent company Telecom Italia. TIM had a customer base of over four million and held 97% of the market share. STRATEGY TO OBTAIN MARKET SHARE

Omnitel is at a critical stage at this point unless penetration in the market is achieved prospects for growth are limited. During the initial six months Omnitel oered plans similar to TIM and focused mainly on high quality customer service. This was the only dierentiating factor between Omnitel and TIM.

By means of a market survey conducted it was found that a large share of mobile phone users were reluctant to change brands. Unless new revised plans and schemes by Omnitel were oered the company would not appear attractive to prospective customers. Two high level management executives of Omnitel were of diered viewpoints. Fabrizio Bona the Marketing Director of Omnitel proposed the idea of LIBERO, which eliminated the monthly fee completely and making payments for only the time duration of the calls made by the customer. At the same time Francesco Caio, CEO of Omnitel was of the opinion of oering customers handset subsidaries in exchange for signing a contract with the company. This would be done as a substitute to eliminating the montly fee charged to its users. He was of the opinion that by doing this he would be able to guarantee

a constant revenue scheme from the monthly fees. Such
schemes had worked elsewhere in Europe.
ALTERNATIVES AND THEIR SWOT ANALYSIS
Subsidized handsets with contracts
In this plan we provide the customers with a handset at lower than market rate (in addition to the usual call plan).
• Strengths:
 Proven Strategy in the other European markets.
 Tested and proven in several other countries.
2
 A decrease in cost of handsets might entice customers- subsidies lead to a fall in the price of the handset, thus decreasing the initial cost of acquiring a connection for a customer.
 Constant Revenue stream for the period of the contract- this guarantees constant monthly subscription fees irrespective of the usage thus ensuring a xed revenue from every customer.
 Initial cost of acquisition is low hence this might be more attractive to the low income groups thereby increasing our market penetration.
• Weaknesses:
 Not suitable for Italian market because Italians being very brand conscious might consider a subsidized handset below their status.
 People are unhappy with xed charges and in this plan - here we have two xed charges i.e. the connection charge and the monthly subscription charge.  Customers seek a sense of exibility & freedom in any purchase, therefore being locked in a contract might be a deterrent to their purchasing decision. When I rst signed up for a cellular phone, I got the phone for free but I had to sign a contract for a year, which seemed alright at that time. But I was shocked to see my bill at the end of the rst month. It was so very high. It included the connection fee, the activation fee and the monthly fee. I felt duped because of all these other charges. I discontinued the service as soon as the contract was up?- Previous cell phone customer.

 Increase in Customer Acquisition Cost - As company has to bear the cost of providing subsidies on handsets for this plan, the...
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