Wednesday, 12 June 2013

Competition is too competitive says Virgin Mobile RSA; or why South Africa is so like Singapore...

Virgin Mobile - and the Virgin Group as a whole - has always positioned itself as something of a people's champion, that knows a thing or two about promoting itself. Yet this weekend in the South African 'Sunday Times' newspaper Virgin Mobile South Africa CEO, Jonathan Marchbank blamed Vodacom and MTN for being too effective as major competitors.

He described their recent actions as 'unregulated, anti-competitive behaviour', which was making it difficult for smaller players to enter the market.

The nub of the problem is that retailers, according to Marchbank, will not give Virgin Mobile products the required space as they lose ‘trailing revenue’ from existing partnerships with Vodacom and MTN.

This possibly takes too simplistic a view of how retailers operate, as they too have to maximise revenue. The issue might be that from launch Virgin failed to identify a Unique Selling Proposition, and it will continue to be a minor player until such time it finds a position or offering that the market wants.

Newsagents demonstrate this well. A major store of a leading national retail group reckons it can display at best 1,800 publications at any time before it runs out of physical shelving space. If you were to launch a new magazine, the question from the retailer is: 'Which magazine that I already carry should I replace?', and 'If I was to replace an existing title, what makes you think your title will sell better?'

The correct answer is to show your research that proves there is a significant niche that is currently unserviced by any existing publication, and that you have a serious media campaign booked.

Another rule is that any item stocked should have the expectation of making at least two sales per annum. This used to be true in record stores, and explains why when you asked for a record you think is well-respected, you are told 'There's no demand'. What the shopkeeper really means is there is insufficient demand, which isn't quiet the same thing. This is where Internet retailing has made a big difference, allowing products for which there is a national, aggregated demand for to be retailed through a specialist outlet.

The problem for Virgin, with its reported half a million subscribers, is that it is meeting this low-volume, specialist criteria. South Africa has some 67.9 million mobile subscribers at the end of the first quarter 2013, which gives Virgin just 0.7 percent of the market.

And its not as if the retailers haven't had sufficient time to get a feel for the Virgin offering, as Branson first jumped from an air balloon to promote the launch of Virgin and per-second billing back in 2006.

In June 2006 Virgin Mobile formed an equal-stake joint partnership with Cell C, and Branson said it would leverage the Cell C network to offer low-cost and high quality services to its customers, and the two were to invest over ZAR 700 million (USD 95.66 million) in the venture.

But there were already some indicators that Virgin - having brilliantly exploited the mobile youth market in the UK - could not always be expected to find a similar Branson-sized hole in other markets.

It was just nine months after launch in July 2002 that Virgin Mobile pulled out of Singapore leaving network operator Singtel with a loss of about USD 25.6 million. At the time Ivan Tan, SingTel’s spokesman, said that the one-off charge allowed for the fact that not all of SingTel's initial USD 50 million investment had been spent. According to Tan, the charge was in addition to operational losses made by the venture in the previous financial year.

At the time the two said in a joint statement: "Both the Virgin Group and its partner SingTel view the market [as] too saturated to sustain an otherwise successful virtual network operator model. The subscriber net growth for mobile phone operators in the Singapore market has not been sufficient to sustain a new entrant in this mature market place."

Virgin Mobile began its operations in Singapore in October 2001 and signed-up 30,000 customers by the time of its demise, compared to the 1.8 million it had in the UK, and 220,000 in Australia. This compared to SingTel with some 1.4 million subscribers, MobileOne Asia with about 900,000 and StarHub 350,000. A share for Virgin of 1.1 percent.

Prior to the closure, SingTel Mobile’s CEO Lucas Chow in March 2002 claimed that Virgin had not communicating its value proposition to the market well enough. Chow was quoted as saying: "The Singapore market is actually a very sophisticated market and the users have a certain set of expectations and when you do not deliver that set of expectations, it is very difficult to actually get new subscribers". A bit like South Africa then.

Chow noted that whilst Virgin Mobile's strategy was 'unique', the company might need to brush up on getting its message across to the market....and, of course, the retailers.... This is a sort of 'what came first, the chicken or the egg', only in this case, the 'what comes first' is the demand from the market, a lesson that Virgin apparently still has not learned.

Click here for further African telecoms news briefs week ending 12 July 2013.  

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