Iphone

maintaining balance ThE PERIlS of PoPUlARITY

maintaining balance

The Perils of PoPulariTy
The iPhone’s worldwide success would seem to be an unqualified win-win for Apple and the mobile operators that sell it. Not so, as Marco Bertini and Ricardo Cabornero explain, mobile operators must maintain a delicate balance between winning new customers and retaining existing ones.This task is mademore difficult when their own brands can actually be diminished by selling the iPhone.
As they grow, companies face a common tension between acquiring new customers and retaining the customers who have enabled them to grow in the first place. Acquisition and retention have a troubled relationship. In many cases, the marketing tools that most effectively address acquisition may put retention indanger. This is an unhappy impact, made worse because the customer retained is generally more profitable than the customer gained. In the mobile phone market the acquisition and retention battle is writ large. On the surface, the iPhone would seem to be a perfect tool to win the battle. Market-changing and sexy, it can lure new customers and please existing ones. A mobile operator that sells otherfirms’ products or services (otherwise known as a retailer, reseller or intermediary) can use the iPhone as part of a strategy to gain market share. The trouble is that it is not simply a matter of selling the iPhone; a mobile operator (to be successful) must balance the acquisition of new customers with the retention of those they already serve. In the mobile phone sector, another tension isadded. Mobile operators commonly must sell products and services that have their own strong brands. They are, effectively, both intermediaries selling handsets created by other manufacturers, and direct manufacturers selling service packages. The downside of success Think of the pull of the iPhone brand. It has come to dominate the smartphone market, but is sold by mobile operators, such as Vodafone.They are the retailers in this market. Unusually, this dynamic threatens to make the mobile operator’s brand less valuable. The mobile operator is relegated to a logistic role, simply ensuring that the iPhone arrives with the customer on time. In this situation, differentiation from competing mobile operators soon disappears. There is more troubling news for mobile operators. The challenge actuallybegins with how a mobile operator deals with Apple in order to obtain the privilege of selling the iPhone. Apple’s bargaining power in all matters iPhone, gained through the device’s smash-hit sales, has driven high subsidies that have made it an expensive device to market. The subsidies not only apply to the handsets but to marketing campaigns. This means that mobile operators have to underwritethe marketing and sales of the iPhone. According to Informa Telecoms & Media, the incremental cost per customer of the iPhone, relative to other smartphones, is not offset by a strong uplift from average revenue per user. Consequently, mobile operators have actually found that their own sales of iPhones (which contribute to increased market penetration for Apple) can, in fact, become unprofitablefor the mobile operator. Their outlets and websites are thronged with buyers, but the profits are delivered to Apple rather than the mobile operator. What to do So, mobile operators can attract new customers — typically by offering them better prices than the competition or having low enough prices to lure them to purchase in the smartphone category for the first time. Alternatively, they can tryto squeeze

www.london.edu/bsr BUSINESS STRATEGY REVIEW 51

STRATEGY

Changing the market
to better understand the iPhone market, think of three basic customer segments. 01 the first segment is made up of iPhone lovers or switchers. these are high-value customers who will stay with the operator that provides them with the best iPhone offer. 02 the second segment is made up of smartphone...