Customer Experience Strategy of O2 - Case Study Example

 Reseller Relationship Portfolio Management at O2 The biggest challenge that the mobile services providers have to face in the present business scenario is to meet the requirements of the ‘empowered customer’. Today, not only a customer has the access to a wide spectrum of markets, but also has the power to negotiate the prices at ones own terms and conditions. The contemporary market for digital services is very volatile and shaky. Even the major mobile services providers like 02 have to proceed gingerly while managing their reseller relationship portfolio, considering the cut throat competition in the market. Situation of the mobile service providers in the UK today Even a cursory analysis of the mobile phone services industry in the UK unravels a very complex business environment that is determined and defined by the state of the art technology, entrepreneurial ingenuity and tough competition. “There are considerable barriers to entry but it has been found that new entrants to the industry are possible where the entrant has considerable financial backing (Papers4You, Report on UK Mobile Phone Industry).” The demand for new mobile networks with innovative products and offers is constantly on the rise. New technological developments are now making it possible for the service providers to quench the consumer’s thirst for new features and applications. Providers are increasingly opting for out of the box thinking to augment their profitability. The latest challenge before the mobile phone service providers in the UK is to shift away from the product oriented mindset to a consumer driven strategy. This calls for the creation of marketing systems which successfully and sensitively respond to the entire gamut of consumer needs and expectations to yield a high level of consumer satisfaction matched by a thoroughly competitive product pricing policy. Research has shown that extending high satisfaction levels to customers often gives way to a high rate of customer loyalty. Highly satisfied customers are six times more likely to repurchase the same brand over the next eighteen months (Thomas O. Jones and W Earl. Sasser, 88-99) Such a market scenario makes it mandatory that all the aspects of the marketing department in a company have a pragmatic understanding of all the dimensions of facilitating a positive consumer experience so as to retain him/her over a long period of time. Requisite skills and financial backup needs to be extended to all the links in the sales chain to retain a majority of the customers, once they subscribe to the services of the given service provider. All the departments of marketing should have the required know how to bring into existence an effective and apt decision making process. Variables used to analyze O2’s independent sales channels In tune with the new ‘Customer Experience Strategy’ of O2, it is vital for this company to identify the characteristics that define the most suitable independent sales channel. In the long run, this will ensure that all the selected independent sales channels understand the concepts and systems required to sort out, monitor, evaluate and respond to the customer needs at the grassroots level. The most vital variable to be considered while analyzing an independent sales channel is the total number of years it has been in the given business. Ample experience is not only indicative of thorough salesmanship skills but also hints that the given channel has a sound customer following and a dedicated and motivated sales force (Ordonez, 27). Of course the service reputation of the given channel needs to be looked into. It is a must that a chosen channel enjoys a positive and favourable reputation amongst the existing and would be customers. This when amalgamated with the O2’s customer friendly marketing philosophy will go a long way in achieving the underlined goals (Stern and Ansary, 5-6). The third and vital variable is to quantify that to what extent, a given channel is willing to cooperate with O2 in achieving the company’s targets and objectives, provided it is extended the appropriate profit margins, marketing funds and other facilities. If the channel being considered already has a proportionate or better business understanding with some other service provider, then this will surely nullify all the O2’s efforts to ensure long term customer retention. Specific relationship clusters and their management There is no denying the fact that in the given market dynamics, the main objective of O2 is to make a majority of customers stay beyond the contract tie-in period. Thus to ensure a high quality customer experience, it is mandatory for O2 to identify the range of relationship clusters with its intermediaries so as to ensure a better management of its channels to market. Those channels which have shown low churn rates and higher ARPU (average revenue per user) along with a high number of connections over a considerable period of time should be classified as the premium channels. Such channels should be extended exclusive distribution rights in a specific geographical domain along with appropriate marketing support and facilities. This way O2 will be in a better position to guide the service levels and output of such channels. This will also motivate these channels to envisage a more dedicated and knowledgeable approach towards selling O2 products. O2 needs to sort out the set of direct independents with big accounts (though still doing less business then exclusive distributors) and chalk out a strategy specifically designed for them. Members of this set who have the requisite financial strength and a positive reputation represent an untapped potential. Efforts should be made to understand their mode of working and appropriate inputs should be provided to them as and when required to win their total loyalty and commitment. Needs and requirements of these channels should be looked into. O2’s channel prioritizing should be so fabricated to motivate these channels through proportional channel offerings and rewards. This will stimulate these channels to perform better (Lele, 249-51). Channels with much smaller accounts should be encouraged to move their accounts to authorized distributors. Such delegation will help O2 focus on the channels that are more productive and streamlined. However, the distributors should be extended guidelines and inputs to properly and effectively handle such small accounts while being responsive and sensitive to their needs and concerns. The ultimate objective behind all this channel management should be to make O2’s services available to a large segment of consumers over a long period of time (Louis W. Stern and Adel I. EL Ansary). Life Cycle concept and portfolio management A product life cycle has several important stages (NetMBA). A thorough understanding of these cardinal stages and an ability to integrate that understanding in the portfolio management is vital for the technology driven products that tend to exhibit a relatively short life span extending over a few weeks to a couple of months. Thus during the introductory stage of a new product, it is vital for O2 to chalk out a comprehensive advertising policy, relying to a great degree on massive help from all the channels. This will help in reducing the advertising costs without compromising on the benefits. A limited number of products from a new product line should be introduced through selective distributors only to entice the early adopters. However all the big and junior channels can play a major role in increasing the product awareness. During the growth stage, the product distribution can be extended to all the retailers. This will make way for enhanced revenue growth. Trade discounts can be restrained at a lower level if a channel exhibits a strong preference for a new product. Still, during the following maturity stage of a product’s life cycle, O2 will definitely need the support and cooperation of its entire distribution channel to meet the heightened competition in the market. It will certainly be a time to extend discounts and incentives to all the channels to solicit their loyalty and commitment. The decline stage of a product, which in case of mobile phone services comes very soon necessitates the reduction of products in the product line. Price also needs to be lowered at this stage. Thus it is the time to withdraw the product from the channels that are no more in a position to yield more profits. This ensures an optimal utilization of marketing resources. The thing to be kept in mind is that each independent sales channel is a full fledged organization in itself, though it deals in the products and services offered by various large companies. The most difficult task for any mobile phone service provider is to design and periodically revise its overall channel strategy (Sutton 26). This daunting challenge raises several specific B2B issues that demand undivided attention. It will be quite interesting to discuss a few such important issues that are relevant to the given case. Negotiating contracts with independent sales channels Till now, the mobile phone service providers designed their strategies around the end user or the customer. In the past when the market growth rate was high, independent sales channels did not command a prominent place in the vision of the industry under consideration. However, with the recent slowing down of the market growth rate, customer loyalty has assumed a place of paramount importance. This has bolstered the relevance of independent sales channels in the eyes of mobile phone services providers. Independent sales channels often enjoy a strong personal relationship with their customers and soliciting their cooperation can really prove to be handy in securing the loyalties of the end users in favour of a mobile phone service provider. Customers prefer to purchase products from the independent sales channels owing to a variety of reasons. It enables them to shop for their requirements at a convenient retail site. It not only makes it possible for them to procure reasonable discounts accruing from their relationship with a particular retail channel, but also makes it easier to file complaints, receive services or return the faulty products at a local facility. Thus these intermediaries command a solid relationship with their customers and can often achieve for a mobile service provider more then it can achieve on its own. Therefore it is vital for the marketers in the mobile phone services industry to develop relevant strategies so far as the management of independent sales channels is concerned. However, this is far easier said then done. According to Philip McVey,” [The intermediary often acts] as a purchasing agent for his customers and only secondarily as a selling agent for his suppliers…. He is interested in selling any product which these customers desire to buy for him… (61-64).” Independent retailers are often interested in selling a service or a combination of goods and services to their customers that yield maximum profits for them. Hence it is always not natural or feasible for independent sales channels to owe allegiance to any particular mobile phone services provider, unless facilitated with compensatory incentives and rewards besides many intangible prerogatives. Thus it depends own the acumen and creativity of the service provider’s marketers to forge such terms of contract, which are not only acceptable to a majority of independent sales channels, but also give way to a win-win situation for both the parties involved. Terms and responsibilities of channel members should be so adjudicated that they not only ensure desired profits for them, but also extend a range of intangible yet coveted benefits to most of the intermediaries. This calls for an unconventional thinking while setting the conditions of sale, territorial rights and price policy for each individual channel. While doing so, provision should be made for replacing high-cost channels with low-cost channels in the future (Friedman and Furey). Ample scope should be left for renegotiating and redesigning the contract arrangements in the event of any unforeseen or expected change in the market realities and dynamics. The channel arrangements should not be so straight jacketed so as to leave no space for evolution in the face of any alterations in the local opportunities and conditions. Customer needs should be analyzed from time to time while establishing and evaluating channel objectives and alternatives. This calls for a paradigm shift in which an independent sales channel is not seen as a customer but as an active and priced partner. Failure on the part of a mobile phone services provider to underestimate or ignore the importance of a channel while negotiating the terms of contract could lead to an undesirable loss of potential customers. Managing relationships with independent sales channels The most demanding and challenging aspect of any association with independent sales channels is that how a company manages these channels? It not only demands an understanding of the fiscal concerns governing the big and small businesses but also requires a strong grip over people skills. Dealing with independent sales channels is infact dealing with the people behind them. Any mistake, any unwanted act of arrogance, any misunderstanding or lack of communication could jeopardize the very existence of a tenuous business relationship. This becomes more relevant in the contemporary context when a plethora of mobile services providers are vying with each other to grab a major chunk of the independent sales channels and the customers associated with them. This calls for much tight rope walking. All mobile phone services providers often feel a need for motivating and stimulating all or particular independent sales channels from time to time. However, in the pursuit of desired sales targets, a company should never ignore the need for maintaining a positive and long term relationship with a channel. A big corporate concern always has an array of options at its disposal to achieve motivation or stimulation. However, though most of these options may yield the desired results; they often differ in their repercussions on the provider and channel relationship. Hence, while managing the channels, the perspective of the concerned marketing personnel should be highly realistic and common sensical. Thus it is imperative for O2 to not to resort to a mode of motivation that proves to be counterproductive in the long run and somehow alienates all or some of its secondary sales channels. Rewarding is one way of motivating a channel. Till now, O2 has successfully used this method while managing and motivating its secondary sales channels. However, the concerned managers have realized that this mode is not sufficient in itself. Though it is a highly effective and one of the most used of all the methods, it may sometimes over stretch the expectations of a channel or may prove to be addictive for it. On the contrary if the provider has an authentic contractual relationship with a channel and has been exhibiting positive leadership, it may gently coax that channel to adhere to the terms of a contract as is expected of any authentic business concern. The service provider may also offer to transfer some desired, special knowledge or skill to a channel in exchange for a sincere compliance and allegiance. This makes it imperative for the service providers to keep on developing new expertise and skills so as to retain the interest of the affiliated and new channels in them. Sometimes a firm commands an exalted status in the market and the very fact of being associated with such a brand proves to be highly desirable by the independent sales channels. One can cite the example of IBM and Hewlett-Packard in this context (French and Roven 150-67). Though companies always have the option of resorting to negative modes of motivation like coercion and threats, it may prove to be counterproductive in the long run. This not only rubs a channel on the wrong side but may provoke it to get organized with other independent sales channels so as to wield a restraining power over a service provider. Thus the mobile phone services providers should forge relationships, relying on the spirit of partnership and cooperation (Rosenbloom). Resolving conflicts with independent sales channels Though all the independent sales channels are managed and designed in the spirit of cooperation and coexistence, conflicts are bound to occur between a service provider and one or more channels at one time or other. The ability to profitably and amicably manage such conflicts certainly guarantees the survival of a service provider in the long run. Apt handling of any such conflict between a service provider and an independent channel not only resolves an immediate difficult situation, but also acts as a model for the other affiliated channels and unaffiliated channels desirous of doing business with a mobile phone services provider. Thus, effective conflict resolution forms an integral part of any practical doctrine of channel management. Conflicts may occur owing to a variety of reasons. They may occur either due to some disharmony between the goals, objectives or interests of the two parties or owing to some other reason like a lack of communication or mishandling or ignorance of vital issues. More than often, genuine conflicts give way to intensive soul searching and analysis in an organization. Such conflicts, more then often prove to be positive and profitable in the long run, if handled with tact and sincerity. They not only result in a realignment of goals and objectives throughout a network, but also strengthen the relationships between the involved organizations. Thus stress should be given on a constructive handling of conflict situations. Still, sometimes the conflicts may go sour and both the parties may have to resort to “diplomacy, mediation, or arbitration (Kotler 526-30).” A workable relationship between a mobile phone services provider and independent sales channels calls for a balance between individual interests and cooperation. It is always much better to mull over all the possibilities in advance before framing a contract. Still, given the dynamic nature of this industry, conflicts are bound to occur. It is imperative for the concerned individuals and organizations to refrain from resorting to negative modes of communication and motivation. Impulsiveness and short sightedness must never be allowed to interfere with the long term goals and interests of all the parties. 02 particularly faced some such conflict situations while dealing with its sales channels. Some of such scenarios did turn sore and led to the disgruntlement of the related channels with O2. In a retrospective frame of mind, the managers realized their mistakes in this perspective and formulated a realistic strategy for the future. The main thing to be kept in mind by the channel management team is that a market is a living entity that creates problems on a daily basis. Thus it is imperative that the concerned managers do keep an open mind will dealing with the sales channels. Sometimes the existing strategy may not prove to be handy. Under such circumstance one may have to resort to an out of the textbook thinking to strike a desirable deal. Based on the above analysis, the following four recommendations are made: 1. Portfolio management team of O2 should exercise real care and caution while choosing the variables to select the independent sales channel. 2. All the existing sales channels should be classified into graded categories on the basis of the number of customers solicited by a channel and it’s ARPU. 3. Proper care should be taken while drafting contracts with the independent sales channels. 4. All the conflicts pertaining to independent sales channels should be handled with tact and a long term perspective. Works Cited Bucklin. L.P., A Theory of Distribution Channel Structure, University of California, 1966. French.R.P, Raven.B (1959) Studies in Social Power, Michigan : University of Michigan Press, pp. (150-67) Friedman.LG, Furey.TR (1999) The Channel Advantage: Going To Marketing with Multiple Sales Channels, Woburn: Butterworth-Heinemann Kotler.P (2003) Marketing Management, USA: Pearson Education , pp. (526-30) Louis.W.S, Adel.I.ELA (1996), Marketing Channels, New Jersey: Upper Saddle River McVey.P (1960) Are Channels of Distribution what the Textbooks Say?, Journal of Marketing (January 1960): pp. 61-64 Lele .M.M. (1992), Creating Strategic Leverage, New York: John Wiley, pp. 249-51. Ordonez.J, Managers and Managing: Taco Bell’s President Set to Improve Sales, Wall Street Journal (February 2001), pp. 27 P/B/462, “Report on UK Mobile Phone Industry”, Available online at: http://www.coursework4you.co.uk/sprt bus&.htm (accessed 22nd April 2008) Rosenbloom.B (1995) Marketing Channels: A Management View , Hindsale: Dryden Stern.W.I. & Ansary EL. 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