Own label mobile handsets

The mobile phone is already established as the world's largest and fastest growing consumer electronic product in history.  Earlier this year Strategy Analytics, a technology research firm, forecast that sales of handsets worldwide could top one billion in 2006 for the first time - of which the vast majority will have the Java programming language pre-installed

In most developed markets, operators heavily subsidise the cost of the handset to new subscribers.  This frequently results in the break-even point in a twelve month contract being delayed until month nine or ten.  At the end of the contract typically some 20-25 per cent of subscribers then 'churn' by not renewing the 12 month contract and switching to another mobile operator, often encouraged to do so by the offer of the latest handset model.

The handset market is dominated by five manfacturers: Nokia; Motorola; Samsung; Siemens; and Sony Ericsson.  Each year most new models are launched at the end of the summer in order to drive subscriber-led demand in period leading to the pre-Christmas sales peak.  In the week immediately before Christmas, an operator can achieve up to 10% of their annual new subscriber sales.

Since handset subsidies account for such a high proportion of new subscriber acquisition costs, it is perhaps surprising that operators have not created their own 'private label' handsets tied to their network just like the SIM card.  Operators could design the handset to link to their own service offering, e.g. add a button to access 'walled garden' services such as T-Zones or Vodafone Live!

Last week it was reported that Vodafone was in talks with a Chinese company that already produces handsets under licence for one or more of the five main manufacturers.  Such an arrangement would surely provide Vodafone with a competitive price advantage through lower handset subsidy costs (subject to there being sufficient consumer demand and acceptance to achieve the necessary production volumes).  Assuming that the rate of handset technical innovation slows down or the market segments into distinct categories, e.g. camera phones, integrated MP3 player phones, etc., in the same way that other consumer electronic products mature, e.g. DVD players, then handsets over time will become less important in driving new (retaining existing) subscriber sales.

At present, the handset functional features rather than the network is the main sales tool and talking point at the point of purchase.  Without a constant flow of new handsets, sales executives in The Link, Carphonewarehouse or Phones4U might need to be retrained to differentiate between the retailer's offers.

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