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Can retail MVNOs give supermarkets a better handle on their baskets?

07 March 2016

On January 15th, the “Mobile by Sainsbury’s” service closed its doors. It’s the latest and by far the highest profile brand MVNO to shut down – previous closures like Family Mobile, carried by EE, have been niche plays rather than household names. Sainsbury’s service was a joint venture with Vodafone and, with 150,000 subscribers, common wisdom is that Vodafone was unhappy with customer numbers.In comparison, Tesco Mobile enjoys a base of around 5 million subscribers – although their subscriber growth rate was similar: the Tesco Mobile service has simply been on offer for far longer.

The brand perspective

But let’s examine this story in brand terms; because we may look back on January 15th 2016 as the day that a complete reversal of the MVNO business was evidenced. Early MVNOs were built around brands. It’s no surprise that Virgin was the UK’s first MVNO – it is one of our most respected and consistently positively perceived brands. It is also a brand which (unlike British Airways, the UK’s #1 brand) can easily be attached to different businesses.

The logic in those days was simple: the brand would provide marketing leverage and access to a consumer community – one which may have more affinity with the MNVO brand than the parent network. In exchange, they got a new and ongoing opportunity for profit, delivered over trouble-free infrastructure provided by the mobile partner.

Fast forward two decades and this looks like a raw deal for Sainsbury’s. Brands jealously protect their assets, because customer sentiment is hard won and easy to lose. The company did as good a job as possible with the closedown; giving a full three months’ notice to customers. But any pay-monthly subscribers failing to transfer their numbers with the PAC code procedure by the closedown date didn’t just lose their service: they lost their phone numbers, too. Here in 2016, in brand terms, this is dismal stuff. We expect online services to come and go, but we don’t expect a high street stalwart to switch services off. It's not just their mobile revenues that have been put at risk, grocery customers may re-evaluate their relationship with Sainsbury's, too. Whatever the balance sheet looks like, this episode suggests that instead of being the gateway to a market, Sainsbury’s has been at the mercy of the market – and been left holding the baby.

Plus, there’s no lack of pressure on retail. A Retail Think Tank study says that shopping habits have changed dramatically. Maureen Hinton, global research director at Conlumino is quoted in the report, saying that “consumers are looking beyond retail for goods and services to spend their money on. This is making it much harder for an over-subscribed retail sector. Leisure, culture, entertainment, have shown much stronger growth than retail over the past five years… Our mindset has changed. We now don’t feel we need lots of things any more. That’s a real problem for retailers.”

A new model for retail mobile

Why then, if operators are going to flex their muscles, would a retailer consider an MVNO operation today? Perhaps it’s time for a new model, in which the MVNO is no longer just one product line among many, but a key component of a modern digital marketing strategy.

In the RTT study, Martin Hayward, Founder at Hayward Strategy and Futures, said “in many retailers the promise of a digital future, where offers are personalised and relevant has so far been missed… Customers want to feel valued, and want to build relationships with their chosen suppliers but we are currently often making this hard for them to do…For long term brand health, retailers have to focus again on their most important customers. Get to know them, talk to them and love them. The data exists, the tools exist and the customer would love you to do it – the appeal of relentlessly chasing the deal is beginning to diminish.”

Yet few retail-branded mobile services deliver anything like a rich customer experience. A 2013 snapshot from Nereo Consulting comparing engagement techniques from various retailers found that many did nothing beyond branding the service. Tesco Mobile is again near the top of the tree, at least offering loyalty points for purchasing a phone and bonus loyalty points on pre-pay top-ups. But this is still what Hayward calls “chasing the deal”. If his position is correct - that pure financial incentives are becoming less appealing just as omni-channel retail is becoming non-negotiable - it is surely time to envisage an offering built around the experience of membership, not the price.

Where offers are made - and 2016 has been marked by a consumer backlash against the wastage caused by traditional BOGOF deals - it might be more attractive for the user to see, for example, their data allowance increase as they move round the store scanning items. A retailer’s app could offer location-specific benefits: not just offers but also wi-fi in-store, shopping lists, even parking availability.

And Sainsbury’s 150,000 members, whilst small by Tesco’s measure, is the sort of community that focus group strategists can only long for. MVNO ventures are a chance to have a statistically meaningful subset of customers with the retailer’s phone in their hands, and then examine their preferences in real-time. By understanding those customer behaviours and then extrapolating across the market – establishing a direct link between the MVNO customer segment and basket size or purchasing behaviour – retailers have an opportunity to seriously influence their core proposition.

Consultancy Graystone Strategy have made a convincing start, creating a market segmentation to map grocery spend against mobile habits. Over two thirds of mobile users in their categorisation (from “Service Seekers” to “Technology Trailblazers”) are both comfortable with the technology and aspirational in their use of tech; driven by convenience. Their analysis suggests that retailers have a significant financial opportunity if they exploit a deeper understanding of their customers shopping, location, browsing and media preferences. The smartphone and mobile proposition offer a window into this information. Ultimately, (and the launch of the free-for-basics FreedomPop service suggests this) the user data from the MVNO client base’s phone usage may be the most valuable commodity. It requires real-time management of key parameters or at least an engaging and helpful app. It requires an integrated approach to marketing and technology. But given that mobile devices are the most ‘present’ way to reach customers; and traditional advertising – especially on mobile – is being perceived as noise and nuisance, mobile services might be the perfect way to build market value.