Vodafone kills two birds with one customer loyalty program

August 20, 2009

With GDP in Spain expected to contract by 4.2% in 2009 and by 1% in 2010,  Spanish mobile operators are finding that recruiting new customers has become a challenge and are going the extra mile to retain existing ones. But that’s not enough—the operators know they need to keep their clients spending too. Vodafone Spain is killing both birds with one loyalty program: Vodafone Puntos. While the initiative is clearly having a positive impact on the operator’s market share, it is also likely to increase smartphones sales and consequently boost Vodafone’s revenue from advanced data services.

Vodafone Puntos is simple: The operator awards points to its most loyal customers, and by accumulating a specific number of points, customers get certain discounts. Those who remain with Vodafone the longest, and those who spend more, are likely to collect the most valuable prizes. Most recently, Vodafone’s customers were given the opportunity to use points to upgrade their handsets. For example, a postpaid customer can get a Nokia N95 for “free” for 9,600 points (see Exhibit 1).

So far the program has met its main objective, increasing Vodafone’s subscriber total in Spain by 0.5% in the quarter ended June 2009. This is remarkable not only considering the hard times the Spanish economy is going through these days, but also in light of the performance of other Vodafone subsidiaries in Western Europe: the operator reported a decrease in the number of customers in several large Western European markets. Vodafone’s German operations, for instance, reported a Q2 decline in the number of customers of almost 2% from Q1, followed by Italy and the UK with 1% declines.

Although the Puntos program has been successful in terms of churn stabilization, its objective goes further—encouraging customers to upgrade their mobile phones. For those who use up their points to upgrade their terminals, further awards, such as free nights in a hotel, await. As more customers opt for high-end handsets such as smartphones, it is likely that the operator’s advanced data service metrics will improve too.

While more promotions sounds like a risky move in this economic climate, I believe Vodafone Spain is making a wise choice even if this means giving up on some profits in the short term. By maintaining a stable market share in Spain now, Vodafone will see strong post-recession growth. Furthermore, the operators should understand that more advanced handsets in the hands of its customers translate into more usage of advanced data services and thus increased data revenue (see Exhibit 2).

While it may sound paradoxical that mobile operators should forgo revenue now by offering subsidies on the most expensive handsets, this strategy is, we believe, the best way to address the economic situation and prepare for post-recession growth. Most European operators, facing increasing churn, are engaging in more aggressive customer retention strategies anyway. By focusing more on keeping their most lucrative customers—smartphone users—as well as on increasing their numbers by promoting handset upgrades (as Vodafone seems to be doing) and on encouraging customers to use their mobile data networks, operators will keep their margins comparatively stable in the current economy and increase them once the economy improves. In other words, today’s short-term survival strategy will turn into a winner in the medium term. For a more detailed analysis see Pyramid Research’s new Europe Insider  .

— Stela Bokun, Analyst

Related resources:

Europe’s Smartphone Market: Sustained Growth Is at Risk
Europe Telecom Insider published August 2009
While vendors and operators are still seeing smartphone growth despite the recession, we believe market participants should implement strategies that are more likely to maintain sales volume during the downturn and expand business once the economy improves. This Insider examines the impact the economic downturn will have on European smartphone sales in the medium term, offering guidance to on how to mitigate the effects of the economic slump and prepare for post-recession growth. It provides Pyramid Research’s five-year forecast on smartphone adoption in Europe and examines in more detail the market-positioning strategies of the leading smartphone vendors: Apple, Nokia and RIM.

Central & Eastern Europe Mobile Handset Forecasts
Forecasts published quarterly
Our Mobile Handset Forecast products provide complete pictures of handset sell-through in each of four Central & Eastern European markets. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales, handset sales by network technology, new handset sales (by technology, by technology generation, by feature set), smartphone handset sales, vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. Moreover, they are based on extensive field research, and a consistent methodology that is applied to all markets.

Western European Mobile Handset Forecasts
Forecasts published quarterly
Our Mobile Handset Forecast products provide a complete picture of handset sell-through in each of France, Germany, Italy, Spain and the UK. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales, handset sales by network technology, new handset sales (by technology, by technology generation, by feature set), smartphone handset sales, vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. Moreover, they are based on extensive field research and a consistent methodology that is applied to all markets.

Latin America Mobile Handset Forecasts
Forecast published quarterly
Our Mobile Handset Forecast products provide a complete picture of handset sell-through in each of 18 Latin American markets. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales, handset sales by network technology, new handset sales (by technology, by technology generation, by feature set), smartphone handset sales, vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. Moreover, they are based on extensive field research, and a consistent methodology that is applied to all markets.