Omnitel Pronto Italia

The case study Omnitel Pronto Italia describes the companys situation soon after its launch of
its mobile telecommunication offerings in Italy in 1995. Omnitel had decided to focus on
improvements on the quality dimension in competing against the Italian monopoly (TIM).
However, the results were not very positive. Therefore, Omnitel conducted various marketing
research activities in order to create a new business strategy. Various needs of the individual
customer segments were identified. Omnitel now had to decide whether the new service plan,
LIBERO, was the right move to attack a new segment and improve on prior performance.
Citation:
Lal, Rajiv, Carin-Isabel Knoop, and Suma Raju. Omnitel Pronto Italia. Harvard Business
School Case 501-002, August 2000. (Revised September 2005.)
Case questions and answers:
1. What was Omnitels competitive advantage when the service was launched in December
1995?
2. Why did the launch not perform to expectations?
3. What are the economics of LIBERO?
4. Why is the churn rate so high for many European countries?
5. Do you expect the churn rate to increase or decrease with the launch or LIBERO?
6. What do you learn from consumer research? What do you learn from the results of the
conjoint analysis in Exhibits 5 to 8?
7. Will LIBERO lead to a price war? If yes, what could Omnitel do to avoid one?
8. If you were Fabrizio Bona, what changes would you make to LIBERO and why?

Omnitel Pronto Italia Case Study Analysis
Omnitel Beginnings
Omnitel was launched in late 1995 as Italys second mobile phone service provider at a time
when TIM, Omnitels sole competitor, generated 97% of the cellular market penetration.
Omnitels entrance to the Italian telecommunications market offered a new way to increase
competition and enhance awareness about cellular products among Italians.
When Omnitel finally launched, the company felt that its superior customer care would be its
competitive advantage. By having a polite operator answer the phone Omnitel gained an
advantage over TIMs operators who were known to be very impersonal. Furthermore Omnitels
service calls were answered rapidly and operators avoided transferring calls. Omnitel was
working to differentiate itself from TIM whose own customers stated, I have never heard a
polite word from TIMs customer service (6).
Omnitel also believed that this advantage would allow the company to maintain a low churn rate
of 10-15% per year. A high churn rate indicated customers were dissatisfied, and Omnitel was
obsessed about churn (5). By keeping their customers satisfied Omnitel would not have to face
losing customers or the costs that came with this.
By May of 1996 even with its superior customer service, the Omnitel launch had only signed
180,000 subscribers and held merely 4% of the market share. The market analysis showed that
although customers valued customer service, they did not choose a cell phone provider based on
this value. Good service was only seen as an appreciated added feature. Exhibit 6 indicates that
the Service and Included Service categories are ranked 7th and 8th in importance out of 8
possible values. Furthermore only 19% of personal users were service sensitive while 35% were
sensitive to charge and fixed costs. Exhibit 7 shows that Service is ranked 7 out of 7 possible
values behind values like brand, monthly charges, and peak and off-peak tariff charges


















Diagnosis:
Telecom Italia Mobile (TIM) had a monopoly over the Italian Communications Market. It
generated 97%
of Italys 7.5% market penetration, also until Omnitels entrance into the market because of the
lack of thecompetition, TIM didnt incur the huge marketing costs. TIMs marketing strategy
was primarily directed towards the uppers echelons of Italian society. Omnitel entered the market
in Feb 1995 but they could start the commercialservices in December 1995 with network
coverage of 40% of the Italian territory. Ominitel thought of its superiorcustomer care as its
competitive advantage over TIM, however they could only acquire 1,80,000 subscribers by
May1996. Omnitel was looking for methods to differentiate itself from TIM but at the same time
avoiding a price war.

Problem Identification
The problem was twofold, that of building Omnitels market share while avoiding a price war
with TIM, and
differentiating brand Omnitel from brand TIM.
5 C Analysis

Company Background:

Omnitel was able to obtain GSM license after liberalization and paid Lit.750 bn in Dec
94 to become Italys second GSM operator and launched its commercial service in Dec.
95.


They started with a network coverage of 40% of Italian territory.


Market share was 4% of the total Italian telecom market.


Initially they offered plans similar to TIM but prime focus was on its high-quality
customer service, which
led to happy customers and low churn rates.


Financial strength of Omnitel was not as strong as their competitor i.e TIL, hence they
avoided getting into aprice war situation.

Competitor Analysis:


The major competitor was Telecom Italia Mobile (TIM) formed in July 1995 after divested from
TelecomItalia and was listed separately on Italian stock exchange.


The customer base was over 4 million by the end of first quarter of 1986 and had strong roots in
ItalianCellular market.


They offered two types of tariffs:
o

Euro Family
o

Euro Professional


They enjoyed monopoly over Italian telecommunication market until Omnitels
recent entrance; themarketing costs had been lower than its European counterparts.


The distribution channel of TIM was very strong as it had 1,500 exclusive dealers, 20 TIM-
owned shopsand 150 Telecom Italia stores, but after the entrance of Omnitel they became more
aggressive.


Its marketing strategy was to cater primarily to the high end segment of the Italian society
touting cellularphone as a status symbol.

Customer Analysis


The Italian customer market was different from other markets as the people were willing to pay
handsomelyas they like to show off as they liked show off.


It was noticed that the customers were not interested in paying activation fees, instead they want
to pay onlywhen they use the phone.


The customers wanted a different set of tariffs for local calls, long distance calls and
international calls andthey did not mind paying more.
Collaborator Analysis


The shops that sold consumer electronics goods and telecommunication goods and services sold
Omnitels
handsets which were 2000 in number.


They paid a commission of Lit 40,000 for each account they activated and Omnitel didnt make
any profit on
the handsets sold.
Context Analysis:


In 1993, the European Commission declared that by January 1998, all member states would have
to opentheir markets and guarantee competition in telephony markets but under pressure from
business interests,the EC liberalized the cellular telephony by January 1994, subjected to
interpretation by the countryinvolved.


Cellular penetration rates were relatively modest.


Value for Money of the service continued to increase because of reduced costs and improved
quality.



All cellular operators in Europe had adopted the GSM digital standard.


Many European countries began to have multiple players resulting in increased marketing.
Competitive Advantage


Focus on Customer service


Polite Operator


Minimum waiting time


One stop calling

trained operator
LIBERO


No monthly fee


No increase in commission to distribution channels


Increase in demand


Creating and promoting the brand image


Spending of Lit. 40 bn for advertisement

Customer Analysis


The Italian customer market was different from other markets as the people were willing to pay
handsomelyas they like to show off as they liked show off.


It was noticed that the customers were not interested in paying activation fees, instead they want
to pay onlywhen they use the phone.


The customers wanted a different set of tariffs for local calls, long distance calls and
international calls andthey did not mind paying more.
Collaborator Analysis


The shops that sold consumer electronics goods and telecommunication goods and services sold
Omnitels
handsets which were 2000 in number.


They paid a commission of Lit 40,000 for each account they activated and Omnitel didnt make
any profit on
the handsets sold.
Context Analysis:


In 1993, the European Commission declared that by January 1998, all member states would have
to opentheir markets and guarantee competition in telephony markets but under pressure from
business interests,the EC liberalized the cellular telephony by January 1994, subjected to
interpretation by the countryinvolved.


Cellular penetration rates were relatively modest.


Value for Money of the service continued to increase because of reduced costs and improved
quality.



All cellular operators in Europe had adopted the GSM digital standard.


Many European countries began to have multiple players resulting in increased marketing.
Competitive Advantage


Focus on Customer service


Polite Operator


Minimum waiting time


One stop calling

trained operator
LIBERO


No monthly fee


No increase in commission to distribution channels


Increase in demand


Creating and promoting the brand image


Spending of Lit. 40 bn for advertisement

Evaluation of Alternatives

Alternative 1
is risky because it is most likely to trigger an immediate price war with TIM. Also, if after the
launchof LIBERO, TIM slashes its rates, it is highly probable that subscribers will switch to
TIM. This is based on thefindings of the conjoint analysis (exhibit 6) which revealed a low brand
loyalty of 25% as compared to cost sensitivityof 35% among the customers. Since LIBERO does
not involve any monthly fee, Omnitel might suffer very heavylosses.
Alternative 2
on the other hand is safer as compared to alternative 1. However, it has nothing new to attract
theexisting TIM subscriber base to itself. As has been stated in the case, this strategy has worked
successfully in othercountries, it might work in this case as well, although the extent to which it
is successful might be less.
Alternative 3
appears to be the best solution for Omnitel. It will appeal to the potential subscribers
psychologically,as they will no longer have to pay a fixed monthly fee. They will pay only for
the time blocks in which they are using
the operators services. The costs will easily be covered through careful selection of the time
block rental value and
call charges.






ref: http://www.scribd.com/doc/51085275/Case-Analysis-OMNITEL-PRONTO-ITALIA