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prashant@iimcal.ac.in
Conjoint Analysis
Exhibit 5 to 8 show that the size of cost sensitive market is significant: 35% of current users, 30% of the prospects and 61% of the rejectors. Both Ex 6 (Current users) and Ex 7 (prospects) also reveal that both set of customers are sensitive to costs. Exhibit 8 shows that individuals who have considered cellular phones before rejecting them are extremely sensitive to costs monthly cost, traffic cost, and an activation cost.
LIBERO
Eliminate Lit. 10000 monthly fee. Increase peak rates to Lit. 1595 per minute from 1524 per minute. Increase off peak rate by Lit. 25 per minute. No change in subsidies and dealer commissions i.e., do not subsidise handsets. Launch of a Lit. 40 billion advertising campaign over next three months.
Economics of LIBERO
There are two parts to the equation. Omnitel drops the monthly fee, resulting in a loss of Lit. 10000 in monthly fee per user. However, it gains revenue through higher usage rate and higher costs per minute. The Libero forecast indicates an increased usage rate of 193 minute per month as opposed to 188 presently. Second for 38 peak minutes, Omnitel gets Lit. 70 more and for 155 off-peak gets Lit 25 more.
Economics of LIBERO
New (LIBERO) revenue {38 minutes (13mnt outgoing+ 25mnt incoming during peak hours) x Lit. 1,595} + {155mnt (80mnt outgoing+ 75mnt incoming during offpeak hours) x Lit. 1,95} = Lit. 90,835 Old revenue {38 minutes x Lit. 1,524} + {150mnt x Lit. 170} = Lit. 83,412 Loss of Monthly fee = Lit. 10000 Revenue shortfall incurred by implementing LIBERO = NR (OR + Monthly fee) = Lit. 2,577
Finally..
In June 1996 LIBERO was launched without monthly fee and with a strong ad campaign beginning of cell phones as mass-market products. Price competition was successfully avoided by continuously introducing innovative products. By the end of 1996 Omnitel covered appx 60% of the country and 85% population, acquiring over 700000 customer a world record. Launched a revolutionary product in early 1998 called PERSONAL giving customers a choice to select their offpeak time. By March they had over 3 million customers. Continued to receive recognition for their customer service winning many prestigious cust serv awards.