Tesco’s blue, red and white branding has become ubiquitous in the UK retail landscape and it’s a household name synonymous with good value, low cost, mass market products.
This association has been transferred into the prepay mobile market and if it replicates this success in the contract market, Tesco stands to take considerable share from retail heavyweights Carphone Warehouse, Phones 4U and of course the networks’ own stores. But can Tesco Mobile ever cut it as a serious contract player?
Tesco’s move into the mobile market, as a budget MVNO and a retailer of network prepay SIMs, has seen it creep up the ladder to be almost on a par with Argos and just behind market leader Carphone Warehouse in the retail prepay SIM sector, with its O2-supported Tesco Mobile MVNO taking around eight per cent of the prepay subscriber market with two million customers.
In an interview with The Sunday Times newspaper last month, Tesco Telecoms chief Lance Batchelor said the company, which recently posted record annual profits of £3 billion, would challenge Carphone’s stronghold in the mobile retail market by opening more than 100 in-store ‘Phone Shops’ selling mobile and landline packages by next March.
Its newly strategised retail services arm, which would include not just telecoms but new in-store bank branches offering savings accounts, insurance policies and credit cards, aims to increase profits from £400 million to one billion. Analysts say its current retail services arm makes up around six per cent of the company’s overall turnover.
Ovum wireless analyst Carrie Pawsey paints a wider picture of Tesco’s mobile retail positioning: “In the traditional UK retail space, Carphone Warehouse has been number one; Argos has also been very successful and then Tesco. As I understand, Argos’s success is falling and Tesco’s is rising, so it is becoming more of a significant mobile retail player.
Telecoms appears to be a key focus of its strategy as it has earmarked 200 Tesco Extra stores to have mobile added to them.”
Industry observers and analysts number the reasons for Tesco’s mobile business becoming a hit as strong distribution (around 2,282 stores in all their forms; but around 600 standard supermarkets offering telecoms and mobile products), a trusted brand with loyal customers, competitive pricing and considerable investments into researching customer behaviour patterns and demands.
Global Retail Insights EMEA research director Ivano Ortis notes: “Tesco has created a very appealing offering for discount seekers, competing heavily on price, which is a key strategy during this recession. Most importantly it has a big store presence and the ability to offer customers different shopping options, for example, with loyalty schemes such as the Clubcard through which customers can get points on all their Tesco purchases, including mobile and top-up. This is a big driver for consumers.”
Ortis claims that Tesco also invests greatly in researching consumer demands and behaviours which drive its merchandising strategies.
Indeed, MediaCells chief executive Brad Rees, who has been monitoring prepay price activity from the beginning of this year, reckons that Tesco has a faster reflex time than its competitors to adjust prepay handset prices in line with the market.
For example, Tesco priced the Sony Ericsson W395 handset at a ‘real deal’ (inclusive of top-ups and free gifts) price of £80, and dropped it by a further £20 in a week. T-Mobile released the same handset some weeks earlier at £97.87, but it took the network a further four weeks to drop its original price by £20.
“Given the footfall into Tesco every weekend and the loyalty members it has, the larger operators should overlook Tesco at their peril,” warns Rees.
“My guess is that Tesco is averaging around 20,000 handset sales a month, from a range of around 30 handsets that are well displayed and easy to purchase, with an average price of £60. The stigma around having a Tesco phone is now gone, and prepay is about value. Even Vodafone is now doing £10 tariffs,” a mobile distribution source close to Tesco adds.
“Aside from Virgin Mobile, it is the most successful MVNO in the UK. Asda hasn’t really broken into the market in the same way. Tesco’s range is excellent, there are good people running the business and it squeezes value for the consumer. Its distribution coverage is phenomenal.”
Expand and contract
While a second mobile distribution source believes that by the nature of its sheer expanse any development Tesco makes to expand its portfolio will impact most markets, but he doesn’t believe that Tesco’s advances in the telecoms space is going to be the nail in the coffin for the current mobile retail giants, in the same way that it may have quashed business for the local corner store.
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