This week it was announced retail giant Walmart was taking on telcom. They are not the first giant to try and shake up the system and certainly will not be the last. However, anyone who studied the history of personal communication (or mass comm in general) knows that this is a proposition of epic proportions.
Unlike Google who recently attempted upheaval by circumventing the traditional carrier distribution model for handsets by launching the Nexus One or Skype who’s brilliant VoIP smartphone app isn’t able to perform to it’s fullest on locked down handsets, Walmart is trying a more tried-and-true route to potential failure (or perhaps unprecedented success), the MVNO. The Mobile Virtual Network Operator landscape is littered with failures as big as Disney & ESPN or as prolific as Boost.
How does this happen and what could it mean for Walmart?
In the United State the market is dominated by four carriers, Verizon, AT&T, Spring and T-Mobile. These tier one carriers represent the vast majority of infrastructure and billed lines. The operate the vast majority of their all-encompassing services under one single brand image and focus their primary consumer-facing marketing on the growth of post-paid subscriptions. The belief, to some degree, is that by creating a single over-aching brand the underlying products and services offered could be tiered in such a way as to eventually attract every possible user to it. Each introduced several levels of post-paid calling, messaging and data packages, pre-paid packages and a variety of phones and devices across a myriad of price points in order to assume this goal.
As anyone in marketing knows, however, it is a rare occurrence a single brand can be all-inclusive. Proper segmenting of brands allows for targeting of specific groups of users in order to maximize the brand’s worth while eliminating the potential for dilution. In the automobile industry, for example, General Motors owns Chevy and Cadillac, Ford Motors owns Ford and Lincoln, Honda owns Honda and Acura, Toyota owns Toyota and Lexus, etc. to cater to the average and the high end market places without creating brand confusion and each offers a variety of model to accommodate specific segmented needs. Another example would be Anheiser Busch owning Busch, Budweiser and Michelob which all have brand extensions to exploit segmented tastes. Where there are major gaps in the marketing of these major players uniquely specialized competitors make up the difference and play a significant role in helping shape the market.
For telco, however, the four major brands primarily attempt to cover all the market segments under one name and where there were open market segments to still be exploited the MVNO attempted to fill in those unique user gaps. Many of these MVNOs touched on very niche segments dedicated to very specific user types with different needs and wants than typical device users. Focusing on image rather than service or device capabilities and tweaking the branding to reflect this unique style users many of these MVNOs were able to garner quite a bit of curiosity.
Their failures though reflect not a lack of need for targeted telco offerings but rather the failure of the current operators to cultivate such segments. The current MVNO model in the US relies too heavily on competing with the existing model of voice, message and data service and billing used by the big four. Competing with the big four for post-paid is difficult and luring post-paid consumers already subscribed to the big four away from their contracts is next to impossible. Pre-paid services represent the easiest target but even there, big four branded services continue to stifle competition, not because of their own offering as much as how the services end up having to be positioned in the market. In order to command any share of voice it takes hefty marketing dollars to compete and along with network deliver costs over the big four’s grid it can quickly take a financial toll on an MVNO.
Rather than cultivating the competition in the lower end or highly targeted markets and developing successful partnerships with companies sharing their grid, the big four seem to take an opposite approach to these leasing entities. Where these lines could become profitable resources developed through the partners the big four miss the opportunity to reach these segments, and, instead seek to adopt competing services to piggy back on their existing brand. More times than not these brand extensions end up probably missing the original targeted consumer and offer little extra value to the existing base of subscribers who really don’t need or desire access to such content or services.
This leave an entire population of consumer under-served by an industry still seeking growth and is precisely why the MVNO concept is still so interesting. Walmart entering the market is significantly different than many of the previous attempts.
Typically MNVOs did not possess their own distribution chain or retail network to get devices to consumers or sign them up for service. They were dependent on third-party distributors and retailers for everything including sales floor service and were unable to control the brand’s placement or identity at the retail level. Diametrically opposing this is Walmart which already possesses a massive distribution chain to leverage and a store network with enormous penetration as well as a retail staff that can easily be trained to represent the brand on the sales floor.
Furthermore, despite some MNVOs having an pre-existing brand identity, all need to build a retail consumer identity associated with telecom. This can be a challenge when confronted by the big four as well as retailers such as Best Buy, Radio Shack and Walmart as retailers. Walmart, however, already has the identity as an electronics retailer and a destination for consumers in telecom service and devices, and would only need to determine the most efficient marketing leverage to educate consumers on their branded offer. This is similar to how Amazon built its Kindle by leveraging its retail exposure to market a branded device.
Walmart also has a definitive consumer image, for better or worse depending on your personal perception of it, and in it’s customer base lies a number of segments of particularly under-served telecom consumers who easily become potential customers of the new service. Entreating them to eschew their current plans to adopt a more convenient Walmart service would not be enough and competing on cost alone will not necessarily provide strong differentiation. Tying the two together however and presenting it with a real solution to a unique end-user problem would go far in helping consumers identify with Walmart as being a part of the telecom solution rather than contributing to high monthly bills, particularly with messaging and data, two typical flash points in the industry with segments that might be most appealing to Walmart.
Two other elements often overlooked may work in Walmarts favor.
First, if the service offering is able to garner initial interest, the enormous purchasing power and existing relationships with major electronics companies, many of which already build mobile devices, would enable Walmart to potentially obtain unique device offerings. In the past, some of the MVNO branded phones were nothing special and did little to re-enforce the actual service image overall, especially with some of the highly uniquely tailored services they were touting. Although there is still the underlying service that is the number one customer value in telecom, handsets are playing a more diverse role in the decision making process and Walmart may be able to procure competitive and even potentially exclusive ones to help position itself in the market.
Secondly, because of the nature of its relationship with the big four carriers it may be able to leverage them as well. This could be in co-branding / co-distro deals down the road or non-exclusive MVNO status (such as being able to move between T-Mo and AT&T bandwidth as GSM offerings) or even simply negotiating a much more favorable operator cost for the network itself.
If it is able to produce such an offering and position it within the context of an already sometimes overwhelming retail experience, Walmart may have the ability to tread successfully where many other MVNOs struggled.