Implementing market-based management

Australians connect with each other through various forms of telecommunications. Whether it be the internet, telephone, mobile telephone or SMS messaging, the majority of Australians have embraced a wide variety of technology to enable them to keep in touch with their families, loved ones and conduct business from many places in the world.

Australian telecommunications provider Telstra has undertaken a significant change in its marketing practices over recent years to better meet the needs of today's customers.

By reading this Case Study, students should be able to:

• Understand the concept of Market Based Management
• Outline the key steps in preparing a marketing plan 
• Explain the importance of responding to consumer needs.

Introduction

Telstra is one of only a few telecommunications companies in Australia that has the ability to provide customers with an integrated telecommunications experience using its own assets and content services such as Sensis® and BigPond®.

The expanding marketplace

Since its inception at the turn of last century, Telstra (or PMG as it was known then) has shifted its concentration from being a technology and product focused organisation to becoming a customer focused company practising Market Based Management (MBM).

Market and competition

Markets are often affected by external factors. This is certainly the case with the telecommunications industry which has undergone a rapid transformation over previous decades – and will continue to do so in the future.

Understanding customers and the marketing mix

In order to differentiate itself from its many competitors, Telstra repositioned its marketing plan to put into practice a Market Based Management (MBM) approach.

Meeting customer needs

Telstra introduced their Next G™ mobile broadband network in October 2006, responding to customer needs identified as part of the MBM approach.

Conclusion

Telstra has adopted a Market Based Management approach to provide better services to customer segments and to give it the competitive edge over other telecommunications companies in the marketplace.

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Introduction

Telstra is one of only a few telecommunications companies in Australia that has the ability to provide customers with an integrated telecommunications experience using its own assets and content services such as Sensis® and BigPond®.

Telstra's strategy is to create an easy to use, simple and intuitive solution that provides a real advantage and cost benefit to individuals, businesses, enterprises and government. It aims to do this by integrating the assets that Telstra owns and sharing content across home phones, mobiles, Internet and cable TV.

This is achieved by offering five core products:

• Home phone
• Mobile phone (pre-paid and post-paid)
• Fixed Broadband
• Wireless Broadband and
• Pay TV (FOXTEL from Telstra).

Organisational History

Back in 1901, the Australian Government established the Postmaster General’s Department (PMG) to manage the country's telephone, telegraph and postal services. PMG is now known as Telstra and has gone through a number of transformations since its origins:

• In 1975 PMG became known as Telecom
• In 1991 the organisation was incorporated as an Australian public limited company
• In 1993 the organisation changed its name to Telstra
• Telstra was then partially privatised in 1997
• The government sold off additional shares in 1999 and its remaining stake in 2006.

The expanding marketplace

Since its inception at the turn of last century, Telstra (or PMG as it was known then) has shifted its concentration from being a technology and product focused organisation to becoming a customer focused company practising Market Based Management (MBM). Telstra has adopted a market based management approach to give it a competitive advantage in an ever changing telecommunications market: a market that is constantly changing as a result of technology, competition and growing telecommunications product penetration.

Market and competition

Markets are often affected by external factors. This is certainly the case with the telecommunications industry which has undergone a rapid transformation over previous decades – and will continue to do so in the future. There are three key factors which have contributed to change in the telecommunications marketplace:

Technology

In an information society such as Australia, access to information is live, online and mobile. Technology has radically changed the way people can consume information.

Communities are no longer formed around geographical location but rather around common interests such as sports, music and entertainment. You only have to visit social networking sites such as Facebook, MySpace and Bebo to see the enormous choice of online communities.

As a result of this change, people now seek choice, convenience, control and mobility of the information they consume.

Competition

An increase in competition has meant that there are now in excess of five hundred competitors in the Australian market all vying for the technology dollar. This means that the volume of products and services available to consumers is also on the rise.

Product penetration

Many Australians are now connected to Internet, mobile and home phone services. According to the Australian Bureau of Statistics, in January 2008 91.4 percent of Australian households have a home phone service connected while 48.5 percent of Australian households have a broadband service connected. There are a total of 17,040,103 mobile services in Australia.

With so much competition out there, it is essential for Telstra to have a solid understanding of its customers' needs and to be able to service their requirements.

Telstra therefore aims to differentiate themselves from their competitors by knowing their customers and understanding their needs better than ever before and better than any of its competitors.

Once they understand their customer's needs, it is essential that Telstra communicates the features and benefits of their products and services to existing and potential customers. This is done through a comprehensive marketing plan.

Understanding customers and the marketing mix

In order to differentiate itself from its many competitors, Telstra repositioned its marketing plan to put into practice a Market Based Management (MBM) approach.

Market Based Management is a business strategy that puts the needs and wants of an organisation's customers at the centre of all business activity.

Five key concepts that underpin the MBM philosophy are:

• Customer focus and profitability - focusing on customers and their needs rather than products and technology
• Create customer value - creating superior value over the competitors' product and providing exceptional value to the customer; this value may be tangible such as providing a physical product or intangible such as service and account management
• Customer retention and advocacy - creating customer loyalty and encouraging customers to promote your brand
• Competitor analysis - understanding the competitor's differentiation, market share strategy and customer segmentation and
• Cross functional teamwork - a collaborative approach to working together, sharing information and building creativity and problem solving capacity in order to bring a greater and more positive customer experience.

MBM uses strong market research to underpin the basis of all marketing activity. Market research is usually conducted using both qualitative and quantitative methods.

Qualitative research is based on anecdotal feedback from clients and provides information on how and why people make the purchasing decisions they do. This can usually be collected through surveys, interviews and focus groups. In Telstra's case, they conducted interviews with more than 400,000 Australians to understand:

• Why their customers want to connect with one another
• What kind of telecommunications services they need
• What people want from a telecommunications provider
• What their needs and wants are
• What Australian people think about.

Quantitative research provides market researchers with more measurable results based on statistical analysis of data. Statistics, tables and graphs can be used to represent results from quantitative research.

Data will often relate to market size, market share, penetration and market growth rates. It is also used to measure customer satisfaction, attitudes, awareness and behaviour.

Based on market research results, marketers would then need to determine the most appropriatemarketing mix.

The marketing mix refers to the 'Four P's' of marketing: product, price, placement and promotion.

Product

The first of the ‘Four P’s’ refers to the product being promoted. It can be an actual product, a service or information.

Price

Price point can be very important for some products. Pricing can have an effect on the way the product is promoted – will it be a high priced item to target a luxury market or a lower priced product to offer value for money to customers?

Placement

Placement refers to where, and how, to place a product to make it visible to the marketplace. For example, will it be via the Internet or in a retail outlet?

Promotion

The final P of the 'Four P's' refers to promotion of the product. There are various methods of promoting a product depending on budget and relevance. Typical methods include advertising,public relations, word of mouth, direct marketing and point of sale.

By offering a company's product with the right combination of the 'Four P's' marketers can improve their results and marketing success.

To understand its customers, Telstra divided its business and consumer customers into unique segments to better comprehend their needs.

Segment needs differed according to:

• Customer demographics including age, income, ethnicity and family status
• Preferred marketing style
• Understanding, acceptance and use of technology
• Buying decisions and motivations.

Meeting customer needs

Telstra introduced their Next G™ mobile broadband network in October 2006, responding to customer needs identified as part of the MBM approach. The Next G™ network offers three core value propositions to address a range of customer needs: coverage, speed and simplicity.

Coverage

In a vast country like Australia, coverage was important for many of Telstra's customers. The Telstra Next G™ network is 100 times larger than any other 3G network in Australia reaching 99 percent of Australians. More customers can be connected in more ways and in more places than ever before. The value of improved coverage to a customer depends on the customer. It might be connecting to a friend or family member in a remote area or managing to conduct business and reach a customer while on the road.

It is important to note that as with any mobile network, coverage on the Next G™ network depends on where a person is, what particular handset that person is using and whether that handset has an external antenna attached.

Speed

In terms of speed, the Telstra Next G™ network has a theoretical maximum speed of more than fifty times faster than standard dial-up which means many Australians can access and download a large array of content via a Next G™ mobile phone or Next G™ BigPond® wireless cardThis is important in an information society and for many home-based businesses andtelecommuters. The value of speed could be downloading faster in a business environment therefore increasing productivity and reducing costs.

Simplicity

The Next G™ network provides customers with a simple, streamlined service for their telecommunication requirements providing easy access to entertainment such as Mobile FOXTEL from Telstra, BigPond® music, BigPond® photos and information (including BigPond® Mobile Services, CitySearch® Mobile e-mail and Sensis® search). This is all done through a customer's mobile phone with one click on their 'My Place'™ menu tab. Simplicity is an important value which enables customers to enjoy streamlined customer experience whatever product or service is used.

Telstra's Unique Selling Point (USP) for its Next G™ network is that it offers Australia's largest and fastest national 3G mobile network- unparalleled by any of its competitors. In such a competitive environment, differentiation from rival companies is essential.

Through this innovative service, Telstra has gone from 0 to 44 percent of Australia's 3G market in two years, succeeding against various global operators in a highly competitive market.

Telstra now has the second highest percentage of customers on 3G in the world. By fiscal 2010, Telstra expects that between 50 and 70 percent of its customers will be using 3G services.

Conclusion

Telstra has adopted a Market Based Management approach to provide better services to customer segments and to give it the competitive edge over other telecommunications companies in the marketplace.

It has responded to the changing needs of the Australian community and transformed from a technology focused organisation to a customer focused organisation.

Through extensive research and focus on its customer needs, Telstra devised the Next G™ network, Australia's fastest and most extensive national mobile network, bringing more Australians together through telecommunications.