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ENDING THE TELECOM PRICE WARS IN EUROPE: CONSUMERS SAY THEY ARE WILLING TO PAY 20 PERCENT MORE TO PROVIDERS THAT ENABLE A SUPERIOR DIGITAL LIFESTYLE EXPERIENCE

According to Bain & Company, telecoms face a critical window of opportunity to provide a premium, secure, high-performance offering in response to customers’ growing digital dependence

NEW YORK – Feb. 25, 2015 – A recent Bain & Company survey of more than 7,000 consumers in the U.K., Germany, France, Netherlands, Belgium, Spain and Poland found that nearly 40 percent of respondents cite price as the leading criteria for selecting a telecom service – more than twice as important as other factors, such as quality or brand.  Yet, in spite of their apparent thrift, consumers are willing to pay 20 percent more to providers that offer an improved network and digital experience. A quarter of respondents, known as the “digitally powered,” are willing to pay more than double to network operators that deliver a complete digital lifestyle ecosystem; this compared to just 10 percent more for only a pure network experience.  Bain’s new report, Repremiumization: The way up for Europe’s telcos, finds that the  growing digital dependence among consumers creates an unrivalled window of opportunity for telecoms to ‘re-premiumize’ their market positioning and customer value proposition by shifting from selling product features to offering an integrated and superior digital experience.

After a decade of telecommunications innovations and fierce competition for market share, the European telecom industry has been commoditized.  Despite customers’ growing reliance on telecom networks for work, entertainment and other purposes, Bain’s research found that most select their provider based on pricing for voice and data connectivity. Product features, such as network speed and uptime matter to consumers, but only in as much as they enable a differentiated and secured digital experience.  For example, operators that could offer a full suite of premium network digital lifestyle capabilities – home security, smart cars and connected roads, mobile banking, digital health systems, infotainment, and digital commerce – versus serve as just a raw connectivity provider, will have a significant edge over their competition.

“Europe’s telecom operators have traditionally competed on price, but in today’s digitally-intense, data-centric world, consumers are demonstrating a willingness and even a desire to spend more for a premium experience that will simplify and safeguard their digital lifestyle and extend their capabilities,” said Laurent-Pierre Baculard, head of Bain’s Telecommunications, Media and Technology Practice for Europe, the Middle East and Asia, and author of the report.  “This is a clear and encouraging signal for telecom operators to step out of traditional price-defined networks and transform themselves into the highly secure, digital lifestyle enablers that consumers demand.”

The opportunity for telecoms to ‘re-premiumize’ their competitive position does not stop at creating and supporting digital life experiences. As customers become more dependent on connectivity, they are increasingly reliant on the cloud to gain ubiquitous, hassle free access to their personal data and media content, control their digital ID and authentication, and engage in other essential mission-critical applications – many of which require a high level of network quality and security. Bain found that growing concerns around safety and privacy, coupled with increasing dependency on digital applications and overall digital environments, lead users to choose network providers that they trust to protect their data. 

Baculard says similar to the consumer goods market, customer anxiety about data security could work in a network operators’ favor when it comes to increasing loyalty. Consider the example of beer and baby food:  beer drinkers are more comfortable choosing any one of the various brands because the risk is low (on average, just eight different brands from which to choose).  On the other hand, most parents are loyal to only one or two brands of baby food that they trust as safe for their child. 

“The more that customers perceive risk, the more likely they are to focus on a limited set of trusted providers, creating a distinct advantage for those telecom operators that can effectively reduce customers’ concerns,” he said.  “Telecoms must start to operate like consumer products industries, orchestrating a shift from “beer market” customer behavior to “baby food market” behavior. This enables them to premiumize their overall competitive position by demonstrating the ‘value for money’ they offer and subsequently differentiating their customer value propositions.” 

Bain found that leading telecoms shape their repremiumization strategies around two parallel transitions:

• Sell a premium, holistic digital lifestyle experience rather than one-off features and pricing by offering consistent proof to consumers about why the network offers an enhanced and more secured digital environment.
• Make smarter,  more focused network investments to improve network capabilities, power outstanding digital life experiences and become a trusted partner to consumers 

The report also identifies seven key success factors for operators:

• Strategic shift: Redefine their premium concept (e.g. digital life enabler) to be delivered over multiple years, instead of on-demand product features and pricing plans.
• Operating model: Bring together sales, marketing and technology teams (Network and IT), customer experience and finance to define and develop the operator’s premium concept.
• Packaging customer promise: Identify and focus on the most relevant proof points that enable networks deliver a digital lifestyle and convince consumers of the premiumness of their brand.
• Network capex prioritization: Define the strategic roadmap – from “fix the basics” to “truly differentiated experience” – aligned with the integrated premium concept.
• Sales reset: Revamp the sales experience from selling others’ products (e.g. device subsidies to sell network subscriptions) to creating a full-service experience that supports a range of digital life offerings (communication, infotainment, commerce, automotive, health, entertainment, energy, payments, etc.)  
• Digitization:  Leverage smart data analytics and increased use of sensor technologies to screen customer interactions that need to be secured, identify weak signals and design new value-driven roles for operators in digital ecosystems
• Execution and mobilization:  Mobilize across business functions to redefine what the operator stands for in the customer’s digitally intense environment. Over time, reshape the trajectory of the operator’s revenue growth.

To receive a copy of report or arrange an interview with its authors, contact: Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102

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