Retail MVNO 2.0

Via Detecon Consulting

May 9, 2017

A New Channel for Digital Customer Relationship Development

Digitalization is leading to enormous changes in all industries. Retailers are finding it to be a two-edged sword, giving rise to threats as well as tremendous opportunities.

Current trends in retail trade represent various threats

  • As the number of shopping channels increases, customers gain the freedom to move freely among them while expecting to find the same services and products at every step along their journey. Parallel to the growth in online shopping opportunities is a decline in the availability of physical locations. Brick and mortar stores are no longer viewed as the primary shopping location owing to the rising importance of online shopping.
  • Customers are becoming more and more demanding. So-called millennials are connected globally; they expect to find online services as a matter of course and use them without a second thought. The web is accessible anywhere, anytime, providing full transparency about potential purchases to customers wanting information before making a decision to buy. The use of in-store solutions such as indoor mapping or the tracking of customers and products is becoming more and more commonplace. The result is a need for deeper understanding of customers and the management of the relationships with them on the one hand and seamless channel management on the other as classic customer journeys are transformed into a series of contacts with innumerable possible touchpoints.
  • Competition is becoming keener as manufacturers begin selling directly to their customers via digital channels. Moreover, the competition between e-commerce-only retailers and brick and mortar retailers will continue to intensify, and globalization will force retailers to expand the scope of their channels if they want to have any chance of survival. Intense competition and high customer expectations reduce customer loyalty, especially if customers are given any cause, whether real or perceived, for dissatisfaction.

Essential factors for future success can be found in digitalization

The other side of the coin is that digitalization represents enormous opportunities for retailers. They can counter the above-mentioned threats by taking advantage of digital technologies to improve their business and the customer experience:

  • The implementation of new and fully integrated digital channels (which should be carried out without any disruptions that would impact customer activities) ensures full flexibility of the shopping experience. Customers can do their shopping on any channel, anytime and anywhere they want, and can even move from one channel to another without any breaks in the process.
  • Digital in-store solutions, mobile payment, and tailored services customize and simplify the shopping experience. Retailers can use them to integrate online and offline shopping into the customer experience, leading to enhanced customer satisfaction and loyalty and helping to obtain insights into customer behavior.
  • The use of new digital marketing solutions and big data makes it possible for retailers to contact customers directly in real time and at the moment of truth, thereby strengthening the customer relationship.

More information about ongoing Retail Trends in 2017 can be found in Detecon’s article ‘Future Retail’ (published in German). In view of the aforementioned threats and opportunities, it is clear that customer data and strong customer relationships are essential factors for future success in the conduct of retail trade with a clear customer-centric perspective. But how can retailers collect and utilize customer data and establish strong customer relationships that will assure their success in mastering digital transformation?

How can retailers collect and utilize customer data and establish strong customer relationships that will assure their success in mastering digital transformation?

For many retailers, offering mobile telco services has enormous potential for the protection of core business, enabling businesses to gain insights, to strengthen and rejuvenate their brand positioning, and to heighten customer loyalty. Launching an MVNO has a number of benefits for retailers as it can be used to leverage their shops, their online presence, and their distribution capabilities. At this time, new opportunities are opening up for retail mobile virtual network operators (MVNOs), including better understanding of consumers or the improvement and optimization of the retail experience.

This information will not come as a surprise to the German retail market. Almost every major retailer in Germany has launched an MVNO as a supplement to the regular retail business that continues to generate most of their revenue. Figure 1 below shows that all of the top four food retailers in Germany offer mobile services.

Figure 1: MVNOS of the Top 4 German Retailers in 2016:Source: Lebensmittelzeitung (2016): Ranking Top 30 LEH 2016<?sup>

But what is their value proposition? Are they already exploiting in full the potential slumbering in MVNO offerings?

A closer look at these mobile services (Figure 2) reveals that most of these providers focus on price and attempt to acquire new customers by luring them with low-price rate packages.

Figure 2: Overview of the Primary German Retail MVNO Services

As many customers today — especially retail MVNO customers — are indeed price oriented, the price-focused approach of retail MVNOs seems at first glance to make perfect sense. Nevertheless, retailers should consider that focusing exclusively on price without any further differentiation has two effects: one, it limits their ARPU; second, it lowers customer loyalty and increases churn rates because MVNO services are highly substitutable for customers and the switching barriers are low. So if retailers wish to remain successful on this highly competitive MVNO market, they must give consideration to other options. Taking a more customer-centric approach within the portfolio of mobile services can result in enormous added value for retailers, especially because such a strategy has not yet been adopted in Germany.

A closer look at the German telecommunications market in general reveals confirmation of the image of price-driven MVNOs while MNOs generally focus on product leadership (Figure 3). Only a few players on the German market are attempting to shift their orientation emphasis from product and price to service, but as of this time there are no offerings with a clear focus on service.

Figure 3: Categorization of Several German Mobile Services Providers according to the three Primary Business Models

So why are they not exploiting the potential slumbering in a strategy that focuses on service? Retail MVNOs could set themselves clearly apart from their competitors by offering added-value services. For instance, retailers could utilize location-based services to display the nearest store and the daily specials aligned with the customer’s specific interests to be found at this store. Moreover, they could institute loyalty programs featuring special offers for program members. Retailers would benefit from enhanced customer loyalty as well as gain access to the data generated by these services, thereby gaining customer insights that would improve further customer relationships.

German retailer MVNOs can learn from global best practices

In other parts of the world, retail MVNOs are successfully reaching customers by employing an MVNO approach oriented more strongly to customer experience. Global best practices differ greatly from the German MVNO business (see Figure 4). Two examples: the Australian retailer Woolworths and Great Britain’s Tesco are focusing on customer intimacy by offering added-value services.

Figure 4: Best Practices for Retail MVNO 2.0

Woolworths is Australia’s largest retailer; its strong customer base shops in more than 3,000 stores in Australia and New Zealand. Woolworths entered the MVNO market in 2013 as part of the Optus network, then relaunched in 2015 in cooperation with Telstra. This retailer offers an easily purchased mobile plan that is tied to the company’s bonus scheme and its opportunities to save money on grocery purchases. Described in a nutshell, Woolworths leverages its loyalty scheme by using exclusive, target offers and promotes it through direct marketing and the store’s catalog showcasing loyalty benefits for the chain’s customers.

Tesco is one of the largest companies in retail food and general merchandise trade, operating 6,902 stores around the globe. Tesco Mobile appeared on the UK mobile market in 2003 as an equal partner in a joint venture with O2. Besides the UK, where the company serves 4.6 million customers, Tesco Mobile operates in Ireland, the Czech Republic, and Slovakia. Tesco’s business model differs from that of other retailers. Whereas many retail MVNOs focus on the very end of the MVNO value chain by acting as branded resellers, Tesco has established a full MVNO with greater depth in its value creation. Although this extended business model has the potential for greater margins and the integration into the core business, it entails higher investments and risks. Like Woolworths, Tesco focuses on linking customers to other services. Its omnichannel strategy opens up new levels of loyalty and brand interaction; for instance, customers can collect Clubcard points for every £1 spent on mobile channels and redeem them for rewards, or they receive a monthly discount of £3 when they use their smartphones to open additional Tesco content, offers, and ads.


To sum up, retail MVNOs do not necessarily need to restrict their focus to low prices. Mobile services aimed at customers can generate advantages for retailers that enable them to establish a strong brand and a large, stable customer basis. Why should the customer-centric approach not be taken on the German retail MVNO market as well, especially as the potential appears to be great? New players entering the classic store retail business are especially aggressive in attacking the market right at this moment. Amazon is in the process of launching its new Amazon store solution “Amazon Go” in the USA. It offers customers a new form of digitally supporting shopping experience. Private mobile phones are fully incorporated into customers’ normal shopping activities, including mobile payment and complete integration of their Amazon profiles. German retail MVNOs should take a page from this book and start to look at ways to exploit the potential of digital transformation in their MVNO services and to provide a digital experience for customers.

Authors Miriam Fries,Julia Steffens

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