Why Smaller Phone Companies Don’t Have Reward Systems

MVNOs: The Smaller Phone Companies

The mobile market is one of the most competitive markets in Australia. In reality, no matter which carrier a customer is aligned with, all actual infrastructure is owned by one of the ‘Big Three’ telcos; Telstra, Optus and Vodafone. The numerous smaller phone companies are called MNVOs.

An MVNO (Mobile Virtual Network Operator) is a small carrier that works by leasing (and sometimes sharing) cellular coverage and bandwidth from larger telecommunication brands. The larger companies provide the wireless network infrastructure which these MVNOs use to create their ‘virtual’ network and then resell to consumers, often at more affordable prices.

MVNOs were first introduced to Australia in 2000, with the first being Virgin Mobile. Since their inception, they have continued to grow in popularity.

As reported by Roy Morgan in December 2018, a rising share of over 6.7 million Australians using prepaid phones had subscribed to an MVNO service. These virtual providers are now currently used by about 2 million Australians. MVNOs account for 13% of subscribers in the Australian mobile market (handset only), though catering for over 20% in major metro areas.

All operational MVNOs within Australia are using the network of one or more of the ‘Big Three’ Australian telcos. The major telcos and the MVNOs they provide infrastructure to are:

  • Telstra – ALDI Mobile, Boost Mobile, Lycamobile
  • Optus Mobile – Amaysim, Moose Mobile, OVO
  • Vodafone – Hello Mobile, Kogan Mobile, Lebara Mobile

What Are Reward Systems?

Reward systems are an important aspect of marketing and business strategy. Customer loyalty is not a commodity easily obtained, as customers are driven by their own needs and will generally choose to leave if they feel their current provider is not offering them the best deal. No matter how positive the brand history, services, and overall consumer package may seem, if a consumer perceives a better deal elsewhere, they will pursue it. Rewards programs encourage consumers to remain with a brand.

Reward systems are often referred to as ‘loyalty programs’, because their primary objective is to foster loyalty on the side of consumers towards the brand. This is done by rewarding recurrent customers with prizes ranging anywhere from discounts on products and services to paid vacations.

There are numerous advantages to companies developing loyalty programs.

Customer Retention

The biggest advantage and the primary objective of any loyalty program is consumer retention. According to Khan and Khan, “Loyalty exists when a person regularly patronizes  a particular (store or non-store) that he or she knows, likes and trusts.”

Loyalty programs are an effective means of fostering loyalty between customers and a brand. A study conducted by Annex Cloud concluded a well-designed loyalty program could easily achieve the following;

  • Loyalty programs increase overall revenue by 5-10%
  • Loyalty members spend 5-20% than non-members on average.
  • Loyalty program members buy 5-20% more frequently than non-members.

Access to Relevant Consumer Data and Trends

Reward systems give companies access to relevant consumer data and by extension, market and sale trends. When consumers register for loyalty programs, whatever information they provide is recorded in the company’s database. This data can be used in analyzing valuable data including;

  • Consumer behaviour
  • Buying habits
  • Buying preferences

This data can in turn be used to tailor products and services to achieve the widest appeal.

Why Don’t Smaller Phone Companies Have Reward Systems?

Reward systems give both companies and consumers numerous advantages. Given this fact, it is often confusing that MVNOs do not often offer any programs of their own. These are some of the reasons why these companies opt not to offer reward schemes.

Cost of Rewards Programs

A major reason why most MVNOs do not embark on reward programs is the cost attached to them. MVNOs are low-cost mobile network alternatives. No matter the scheme in place, creating a reward system would cost money, and this could easily eat into the company’s profit margins.

While loyalty programs can increase profit, the profit margins may not match the expenses incurred by the company creating the reward system. In many ways, it’s simply not worth the risk.

Hard to Get Right

While reward systems are created to encourage customer loyalty to the brand, the company must also reap some benefits from the system.

Structuring a program in which both the customer and company reap equal benefits is difficult. This is why many reward systems are revised numerous times even after they have been released to the general public.

Since MVNOs are mainly focused on providing low cost alternatives to mobile services, many simply do not concern themselves with the technicalities associated with reward schemes.

MVNO Focus

MVNOs focus on providing the same network services as the Big Three telcos, at a lower price. One of the major ways they are able to achieve this is by cutting overheads. That means paring down their service to the bare essentials – most MVNOs don’t offer physical stores and instead mostly operate online, for example. By cutting overhead costs, they are able to offer the low rates that are the main appeal of their business strategy. Creating a rewards program is likely to cut into that.

MVNO

The Australian mobile market is one of the most competitive. Aside from the Big Three telcos, the market is saturated with smaller carriers known as MVNOs. In many businesses, loyalty schemes are created to foster consumer loyalty towards the brand providing these systems, but more often than not, MVNOs do not engage in loyalty schemes. MVNOs focus on providing high quality services at the lowest possible cost, meaning loyalty programs are most often missed in favour of cost cutting – and passing the savings on to customers.

Sources

 

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.