New revenues for MNOs in emerging markets: 4 trends show need for digital sales
While global sales of smartphones are dropping – a decrease of almost 12% from 2019 to 2020 – sales of smartphones in emerging markets continue to grow significantly. Moreover, says Raul Martinez, chief commercial officer, Upstream these customers want to be always online and with the majority still on pre-pay, they are constantly searching for the best value offer.
Meanwhile, the mobile network operators (MNOs) in emerging markets are aiming to acquire and/or retain the most valuable data customers and the biggest untapped opportunity is to upgrade them to hybrid or post-paid contracts. Yet many mobile network operators still rely heavily on physical stores and call centres to reach these customers, with a high and inefficient distribution cost structure that is difficult to scale.
This “physical” approach to doing business is both expensive for mobile operators and time consuming for customers; in fact, many of these physical transactions are now severely impeded because of the impact of Covid-19 on retail. Already a number of retailers have filed for bankruptcy or closed brick-and-mortar stores, as many believe that physical commerce will not return to previous levels when the pandemic is over.
As such, digital outreach is the de facto go-to solution, especially as pandemic-forced lockdowns continue around the world. However, this is easier said than done, as not all MNOs have the technical infrastructure to precisely target and convert customers using digital channels. Some lack the in-house skills to create strong campaigns. And as always, operators continue to grapple with budget constraints, with most MNO CAPEX and focus consumed on hefty network roll-outs, with IT investments in digital sales playing a secondary role.
Constraints are not deal-breakers
The constraints are there, but they shouldn’t be a deal-breaker for mobile operators to move from physical to digital. This is especially true in emerging markets, where four key trends further support the need for operators to embrace digital sales over physical sales:
- Growing data & smartphone adoption: Ericsson estimates that mobile data traffic will increase by a factor of five by 2025. This means mobile data traffic will reach 164EB per month in 2025. Smartphones generate 95% of mobile data traffic, and global smartphone penetration is expected to reach 80% by 2025 driven by emerging markets – given the rising middle class and tech-savvy young population.
- Acceleration of e-commerce: The Boston Consulting Group estimated in 2018 that digitally influenced spend in emerging markets would reach US$4 trillion by 2022, but given the pandemic experts believe that this has caused a step change advancing the use of ecommerce in emerging markets by as much as six years.
- Shift from prepaid acquisition to loyalty/retention through hybrid and postpaid: Post-paid customers are more loyal. In the eight markets studied by Strategy Analytics, pre-pay churn ranged from 37-80% a year. Post-paid churn, however, was only 16%. MNOs in emerging markets are moving to higher value & validity pre-pay bundles but the most successful ones secure customers for longer term contracts in exchange of better offers through hybrid and post-paid plans.
- Acceleration of digital/mobile payments and overall financial inclusion: In 2019 the number of registered mobile money accounts surpassed 1 billion according to the GSMA, with the proportion of digital to cash payments increasing by 50%. New and increased online payments options enable digital transactions that traditionally were physical, and cash based.
If digital journeys are so effective, why don’t MNOs offer them?
Often, the answer comes down to budget and focus. MNOs have CAPEX and OPEX constraints, and it costs money to build a digital strategy that embraces all channels and links back to existing customer relationship management (CRM) systems. With so many other investment priorities, MNOs can overlook the digital sales process.
Frequently there’s a skills-gap as well. It is expensive to recruit and train digital sales personnel. This explains why the majority of MNOs still sell post-paid contracts – the most obvious candidate for digital conversion – via call centres and physical stores. When they do make it possible for customers to buy or upgrade digitally (especially in emerging markets), it is usually via a form on the website that triggers a future call-back instead of a truly digital sales experience.
To unlock every available digital sales channel, MNOs should partner with companies that can build systems and constantly iterate them to produce the best results. Partners should have solutions that enable MNOs to migrate to digital sales quickly – in weeks vs. months. Moreover, it’s important for MNOs to find partners that don’t charge for set-up or running the solution. Instead, look for partners that provide a revenue share on completed conversions.
By embracing the digital sales model and identifying the right partner to create and manage the digital sales initiative, MNOs can replace the expensive, ineffective retail store/call centre model with a new model that cost-effectively attracts both new smartphone users and existing pre-paid contract users.
While there’s an argument to be made that all mobile operators should switch to digital sales channels, nowhere is the opportunity more promising than in developing markets right now.
The author is Raul Martinez, chief commercial officer, Upstream.