April 27, 2014

MENA Telecom Operators Must Embrace Analytical Marketing Techniques to Survive in Today’s Saturated Mobile Communications Sector

New York, 23rd April 2014 – Little progress is being made in bridging the digital divide between technology savvy nations and others, according to the 13th edition of the Global Information Technology Report 2014. The stalling of progress is worrisome for emerging and developing nations, which are at risk of missing out on many positive impacts information and communications technologies (ICT) bring, including increased innovation, economic competitiveness and greater social inclusion.

With telecom market penetration estimated to have stood at 105 percent in the Arab world in 2013 – and operators finding it increasingly challenging to compete in such environments – there is an imperative need for a radical new approach to marketing across the region’s telecommunications sector

Today, the mobile telecommunications market in developing economies has saturated, with subscriptions frequently outstripping the size of population. Most operators in the MENA region have been unable to sustain growth levels by continuing to rely on traditional go-to-market approaches. The traditional, aggregate method of marketing products – taking consumers as large averaged groups or as a few segments – is failing to yield results as it is now more difficult to use pricing as a means to stimulate top-line growth. According to Strategy&, formerly Booz & Company, to survive, regional telecom operators need to embrace a new level of targeting and rethink their entire approach to marketing – fundamentally reorganizing themselves to allow more effective growth campaigns.

Rethinking Marketing

Across the Middle East, customers today are becoming increasingly sophisticated, and have arguably become more advanced than telecom marketers themselves in their understanding of the mobile market. As a result, telecom operators are being forced to pay high customer acquisition costs, and face elevated subscriber churn rates and declining ARPU levels. Competition within the industry has also increased. Revenue from services is at best stagnant as operators seek to combine dwindling traditional offerings with new avenues of growth, such as broadband and content. Turning this tide poses a major challenge.

The following conditions now characterize the telecom sector in emerging markets:

  • A decreasing number of new subscribers with lower ARPU levels, requiring operators to increase their acquisition costs.
  • Price reductions that are cannibalizing existing revenues, with current customers becoming more dynamic in switching to the most attractive plans.
  • Natural erosion of traditional telecom services (messaging and voice) by over-the-top services, such as Google Voice, Skype, and WhatsApp, and increasing competition within the industry itself.

Operators are also confronting the need to rationalize their spending, with investment in marketing and sales falling victim to the ongoing search to improve profitability.

Finding the Answer Within
“Following the lead of mature markets, regional telecom operators should smarten their marketing approach by adopting analytical marketing techniques, identifying pockets of value and generating maximum possible returns from these small areas,” said Hilal Halaoui, Partner with Strategy&. Halaoui explains the two-fold rationale for this approach:

  1. there remains pent-up demand in a multitude of niche segments
  2. operators can increase profitability by mining and understanding these segments, and adding together the marginal returns

Organizations have started to understand the need to shift from the one-size-fits-all mind-set of the past and develop a long-term relationship with each unique customer. More broadly, they are grappling with challenges and questions related to boosting revenue; reducing customer acquisition and retention costs; and, rationalizing the cost of service.

Having collected large amounts of data related to customers’ profiles and communication behavior, operators are in an ideal position to respond to these challenges. The answer already lies within their grasp, from what is commonly referred to as Big Data.

“We refer to the process of mining and analyzing Big Data for such commercial purposes as analytical marketing,” stated Hicham Fadel, Principal with Strategy&. “Such activities involve extracting commercially exploitable insights from every data set in order to improve understanding of individual customers and their behavior, as well as the general dynamics of the market and its micro-segments.”

With the enhanced awareness that comes from analytical marketing, operators can develop completely tailored value propositions that specifically cater to individual customer needs, and reduce the overall cost to serve. To give two examples:

  • A customer in the United Arab Emirates is frequently sending texts to his friend in Oman; the mobile operator detects his behavior and offers an additional service with discounted international rates to Oman.
  • A customer is downloading her favorite show on her tablet; the mobile operator offers an additional service to improve the quality of service and the speed of download.

“Incorporating analytical marketing into the organization entails making data mining a priority – a major shift in operators’ marketing practices”, added Fadel. “Only when information is mined out of aggregated data does it become invaluable in helping operators to stamp out inaccurate assumptions about customer behavior and market trends.”

Reaping the Benefits of Analytical Marketing

Analytical marketing methods have demonstrated proven results in markets that are becoming saturated. The techniques of analytical marketing run through the entire marketing cycle.

The three main phases of marketing are Upstream (researching market potential); Midstream (preparing to go to market); and Downstream (going to market).

Operators should embark on a major change program for marketing, revolving around five key capabilities:

First, operators must build their data management capabilities – data collection and cleansing, storage and ease of access to provide comprehensive, reliable data assets that are amenable to analysis. This phase also includes creating the right linkages between different data sets and accordingly coming up with a comprehensive history at customer level.

Second, operators should strengthen the analytical prowess of the organization by improving micro-segmentation and profiling capabilities.

“Indeed, the marketing function as a whole must undergo a process of commercialization, becoming more nimble and responsive to customer needs,” explained Mahmoud Makki, Principal with Strategy&. “New ideas must be encouraged and then disseminated quickly, resulting in a more efficient decision-making process where the commercial concepts with the highest potential are seized upon without delay.”

Fourth, better product design capabilities are necessary to accelerate the marketing cycle. Marketers should be trained in all areas of design – innovation sourcing, pricing, economic analysis, product prototyping, testing – and encouraged to introduce innovations throughout the product/service delivery chain. Such innovation can be made possible only by flexible network and IT platforms that allow complex products to be rolled out quickly.

Lastly, operators should foster adaptive learning capabilities, with more accurate measurement of the effectiveness of marketing activities by means of performance tracking and efficient feedback, and through strengthening the ROI mind-set within the marketing function.

“This transformation program may at first seem complex”, said Halaoui. “However, operators often fail to realize that they already possess most of these capabilities – they simply need to be refined and unleashed. Success will eventually hinge on the interaction between three core enablers— people, systems, and processes – across all capabilities.”

The deluge of customer information is just beginning. Every digital packet transmitted through the operators’ network is a potential source of information. When this is combined with customer information from external sources – such as social networks, or online shopping and behavior – operators will attain a more holistic view of customers’ lifestyle and preferences. Telecom operators will have a natural advantage in the new era of Big Data, as they possess more customer knowledge than their counterparts in a range of other industries. As a result, they have a growing number of monetization opportunities. However, many operators still have a great deal of catching up to do. The race is on.