Abstract
Australia’s mobile services market continues to experience rapid innovations and development regarding both handset devices and variety of services conveyed to the customers through these mobile devices.
Both mobile handset functionality and mobile network capacity have increased in the recent past not only in Australia but also in other parts of the world. Moreover, there have rapid evolution of other aspects of mobile services including voice services to include the application of internet and web access.
These rapid evolutions in the development of mobile handsets together with services have enabled new forms of mobile phone-based communications and services provisions to emerge.
In addition, these rapid developments together with increased competition for customers among mobile operators and services providers have made the mobile phones an attractive proposition for majority of Australians.
This case report looks into the complexities of the Australian telecom industry and various pricing strategies that companies have adopted in order to sell their products or services in this highly competitive environment.
The Australian mobile phone industry is highly competitive and companies must adopt clear-cut pricing strategies for their products in to remain afloat in the market.
Introduction
The use of mobile phones in Australia has increased considerably in the last five years. It is approximated that 89% of the Australian adult population have adopted the use of mobile phones by 2011. This number is expected to rise by 3% in the next two years.
In addition, the replacement of fixed line telephone by households is also expected to reach 100% by 2015. This statistics indicate that there are huge market opportunities for mobile phones handsets together with their applications.
Moreover, the mobile phone support services also have the opportunity to take advantage of the rising market. The increasing mobile phones market and its support services have attracted the various companies both old and new in the communication industry.
Major Service Provider companies such as Vodafone, Telstra, Optus, and other have scrambled to claim a portion of the rising market share. The market has not only attracted the services provider companies but also the mobile phone manufacturers such as Apple.
Many companies have infiltrated the Australian market each with its unique handset. Many of these mobile phones are internet enabled and being purchased and used by the Australian consumers.
The reason is that most of these handsets usability in terms of services have been increased. In 2011, 58% of the mobile devices in the Australian market had 3G.
Besides internet services, the current mobile phones sold in Australia are more affordable with additional advantage of merging most of their functionalities. All voice, video, and data services are now put under one control. Bringing these services together has been enabled by internet and web access.
In essence, the traditional functionalities are now merged with internet-enabled functionalities. In addition, the development of mobile software such as android has increased the functionality of mobile phone.
Synopsis
Australia’s mobile market is a highly complex and competitive. Major companies including Vodafone, Telstra, and Optus dominate this market with similar services and products. Though most of these companies provide data and service, other mobile phone manufacturing companies have also found their way into this market.
In fact, the Australian mobile market is a representation of the current revolution in the telecommunication industry. Most of the mobile products applications are packaged together through the internet and web access.
Most of the Australians are now accessing most of the services through their mobile phones. These services range from social net working to e banking.
The major problem companies in this market are facing is the pricing strategy. There are many companies offering similar products. These products are also undifferentiated resulting into fierce competition among firms.
This analysis use SWOT as a marketing tool to analyze the company internal strengths and weaknesses, opportunities available, and the threats the company is facing from the outside environment (Klompmaker et al., 2010).
Pricing strategies are used to provide solutions to the problems firms in this market are facing. Pricing strategies will also provide formidable recommendations for new firms willing to enter this market.
Major problems faced by mobile phone companies in Australian market
One of the biggest problems these companies are facing in the Australian mobile market is the pricing strategy. The reason is that there are many companies producing or providing similar products and services thereby increasing the level of competition.
In such a highly complex operations and competitive environment, pricing for a particular product or services becomes complex. Moreover, the monopolistic behavior of major companies offers an entry barrier for new firms willing to enter the market.
These dominating companies pricing strategy technically prevents other companies from setting profit making prices for their products. Besides, the homogeneity of the products and services the companies sell in market further complicates their pricing strategy.
The similarity of the products and services in the market lives no room for other forms of differentiation only through pricing. Therefore, the pricing strategy in this market becomes complex as each firm target price offerings that will enable them claim a particular share of the market.
Analysis
The SWOT analysis
This tool evaluates and make out internal and peripheral factors that affect the company operations. The tool has been used to assess the company mobile phones Australian market current situation, challenges existing, difficulties, and problems that have been experienced.
Strengths
The company is offering high quality and attractive mobile phones into the Australian market. The quality and value addition have made the products to penetrate and claim the largest market share in highly competitive Australian mobile market.
Besides, the company leadership in high technology and electronic industry has boosted the marketability of its mobiles. The company strengths in technology and powerful innovative capacity have boosted the confidence the target market have on its products (Hanlon & Luery, 2011).
The company mobile phones operating system, the compatibility has exceeded any other competing phones, and this has become one of its greatest marketability strength. In addition, the company Smartphones design is fashionable and stylish which enables the user interface. In addition to technological, quality and design strengths, the company mobile phones is diversified with different prices that meet all classes of people.
Weaknesses
The biggest drawback most of the mobile phone companies in the Australian market are facing is the limited market and distribution channels.
Another problem is the customer’s privy of other concerns including environment and other brand issues surrounding the company products. This has high probability of perceptive customers not buying from the company mobile products.
Opportunities
The growing Australian latest mobile phone brands such as Smartphones market is an opportunity for the company. Moreover, the huge population and increasing application of Smartphones by the younger generation offers a potential market.
Moreover, the innovative capabilities of the company are another opportunity to introduce new products into the market (Weill & Vitale, 2002).
Threats
The biggest threat the company and its mobile phone products is facing is stiff competition from other firms and similar products. Besides external competitive threat the company is facing on the particular products, the threat of new entrants are formidable. In addition, high competition may lead to price wars that may result in low prices (Narayandas et al., 2010).
Issues relating to the pricing problems
External environmental factors affecting prices in the Australian mobile market
Customers
The industry demand is one of the key parameters affecting pricing decisions of all the companies in the industry. According to the theory of perfect competition, what consumers are capable of paying should be taken into account.
This is applicable in a highly competitive environment like in Australia mobile market. In fact, for any company to succeed in this highly competitive environment the knowledge of the demand is essential. Marketing managers must understand the demand curve of their products in order to price their products and services (Narayandas et al. 2010, p.65).
In other words, it is conventional for the firms to distinguish between time horizons or time factor while determining the prices since most of the products and services are highly volatile.
The speed with which these services or products are transforming is very high. In essence, the demands for such product are varying across different periods (Narayandas et al. 2010, p.65). Companies in this industry must explicit in time factor while pricing their products.
Besides time considerations, the customers purchasing ability or the income of the mobile users are also important in pricing strategy. Companies should segment the market according to income levels. The income market segmentation informs the pricing levels which the company put on its products or services.
Since many mobile operators and service providers are operating within perfectly competitive market, prices must be set below the income levels of the customers (Reich & Benbasat 1996, p.55). In addition, the prices must reflect the attributes of the competing products.
Modern customers especially within the telecommunication industry are privy of the various attributes of products being offered in the market.
Products characteristics such the design, colorations and weight, quality features and packaging are prominent with mobile phones while brand image and corporate status features prominently with the service providers (Reich & Benbasat 1996, p.55).
In essence, the complexity of the consumer reactions toward different prices is critical within the Australian mobile phone market. Besides, other factors should also be taken into account particularly that control the pricing decisions. Australian market is exhibited with heterogeneity of prices.
The reason is that consumers are well informed about the prices different firms charge on their products. Moreover, consumers differ in their price evaluation because of the different levels of information regarding prevailing price as well as product features (Allen 2011, p.150). This heterogeneity is important factor especially in price differentiation.
Competitors
In this industry, pricing strategy will majorly be based on the prices of the competing products or services. Competition has a big influence on prices most firms charge on their products and services. Competitor’s reactions depend on the structure of the market, the degree of competition, and the availability of the competitive advantages (Sterman, 2000).
In Australian mobile market, products are homogenous and undifferentiated therefore firms normally set their own prices. In other words, firms use price differentiation to sell their product or services. In addition, the intensity of competition increases over the product life cycle (Andriani, 2001).
As new competitors enter the market, products become more homogeneous. This increases the level of competition. The competition intensity becomes severe at the product maturity and declining stages since the growth on sales can only be achieved at the expense of competitor’s sales volume (Reich & Benbasat 1996, p.55).
The implication is that prices will depend or set according to the competitors reactions. In other words, the competitors marketing goal and strategies will influence the prices. In circumstances where the competitors retaliate, the prices will be attenuated thereby provoking price war (Allen 2011, p.150).
Under this circumstance, the prices are reduced even below break-even or unprofitable levels. Therefore, competitive behavior analysis is essential prerequisite for effective prices (Allen 2011, p.151).
In this industry, particularly within the Australian mobile market, considerable nonconformity from the prices competitors charge are only practical through substantial economic benefits.
The economic benefits are associated with low cost and value addition. Cost advantages can only be achieved through low cost distribution than the competitors. Low cost distribution results from the firm’s superior resources and skills (Narayandas et al. 2010, p.65).
Unique products values will result from product features are highly valued by the consumers. These unique characteristics must also differentiate the product from its substitute. The way consumers make out exceptional significance on products makes them become insensitive towards prices.
The firm takes advantage of this and charge higher prices without consumers noticing. In the Australian mobile market, firms must take into account the prices other firms charge on a particular product including their credit terms as well as other terms of trade.
In addition, the competitor’s financial resources, cost and profit margins as well as the likely response towards the firms pricing strategies and decisions must be taken into account (Weill & Vitale, 2002).
Moreover, the firm must also look into the barriers to the market entry, the product substitutes from other industries as well as other firms marketing strategies particularly market targets, positioning and product differentiation.
However, entering and surviving in this market is quite challenging to new firms particularly in price considerations. There are large and well-established firms with monopolistic characteristics. They have substantial discretion over prices. Moreover, the products and services are undifferentiated.
In such conditions, there exists fierce competition. Moreover, larger companies with remarkable market share will set prices below the operation levels to prevent new entrants.
Alternatives
Pricing strategies
Firms can apply several pricing strategies. However, the most feasible strategy will depend on several factors including the environmental factors, the firm’s general marketing strategy, and the pricing objective of the company.
Moreover, firms that need to survive amid intense competition and technological advancements needs to apply several pricing strategies (Weill & Vitale, 2002).
Within the industry and the highly competitive market such as in Australia, firms such as Telstra that want to survive amid cannibalism of some of its products required pricing strategies such as market-based pricing and the differentiated pricing strategy across various market segments.
Market-based pricing strategies
This pricing strategy focuses on what the price should be depending on the competitors’ prices on similar products or substitutes and the perceived value of the product to the customers.
From the competitors point of view, cost of similar products, the value of the product and market positioning of the firm should be equal or beyond the competing firms.
The information regarding the competitors, prices, costs, profit margins and financial resources should influence pricing instead of setting the prices (Weill & Vitale, 2002).
Firms such as Telstra should focus on value-based approach to pricing because their customers will focus on the benefits rather than costs. Increased benefits will always persuade customers to buy the products.
Therefore, conventional landline to survive from being cannibalized by the modern mobile phone, emphasis must be put on their benefits. In addition, the product advantages must remain to be superior. The only problem with this pricing strategy is how to measure the customers’ perception of the offers against the competitors.
In addition, the consumers value perceptions vary considerably even on usability. Various customers will arrive at different cost benefit analysis since they will use similar products on different ways. Therefore, it would be essential for the company to make similar trade-offs between cost and benefits.
It is important to note that advantages product have is not equal to its physical and non-physical characteristics. In many choice situations, products are differentiated by the augmented product benefits (Sterman, 2000).
Market segmentation pricing strategy
In reality, most of the companies lose a lot of profit through single average pricing approach. To maximize the gains on the prices companies should segment its market in such a way that they gain more from the perceived value on their products.
The apparent advantages of the product should have natural prices according to the market segmentation. When this happened, the companies will always maximize their revenues. The aim of differentiated pricing strategy is to set prices according to segmented market niche.
In this strategy, companies sell their products based on perceived value rather than on prices. Therefore, companies’ sales and marketing must work closely in order to understand the customer needs to redefine the product or services offerings to meet the needs of the customers.
In so doing companies will always maximize on the customers value. This marketing strategy is best for those companies whose products are quickly becoming obsolete. The market strategy helps the companies to redefine and develop their products according to the needs of the market.
The solution to the pricing strategies
One of the most important marketing decisions affecting the mobile operators in Australia is pricing. Since most of the revenues within the mobile phone market niche is diminishing with the new entrants into the market, pricing is the only marketing mix variable that will help most of these companies generate revenue (Narayandas et al., 2010).
In addition, the pricing differentiation in another way through which these competing firms would attract and retain customers in this highly complex and competitive environment.
Therefore, pricing is not a simple concept, rather a multidimensional with varied implications for the mobile phone operators and the end-users (Lancaster &Massingham, 2011).
Pricing is one of the marketing mix strategies that take into account the benefits of the firm and the customer actions. In fact, before these companies consider applying any pricing strategies, complete pricing environment must be put into consideration (Simon & Butscher 2011, p.111).
That is, both internal and external factors affecting pricing decisions should be taken into account. The internal factors should begin from the company viewpoint and then from the side of the customer.
Regarding the external environment, firms in this industry must thoroughly take into account the influence their competitors have on pricing decisions.
Conclusion
The increased online service that is made available by the internet availability continues to attract more users of mobile phones in the Australian market. This provides an opportunity for the traditional communication companies as well as other service providers to introduce their products into the market.
Most of the mobile carriers are faced with average declining revenues per user. However, with increased use of mobile applications, these mobile operaters can now protect their revenues and increase data consumption. In addition, the mobile applications have also expanded the reach for existing services.
With the increased use of mobile phones, many services are now being accessed easily and cheaply. Traditional services providers continue to lose market since consumers can access those services at their own convenience wherever and whenever they are. In essence, increased mobile use and applicability has made life easier than before.
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