Saving money often is as good as making money, and increasingly they go hand-in-hand. Case in point: The Caribbean and Latin America (CALA) region, where some wireless carriers are lowering the cost of their devices and services to attract price-sensitive consumers, but without sacrificing their margins in the process. In fact, despite the perception of CALA as a developing market, some of the region’s wireless carriers actually are worldwide leaders in developing innovative services that cut overhead costs, reduce churn and increase ARPU.
The rest of the world should take notice and see how CALA’s out-of-the box thinking can drive customer loyalty, ARPU and innovation. From baby products to the country’s unifying sport — soccer — innovative service providers are exploring new ways to touch consumers and drive additional revenue from them and the consumer brands to which they are loyal.
One strategy is reverse subsidy advertising (RSA), where wireless carriers partner with consumer brands. For example, in CALA, if a manufacturer of baby products wants to introduce a new product, it could use a promotion that features a 10 percent off coupon and a $2 service credit with its wireless carrier partners. To execute the promotion, the manufacturer and carrier marketing departments would create a campaign that sends text messages to consumers — say, 50,000 — who have chosen to receive mobile marketing messages through an opt-in election process. Each message contains copy explaining the offer, along with a barcode that subscribers can have scanned in a retail store to receive the discount. At the same time, the carrier tracks the number of messages sent, the number received and the number who redeemed the coupon. Assuming a 50 percent conversion, that translates into a $50,000 credit that the brand pays to the partner carriers, which then pass that on to participating subscribers as a $2 credit. There is no actual money out of the carrier’s pocket, but the perception, goodwill and brand association benefits are likely to go far with subscribers and result in reduced churn and higher effective ARPU.
The baby products manufacturer is just one possible partner. Just about any consumer brand is a potential fit. Another possibility is professional soccer teams, who have enormous followings in CALA. RSAs provide wireless carriers with a way to leverage those fan bases as well by tying promotions to wireless service usage. In addition, by aligning themselves with popular consumer brands, the service providers are, by association, able to extend their brand and, ultimately, their profit margin and subscriber stickiness to the carrier’s brand.
How you might wonder? Well, first, the RSA reduces the participating subscriber’s cost for basic services so they have more money left over to spend on the carriers’ other services, such as messaging, ringtones, wallpapers, games and premium services. That’s particularly valuable in the CALA market, which is notoriously price-sensitive. In fact, the subscriber can elect to save those subsidies and cash in those credits to buy the fancier or more full-featured phone.
Secondly, the RSA increases the partner carriers’ ARPU, a metric that investors monitor closely, thus directly affecting their access to capital. At the same time, because the subsidy is provided by the partner brand, it doesn’t cut into the carriers’ profit margins, helping make them even more attractive to investors.
The ever important issue of customer loyalty is another benefit of RSAs since it more closely links service providers and their subscribers through consumer brands and incentives that matter most to the subscriber base.
In the wake of financial turmoil, economic uncertainty and a decline in disposable income, service providers worldwide must certainly operate as efficiently as possible, but they also must be the first choice of consumers so that they are well positioned to be the carrier of choice for those who inevitably will use the telecommunication services that mean the most to them and from which they derive the most value.
The next column will explore how one of the CALA region’s largest wireless carriers is mixing wireline, prepaid wireless and even public payphones to create a suite of services that attracted 15 million customers in the carrier’s first five years. It’s a case study that other service providers — both in CALA and the rest of the world — can learn a lot from.
