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Omnitel Pronto Italia Case Solution
Omnitel entered the Italian cellular market in 1995 with an advantage of its laser focus on customer services but things did not work out very well because customers did not really like the monthly charges, and Omnitel had to come up with something different without staring a price war. LIBERO (coined by Omnitel) focused on free of unnecessary charges cell phones, but the idea is more likely to lead to a higher churn rate without giving rise to a price war. The conjoint analysis shows that a big proportion of customers are price sensitive and are likely to switch. If I were Bono, I would focus more on flexible plans and more options for the customers.
Following questions are answered in this case study solution
What was Omnitel’s competitive advantage when the service was launched in December 1995?
Why did the launch not perform to expectations?
What are the economics of LIBERO?
Why is the churn rate so high for many European countries?
Do you expect the churn rate to increase or decrease with the launch of LIBERO?
What do you learn from customer research? What do you learn from the results of the Conjoint Analysis presented in Exhibits 5 to 8?
Will LIBERO lead to a price war? If yes, what could Omnitel do to avoid one?
If you were Fabrizio Bono, what changes would you make to LIBERO and why?
Case Analysis for Omnitel Pronto Italia
1. What was Omnitel’s competitive advantage when the service was launched in December 1995?
When Omnitel was launched in 1995, the biggest edge it had in the market was that it offered superior customer service as compared to TIM that was in monopoly at that time. Bono coined the term ‘LIBERO’ which means liberty in the Italian language. The idea of LIBERO was to free the customers from the activation and monthly fee. The only thing that the customers had to do was to sign a contract with the company for a year or two. The company focused on high-quality customer care by polite call operators, reduced waiting times for customers and one-stop calling. All these services were highly appreciated by the customers and gave a competitive advantage to Omnitel.
2. Why did the launch not perform to expectations?
Firstly, before Omnitel entered the market, it had to get a license for which it paid $469 million for GSM license. Telecom Italia Mobile was a state-owned company and, therefore, did not have to get a license and to break that state owned-monopoly was not an easy task. Instead of high customer satisfaction, Omnitel’s market share was as low as 4%. It could not cut its price because of being a new entrant into the market and also had to offer something different than TIM without indulging in a price war, and that was lacking in Omnitel’s offers. Customers also did not appreciate the monthly fee and considered it as a tax.
3. What is the economics of LIBERO?
LIBERO is an Italian word that means ‘liberty’. The economics of LIBERO as can also be deduced from the term is to free the customers from unnecessary costs that they do not appreciate. The customers only want to pay for something they use, and highly discourage the subscription and other costs and consider them as tax and that was the philosophy of LIBERO to offer a service free of activation cost and monthly fee so that the customers feel liberty. LIBERO also included efficient and flexible tariff plans for the customers to give them more choices. The target of the LIBERO is to focus on the potential customers for the product and get them what they want.
4. Why is the churn rate so high for many European countries?
Churn rate is the annual rate of customers unsubscribing a product or leaving a job. The reason behind the churn to be higher in the European region might be that when mobile got introduced into the market, it was a status symbol, and most people use to show off with their expensive cell phones. By the passage of time, new companies entered the market, the competition got stirred up, and people started using the mobile phone more than ever considering it a necessity. And when it comes to necessity, people always go for cheaper and more convenient goods, and that’s why they tend to switch from one good to another resulting in higher churn rate.
5. Do you expect the churn rate to increase or decrease with the launch of LIBERO?
With the launch of LIBERO, I expect the churn to increase because although LIBERO provides the people what they want and people certainly never like to pay extra money for something that they are not using and monthly charges, taxes, and activation charges fall into that category.
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