Over the past year, the telecom sector has witnessed significant developments on various fronts and the impact of the changing market dynamics is reflected in the sales and marketing strategies of telecom players.
The incumbent operators unleashed a price war in a bid to counter the aggressive pricing strategy of new entrant Reliance Jio Infocomm Limited (RJIL). Meanwhile, handset vendors leveraged the opportunities created by increasing mobile penetration and decreasing data tariffs to drive growth. Further, with the launch of 4G-enabled feature phones, the feature phone segment witnessed significant traction. This resulted in moderate smartphone growth with consumers moving from 2G GSM feature phones to the affordable versions of 4G-enabled phones. Meanwhile, with the urban market maturing, there was a noticeable shift in the retail strategies of handset vendors, who moved back from the online channel to traditional offline models to attract consumers in semi-urban and rural areas. The industry also saw various operator-vendor tie-ups in 2017, which were primarily aimed at attracting new customers and retaining existing ones. The collaborations included bundled offerings, cashback on smartphones, co-branding and co-promoting.
tele.net takes stock of the key sales and marketing strategies of various players in the industry…
Feature phones become smart
Mobile phone usage in rural India has been dominated by the feature phone segment. Despite an increase in smartphone penetration and greater access to data services, the feature phone segment accounted for a 57 per cent market share in 2017.
A number of factors worked in favour of the feature phone uptake. The key amongst these was the price of the device. Further, the existing feature phone models can perform several smartphone functions such as playing music, making and receiving calls, browsing the web, accessing navigation and clicking pictures. Another advantage of feature phones is their long battery life that offers days of standby time. As the majority of subscriber additions come from the rural populations, feature phones still dominate the handset market. Also, there is a dearth of applications in regional languages and localised content for smartphones, which reduces the relevance of smartphones among rural users.
A major breakthrough for this segment came in 2017 with the introduction of 4G-enabled feature phones. Earlier, the shift from a feature phone to a smartphone was almost unavoidable if one wanted high internet speeds. However, the new range of 4G-enabled feature phones come with several smart features along with all the basic features at affordable prices. In addition, operators provide data top-up offers with these phones, making it an extremely lucrative deal. Therefore, such phones are slated to become an effective alternative to smartphones.
This trend of making 4G-enabled feature phones was set by RJIL with the launch of its JioPhone handset in July 2017. JioPhone offers 4G voice over long term evolution (VoLTE) services along with various smart features such as the ability to understand voice commands, make video calls, stream multimedia content through JioTV and support web browsing. The handset can be purchased by depositing a sum of Rs 1,500 which is refundable on returning the device to the company after three years, effectively making it a free purchase. RJIL had already shipped 6 million JioPhones as of October 2017. It aims to deliver another 10 million units to customers who had shown interest in buying the phone but could not purchase it since the pre-booking window was closed after the demand far exceeded the target of selling 5 million phones a week.
In a bid to counter RJIL’s JioPhone strategy, various handset manufacturers have also started manufacturing 4G VoLTE-enabled feature phones. To join the fray, Micromax launched Bharat 1, LAVA introduced 4G Connect M1 and Intex launched the Turbo 4G+ feature phone. Further, Spreadtrum, which provides chips for JioPhone, has announced that it is planning to partner with a few mobile brands to launch JioPhone competitors. This has created an opportunity for various operators to collaborate with handset vendors and compete with RJIL.
The advent of such phones is also expected to drive technology migration to 4G. Moreover, these phones will expose users to data services, making it easier for them to migrate to smartphones in the next few years.
Offline retail continues to hold its own
The online retail strategy has worked well with technology-savvy, e-commerce-friendly urban users living in metros and Tier I cities. Online stores gave many companies, especially China-based handset manufacturers, a platform to launch their operations in India. Handset players were able to cut costs as the logistics requirements were met by online partners. In addition, they saved a substantial capex on setting up exclusive stores across the country. Further, they did not have to sign contractual agreements with distributors for selling their handsets. This strategy helped several new entrants in the Indian handset market to expand their urban reach. However, urban markets, the mainstay of online sales, are now hitting saturation as most customers in these markets are already using smartphones.
As a result, various handset players are now shifting their retail strategies back from the online “click-and-collect” model to the traditional offline “brick-and-mortar” model to tap new users, particularly in Tier II and Tier III cities. Semi-urban and rural users are yet to adapt to e-commerce and thus largely remain out of the online sales and marketing ambit. Offline retail still accounts for over 60 per cent of mobile phone sales in the country. Further, according to experts, roughly eight out of 10 smartphones are still sold through the offline mode in India.
In recent years, smartphone vendors have opted for online sales to benefit from the varying tax regimes prevalent in different states. However, with the introduction of the goods and services tax, the value added tax advantage previously enjoyed by online stores has been eliminated, putting both offline and online retail markets on a level playing field.
China-based manufacturer Xiaomi set up its first exclusive retail store Mi Home in May 2017 in Bengaluru, Karnataka. To further boost its offline sales, the company has fixed the same retail price for all its products as on online platforms like Flipkart, Amazon India and Mi.com. Going forward, Xiaomi plans to set up more Mi Home stores in Delhi, Hyderabad, Chandigarh, Mumbai and Jaipur. The company, through its new and existing retail chain partners such as Croma, Vijay Sales and Sangeetha, aims to bring its smartphones to 1,500 retail stores across 30 cities.
Similarly, in August 2017, Motorola launched six experiential retail stores, Moto Hubs, where consumers can purchase the entire range of Motorola products under one roof. Going forward, the company will open 50 more Moto Hubs across Tier I and Tier II cities that have significant demand for data. Further, OnePlus has partnered with electronics retailer Croma to set up experiential zones in the top 10 cities including the metros, Hyderabad and Ahmedabad to increase its presence in the country. Meanwhile, Coolpad is planning to sell about 5 million units a year by 2019 only through its offline stores. Both Samsung and Micromax already have a significant offline retail presence across the country.
Operator-vendor partnerships
The year 2017 saw the incumbent operators foraying into the handset segment in a big way. Several operators announced plans to launch their own feature phones as well as partner with handset vendors to provide bundled offers with smartphones.
Operators collaborated with various handset manufacturers to provide cashback offers, and affordable voice and data plans bundled with select handset models. Bharat Sanchar Nigam Limited (BSNL) partnered with Micromax to launch the Bharat 1 feature phone at Rs 2,200 along with unlimited data and calling on the feature phone at a price of Rs 97 per month. Further, Vodafone India introduced bundled cashback offers with several feature phone manufacturers such as itel, Lava and Intex. Under this scheme, Vodafone users who buy these feature phones can avail of 50 per cent cashback (up to Rs 50) on a minimum recharge of Rs 100 for a period of 18 months, amounting to a total of Rs 900 over the entire period, which in some cases is equal to the cost of the phone. The main objective behind such collaborations was to familiarise users without internet access with the benefits of the internet while not deviating from the basic design, language and affordability of a feature phone, thus ensuring ease of use. In another offer, Voadofone tied up with Micromax to launch the Bharat-2 Ultra 4G smartphone, which could be purchased at an effective price of Rs 999 as against the retail price of Rs 2,899. Customers need to recharge their Vodafone numbers for a minimum of Rs 150 per month for 36 months to get Rs 1,900 as cumulative cashback in their Vodafone M-Pesa wallets.
Meanwhile, Airtel collaborated with multiple handset manufacturers including Karbonn, Zen Mobile, Intex, Celkon, itel and Samsung. The offer included a cashback on select models to reduce the retail prices of smartphones. It also co-promoted these 4G smartphones with the manufacturer and provided its retail distribution network to take the device to the masses.
Pay less get more
RJIL’s entry disrupted the telecom market, with the operator offering free unlimited data and voice services in a bid to attract customers. RJIL offered free data services till March 2017, subject to a cap of 1 GB per day in line with the fair usage policy. Even after the promotional schemes ended, the company continued to command significant pricing power with low-cost data packs and unlimited voice calling, which has unleashed a price war among operators. Over the past year, operators have considerably reduced their tariffs, with voice now essentially becoming free for consumers. All incumbent operators are offering data plans with a daily cap of 500 MB depending on the combo offer, along with free STD and local calls. Data has emerged as the new competing point with operators rolling out a slew of affordable data plans, with benefits such as data rollover and subscription to premium entertainment applications.
As per government estimates, the average monthly data usage per subscriber has witnessed a multifold growth from around 70.1 MB in June 2014 to 1.6 GB in September 2017. This strong growth in mobile internet usage can be attributed to low data tariffs, expanding subscriber base and increased availability of affordable smartphones.
Another emerging trend in this space is the data rollover facility being provided by operators. Under this, the unused 3G/4G data of a subscriber at the end of a particular billing cycle is carried over and added to the data quota of the next billing cycle. Bharti Airtel was the first operator to introduce this service for its post-paid customers. Later, Vodafone India also introduced a data rollover facility for its post-paid subscribers. The offer is, however, applicable on only a newly launched set of Vodafone RED post-paid plans.
Operators are also enhancing their data offerings by allowing free access to a host of content-based applications. For instance, RJIL is offering unlimited access to its application suite, including JioTV, JioMovies, JioMusic and JioXpressNews, while Bharti Airtel is offering free subscription of its online music application Wynk and Airtel TV. Vodafone India and Idea Cellular are also offering free subscriptions of their content applications Vodafone PLAY and Digital Idea.
Outlook for 2018
Given the current trends in the industry, the tariff war amongst telecom operators in India is not likely to end any time soon. Going forward, more data offers are expected to come up, which will further bring down tariffs. In the handset space, with the introduction of 4G feature phones, many 2G device users will look to upgrade to such devices. For handset manufacturers, the expansion of their retail base in Tier II and Tier III areas will act as a significant growth driver.
