Despite maturing markets and the digital shift, most operators continue to work with an outdated store mix that was designed in a simpler channel environment.
Big branded stores were designed to sell devices, which made sense during the massive shift from feature phones to smartphones. But that wave has leveled out, while branded stores remain a major spending item for operators, typically consuming 5-6% of total operating costs.
It would seem that the time has come for operators to rethink their approach to capacity, and transform their commercial footprint in a way that optimizes their presence, boosts margins, and brings flexibility to the channel mix. This is critical to satisfy the new and more demanding telecom customer.
In its 2013 report, consultants Strategy& explain that three new channels offer operators the most promising ways to boost sales profitably: new digital channels, mobile commerce and low cost channels (e.g. direct mixed points of sale, freelancers and street sales). Operators have increasingly extended their presence online, and are experimenting with event and location based sales with m-commerce. However, few have invested in low-cost channels, which have the potential to become powerful tools where traditional outlets are not profitable.
What’s the urgency?
Operators need to increase network investment in order to accommodate the strong forecast growth in total data traffic, totaling $1.7 trillion out to 2020 (according to GSMA’s 2014 report). At the same time, revenue growth for mobile operators is expected to slow. GSMA forecasts revenue growth of 2.9% per annum out to 2020, against over 5% in recent years.
Operators are feeling the pincer effect of this disconnected business model that requires vast investment in the network, just as revenues from voice and messaging services are diminishing. Clearly, controlling expenses involved in acquiring and keeping customers will be essential if operators are to sustain and grow their margins.
But this is more than just a cost savings story. Low cost channels can actually offer a more customer-centric way of establishing and developing profitable customer relationships. Smaller partners can be a very effective channel as they are located right where the customers are, such as in local grocery stores or newspaper booths. They can also set up quickly to satisfy short-term demand – think mobile ‘pop ups’ to assist customers at festivals.
The pop-up trend is, in fact, a good comparison. While the all-singing, all-dancing branded stores are useful for ‘showrooming’ new products and offers (in the model of Apple), it is small dealers who can bring flexibility and efficiency to the operator’s commercial footprint, at the same time as bringing down the cost of retail.
Consolidation is going to be mean less branded stores on the high street. This is an opportunity for operators to be creative in getting closer to the customer, as part of a broader omni-channel sales strategy.
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