Phones4U Analysis - Case Study Example

Phones4U Analysis 2007 Phose4U is a large independent mobile phone retailer dealing in the UK and Northern Ireland, with the head office in Newcastle-under-Lyme, Straffordshire. Launched in 1996, the business grew quickly. Today the company has a network of 380 stores. Initially Phones4U was a part of the Caudwell Group and belonged to John Caudwell. It was sold to Province Equity Partners in September of 2006. The company offers mobile phones, tariffs, networks, accessories both in-store and online. In its advertising the company makes accents on the fact of its fast growing, and promises to provide the customer with excellent service. Internal Environment Being a part of Province Equity Partners the company is managed by CEO Tim Whiting and the Board of directors. The strategic decisions are shared between Whiting and John Welsh, retail director. In January 2007 the company also hired Charles Gurassa (previously working with Virgin Mobile) and his team, appointing Gurassa as Non-Executive Chairman. The company mostly implements top-down management. On the other hand, recently they have given some freedom to stores in decision making process (Phones4U, Press Release 2006-2007) Having entered the market pretty late, the company had only 60-70 stores, but in 2000 they started aggressive market penetration and expansion campaign, quickly enlarging the amount of their stores to 320. Still the company was known for poor service. Customers were complaining of “sharp-suited ‘double-glazing salesmen’ waiting to pounce” (Phones4U, Press Release, 2005-2006). Since 2005 Phones 4U has undertaken a number of strategic steps in order to improve the customers’ perception of the firm and strengthen corporate culture. In February 2005, with the purpose of increasing the staff qualification, the company launched a new central training academy, which improved their performance scores (Press Release 2005). Besides, they introduced a monthly Mystery Shopper strategy, checking their staff performance and custom service. Earlier, sales managers got bonuses for large sales volume. Now they could be fired or lose their bonus in case of poor customer service or high rate of customer complaint. Other tactics being used include: New Prepay Express, motivating the junior staff by promotion opportunities if they show promise; “About You” sheet, a questioner for customers helping to find the best individual deal; constant training of personnel at all the levels; recruitment of people who could connect with customer rather than simply sell; ‘splitting the sales process between the specialist staff greeting customers at the door and those completing the sale towards the back’ (Press Release, 9 June 2006). Phones 4U continued their promotion campaign, using such actions as; celebration of their 1 millionth new retail contract customer; offering to win tickets to Kylie Minogue’s UK homecoming tour; using low-cost sales, handsets and super deals (Press Release 2007) In January 2007 Phones4U implemented an Incentive program, holding a number of encouraging events for their staff: announced and rewarded with AudiA3 the winning General Store Manager, sent over 100 store and field managers to rest at the island of Tenerife; rewarded other 400 best performing salesmen (Press Release, 31 Jan. 2006). However, customers are widely complaining of the company’s service. The complaints are of miss-sell, slow reaction of the company, frauds during consultations and with contracts, poor repair service, etc. The company is mistrusted and is not seen as an available brand (See for instance, Forum2.Mobile-Review.com 2007; Rip-off Report 2007; MoneySupermarket.com 2007). In 2006 during the transition period the Register reported high degree of employees’ discontent with the work. People left the firm, stating that the company was going out of business. They also complained of bad treatment, decrease in compensation and increase in the demanded sales volume (Richardson 2006). It seems that notwithstanding all the company’s undertakings, the corporate structure is still in poor condition. Sales personnel are not interested in the company’s development and continue pursuing large sales volumes, instead of concentrating on customer. This must have been conditioned by the wrong strategic tactics as to the rewards. While during the Incentive Program in January 2007, Phones4U rewarded mostly those employees, who achieved the largest sales volumes. Nothing has been heard of the company recently. Their Press Release page has not been replenished since January 2007. External Environment Phones4u entered a mobile market at its mature stage. Mature markets seem stable, but are highly changeable and competitive, in fact. The primary challenge of the survived businesses is to maintain their competitive position and hold their existing customer. There is a variety factors providing threats and opportunities for the company in a mature market, including changes of customers’ preference, increased raw materials costs, product substitutes, alterations in government regulations, entry of low-cost foreign producer, merges and acquisitions, etc. (Walker, Boyd, Larreche 2005, p.231). The major competitors of the company are: Dial-a-Phone and the Carphone Warehouse Group PLC. Dial-a-Phone is a leading UK mobile phone retailer, which had an 8% market share of the UK contract mobile market, supplying around three million customers in 2005. The company employs 800 staff, most based in the London headquarters at Highgate Road. Dial Express is their second brand, mostly selling online. This way they economise on stores and can sell their product at lower prices (Dial-a-Phone Website, 2007). The Carphone Warehouse Group PLC is viewed by Tim Whiting as the major competitor of Phones 4U. It is the largest independent mobile phone retailer in Europe, also having the largest share in the UK and Irish markets. The company’s strategy is diversification: they offer various services and products to different segments of the market. Their Mobile Repair service is the largest in the UK. Talk and Talk, the home telecommunication branch, was launched recently and has become a success. Carphone Warehouse is known for their advertising campaigns like SteroMCs and Mowbi, the little mobile phone, serving as Carphone Warehouse’s mascot (Carphone Warehouse Website 2007). Opportunities: Phones4U can improve the situation and continue market penetration and expansion, in case they improve the situation with their staff and customers. The company’s advertising campaign also has been successful. Phones4U is not likely to win the competition with the Carphone Warehouse, while the company does not possess the sufficient resources. It is also possible to launch new products or move to niche strategy. Carpenter and Nakomoto (1996) mathematically proved that ‘value strategy always produces more profit than a penetration strategy” (p.345) and came to a conclusion that optimal variant is ‘to adopt a niche strategy with a maximally differentiated position, high price and low advertising outlay’ (p. 325). Threats: In case the company does not improve its customer service, it risks incurring serious losses and can be easily acquired by a larger competitor. In case the company attempts to change the strategy without improvements in its customer service, the risk is the same. Recommendations: First of all Phones 4U should reconsider its corporate approaches. The system of rewards and punishment implemented now seems ineffective. The rewards should not be given for the volume sold. It is recommended setting competition between business units, not between separate salesmen. Besides, the amount of online advertising offering job at Phones4U indicates to the flow of personnel. Perhaps, it would be preferable to grant more freedom to business units. It is also possible to re-structure the company. Robert Kaplan and David Norton (2005) offer to organize offices of strategy management within the organizations. This office is appointed officially, and its task is to communicate and control the strategy implementation. It is often established in the firms using the Balanced Scorecard as a centre guaranteeing that nothing has been forgotten and all the nuances are considered. The OSM is responsible for the communication strategy at all the levels. In order to improve the situation in the customer service it is recommended to hold regular customer satisfaction measurements that can be carried out in a number of ways. Tom Albrecht (2003), President of aQsi, All Quality Standards, Inc., advises to use the following combination of methods as an optimal way of assessing customers’ perception: 1) an annual survey, 2) monthly telephone interviews that make contact with a representative sample of the customer base, and 3) a formal customer complaint handling and tracking process. Carphone Warehouse uses online questionnaire at there web-site. Direct e-mailing is another opportunity. Conclusion: Phones4U has shown extreme growing rates. It also proved that it can stand the competition in terms of customer service. However, the business cannot be called successful at the moment. All the promotional initiatives undertaken by its CEO Tim Whiting has gone for nothing. The company loses its customers due to poor service. During the recent years the company has kept focus on customer service and its market segment. However, Phones4U makes several great mistakes. First, they try to compete with Carphone Warehouse, not having sufficient resources for this. Second, the company combines two marketing strategies: low-cost and differentiation by excellent customer service. As a result, they make their sales personnel sell a large volume of products, which is done to the detriment of the company’s reputation and customers’ loyalty. Such a combination is obviously harmful for the business. Besides, the company’s management seems not to measure customers’ satisfaction. It is necessary that the company set more efforts to return its customers and improve the customers’ perception of the brand. Further, it is recommended to occupy some niche segments (focusing on high prices and high quality products) within the UK mobile phone market. References: Albrecht, Tom 2003, ‘The importance of Assessing Customer Perception, All Quality Standards, Inc., Naperville, oct 10, Available at: aqsinet.com/cust-perception.htm - 50k (Aug 17, 2007) Carpenter, Gregory S, Nakomoto, Kent 1996, ‘Impact of Consumer Preference Formation on Marketing Objectives and Competitive Second Mover Strategies’, Journal of Consumer Psychology, Vol. 5, Issue 4, pp.325-359 Carphone Warehouse 2007, Available at: www.carphonewarehouse.com/ - 57k (Aug 26 2007) Dial-A-Phone Website 2007, Available at: http://www.dialaphone.co.uk/ (Aug 26 2007) Kaplan, Robert S. & Norton, David P., 2005, ‘The Office of Strategy Management’, Harvard Business Review, October 2005, pp.76-80 Mobile-Review. Com Forums 2007, ‘Phones 4U – Bad or Good?’, Available at: forum2.mobile-review.com/showthread.php?t=48999 - 70k (Aug 26 2007) Moneysupermarkeet.com 2007, ‘Phones 4U Problem’, Available at: www.moneysupermarket.com/community/forums/t/phones-4-u-problem-7907.aspx - 81k (Aug 26 2007) Phone4U Official Website 2007, Available at: www.phones4u.co.uk (Aug 26 2007) Phone4U Official Website, Latest News Release: Phones4u in UKs top ten fastest growing retailers for 2005 (31 Oct. 2005); Top Independent Retailer (6 Dec 2005) Mobile News magazine article - Interview with Phones 4u CEO, Tim Whiting (27 Feb 2006) Mobile Magazine article - Interview with Phones 4u, John Welsh (8 Sep 2006) Phones 4u celebrate their 1 Millionth new retail contract customer! (13 Nov 2006) All I want for Christmas…is Kylie! (20 Dec 2006) Cheaper 4u this January! (27 Dec 2006) Phones4u appoint Charles Gurassa as Non Executive Chairman (30 Jan 2007) Nice Work Buddy! (31 Jan 2007) Available at: www.phones4u.co.uk/info/info_latestnews.asp - 34k (Aug 26 2007) Richardson, Tim 2006, ‘Employee discontent grows at 4uBusiness’, (25 May), Channel Register, Available at: www.channelregister.co.uk/2006/05/25/caudwell_business/ - 27k (Aug 26 2007) Rip-Off Report 2007, ‘Phones4U Problem’, Available at: www.ripoffreport.com/reports/0/268/RipOff0268432.htm - 20k (Aug 26 2007) Walker, O. Mullins, J. Boyd, H. & Larreche (2005) Marketing Strategy: A Decision Focused Approach, 5th edition, McGraw-Hill, UK. Read More