A Dutch telecom provider has announced to reduce prices of mobile contracts in a time where all the other players are increasing prices due to changing behavior of users. In the past, mobile telecom providers were able to leverage text messages and minutes as the main product users could buy. With the broadly spreading use of internet on mobile devices and the ever-increasing intensity of competition, the telecom industry has had its hands full to reinvent itself.
What exactly is the issue? Telecom companies have invested heavily in fixed assets such as reception towers. Traditionally, providers make their money through selling talking minutes and text messages. By binding customers through contracts and free mobile phones, telecom providers have been able to enjoy a position of relative comfort.
However, with the broad availability of mobile internet and increasing capabilities of smartphones, telecom providers have essentially opened their market to unanticipated competitors: Whatsapp-like and Voice over IP applications. These applications allow mobile device owners to send messages and make phone calls over the internet, slowly devouring revenues from the telecom providers.
Thus, the first knee-jerk reaction of all global telecom providers is to increase prices on mobile internet data. However, one Dutch telecom provider seems to be thinking differently: business model innovation through value network leveraging. They have announced price reduction and free subscription to Spotify – an online music streaming service that provides unlimited access to music for a monthly fixed fee.
One can imagine how this piece of marketing is ingenious: Have customers pay you a low monthly fee for a phone contract and give them a free subscription to an online music streaming service. Conveniently, this music streaming service will heavily utilize mobile data, which could then lead to higher revenues if customers exceed the data maximum of their contracts.
Competitors may feel apathetic about this; Why should they worry if customers will eventually see the marketing trick here? Four reasons why:
- Differentiation: The telecom provider is the only one in the market to reduce prices, whereas everybody else is increasing prices.
- Added value through partnership: A segment of young customers will see value in the partnership with Spotify.
- Customer lock-in: By selling 1- or 2-year contracts, the telecom provider will gain short-term market share and essentially buys time to think of new ways to keep customers even after they find out that they may be paying more than they initially thought they would be.
- First-mover advantage: A first-mover advantage is hard to compete with. What can you as a telecom provider do to compete with this?