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MGMT 650B – Consulting Skills for Managers

How can China Unicom use the iPhone to increase 10% of the subscriber market share within 24 months?. MGMT 650B – Consulting Skills for Managers. Presented by Team D: BOHRA, Shilpa Rajesh; CHAN, Yat Hei; LIN, Michelle Lan Yan; MO, Siu Hei; TONG, Sze Man; TSE, Mei Yi Joyce. Section [1].

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MGMT 650B – Consulting Skills for Managers

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  1. How can China Unicom use the iPhone to increase 10% of the subscriber market share within 24 months? MGMT 650B – Consulting Skills for Managers Presented by Team D: BOHRA, Shilpa Rajesh; CHAN, Yat Hei; LIN, Michelle Lan Yan; MO, Siu Hei; TONG, Sze Man; TSE, Mei Yi Joyce

  2. Section [1] Storyline

  3. Storyline – Pyramid Principles SITUATION China Unicom (“CU”), being the second largest mobile operator in China as well as globally, is facing a highly competitive market resulting with losing subscriber market share in China every year since 2003. COMPLICATION In August 2009, CU partnered with Apple to launch iPhone 3G in China hoping to regain its subscriber market share. QUESTION How can CU use the iPhone to increase 10% of the subscriber market share within 24 months? ANSWER RATIONALE • CU has to set the price for iPhone and associated plans and its positioning in China carefully. • There is a price range to iPhone and associated plans that China subscribers are willing to pay • Competitors response to CU’s pricing will affect the number of subscribers • Handset subsidy CU give to subscribers has to be taken into accounts ANSWER RATIONALE • CU has to position itself and iPhone to appeal to mobile phone users • The uniqueness of iPhone and CU can open up a new market for CU • The approach that CU takes is required to maintain competitive edge • CU need to prevent grey market ANSWER RATIONALE • CU has to use effective distribution channels to target their customers. • The customer segment that CU is going to target will greatly affect the number of subscribers that they can attract. • The different channels that CU use can effectively reach the targeted subscribers to boost market share. • The methods that CU apply is convenient for target customers to buy ANSWER RATIONALE • CU has to use promotion initiatives to market iPhone and the associated plans. • The brand awareness that CU and Apple build can introduce themselves and get the attention from more potential subscribers. • Advertising in the well chosen locations and media can effectively draw awareness to the iPhone and to China Unicom. • Other non conventional measure, ie. bloggers, can help China Unicom to advertize more effectively and efficiently.

  4. Section [2] Dummy Charts 4

  5. Premium Pricing Strategy on iPhone in China • According to BRICS, 3G services generate 25% to 30% premium over 2G ARPU internationally • In China, an average of 29% ARPU premium is charged on data ARPU over blended APRU ARPU premium and proportion of data revenues internationally Source: BRICS

  6. iPhone Pricing Strategy in Hong Kong • Hong Kong “3” has recently launched the iPhone 3Gs plan in Aug 2009. China Unicom can use “3” iPhone pricing strategy as reference • Net ARPU increases from Plan B to Plan E as data plan usage and handset subsidies increase “3” - Monthly Tariff & Net ARPU for iPhone 3Gs 16GB version “3” - Monthly Tariff & Net ARPU for iPhone 3Gs 32GB version RMB RMB Source: “3” iPhone plan

  7. The high end segment of the market will beable to afford the premium pricing of iPhone • Telecom expenditure accounts for approximately [3%] of household income in China • iPhone will target the high end segment of monthly household income of above [Rmb3,001], such that telecom expenditure will represent a minimum of approximately [4%] to monthly household income Monthly Household Income Telecom expenditure as % household income Source: China Reality Research Source: [China Reality Research]

  8. China Unicom iPhone vs China Mobile HTC Hero • At the same monthly tariff, China Unicom iPhone handset value is about $900 higher than China Mobile HTC Hero handset value • By paying total of Rmb9,552 for 2 years, China Unicom customers receive a CNY5,388 value iPhone and China Mobile customers receive a CNY4,498 value HTC Hero Unlimited Data + Free Handset Plan (24 Contract Months x ARPU in CNY) RMB Source: [China Reality Research]

  9. China Unicom iPhone vs China Mobile HTC Hero • Handset Value Breakeven point for China Unicom is CNY225 (CNY5388 / 24 months) vs China Mobile’s is CNY187 (CNY4,498 / 24 months) • For both China Unicom and China Mobile, minimum plan charge will be from CNY187 to CNY225 Breakeven Analysis for Unlimited Data + Free Handset Plan (24 Contract Months x ARPU in CNY) RMB Source: China Reality Research

  10. Regulator's Opinion to Price War • Regulators, Mr. [x] believes that price war by China Unicom or China Mobile is constructive to the industry Regulator's Opinion to Price War Source: Interview with Mr. [x]

  11. Scenario Analysis of Handset subsidies as % of ARPU by China Unicom & China Mobile • The percentage of handset subsidies provided to subscribers will appeal subscribers interest to subscribe certain plan with China Unicom instead of China Mobile Handset subsidies as % of ARPU Source: [China Reality Research]

  12. China Telecom Market Development 3G licensesissued in 2008 China Unicom IPO in 2000 Market Openness China Mobile IPO in 1997 • Highly regulated and government controlled • China Mobile & China Unicom Oligopoly in wireless • Start deregulation and market opening • Market new entrant of China Telecom in wireless market • Strictly government controlled • China Telecom Monopoly 1995 1987 2008 Time

  13. Factors affecting iPhone positioning 13

  14. Features affecting iPhone Appeal 14

  15. Demographic of mobile phone users in China 15

  16. Current Tariff Structure in China Mobile Industry Heavy Users / Business Users Moderate Users Tariff Structure (Minutes) Casual users • 2000 mins above • 80 MB data capacity • Video Air time • App. 1500 mins/mths • 20 MB data capacity • Solely Air time • App. 500 mins/mth • No data capacity 50 0 100 RMB / Month 150 200 250

  17. Effectiveness of advertising channel (Base on survey) 17

  18. 3G adoption intention among urban consumers • CU should focus on its promotion resources to increase CU’s brand awareness and iPhone popularity among the 31% of non-3G users considering upgrading to 3G Source: China Reality Research

  19. WCDMA network is CU’s competitive advantage • CU should advertise its licensed WCDMA network is the most commonly used 3G technology globally and receives widest industry support like Apple and iPhone Source: SA Research

  20. Locations CU should spend advertising on • CU should place TV commercials on the top 5 cities with highest Income per Capita, namely, Shanghai, Beijing, Zhejiang, Tianjin, Guangdong Source: National Bureau of Statistics

  21. Non-Conventional means should also be used to promote CU and iPhone • Advertisements should be placed in the most commonly bloggers or websites in China • A nationwide electronic platform should be set up to sell iPhone, 3G VAS services and support customer needs Source: [market analysis]

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