Background
The Philippines was governed by Spain between 1565 and 1898, before the United States took over until it became independent in 1946. The Islands experienced severe economic turmoil and martial law throughout the 21-year rule by Ferdinand Marcos (1965-86; however, Corazon Aquino (1986-92) restored democracy in the country. Thereafter, democracy was enhanced by other leaders such as Fidel Ramos, Joseph Estrada, and Gloria Macapagal Arroyo.
The country has more than eighty-five million residents, which makes it to have great disparities. A wide gap exists in ownership of assets, income distribution, human development, and geographic concentration of economic activity. For example, in 2002, the National Capital Region (NCR) around the city of Manila, with fourteen percent of the entire population, produced more than thirty-three percent of the nation’s GDP.
The socioeconomic status in the Philippines was divided into five groups. These are A, B, C, D, and E. The A, B, and C categories represented the upper, upper middle, and lower middle income households, whereas the D and E categories represented the lower income and below the poverty line households.
Definition of the problem
Because of the high levels of poverty that was facing the Philippines in the mid-1990s, few analysts believed that it was possible to penetrate this market with mobile phone services. The experts postulated that only five percent of the entire population was able to afford the services of mobile phones.
It was thought that the number of people having cellular phones could hardly reach fifteen percent. Therefore, it was widely assumed that this device would continue to be regarded as a luxury item. Business executives, professionals, government officials, and high net-worth people were the ones who were considered to be wealthy enough to afford the services of mobile phones. The middle income earners were never targeted with this product.
Another problem cropped up in early 2003 when investigations revealed that since a large portion of the population lived in poverty, it was impossible to sustain the market penetration efforts. This implied that most people could not be able to afford the services of cellular phones. Besides, since more than sixty-five percent of the population lived in rural areas, cellular phones services were limited or non-existent in those areas.
Analysis of the situation
Smart Communications Inc. is totally owned by the Philippine Long Distance Telephone Co (PLDT). It was established in 1994 and it started by using a well-developed analog platform referred to as TACS (Total Access Communications System).
It later established a cellular network with its own countrywide digital transmission system. It became the second largest mobile company in 1995, and by early 1997, it was boasting of 360,000 subscribers which made it become the largest mobile phone operator in the country. Smart managed to penetrate the Philippines market in which most people are regarded to be poor.
For example, in 2000, the wealthiest ten percent of the country’s population had an income of over twenty three times that of the poorest ten percent. The poor were approximated to form up to thirty-nine percent of the population. The poverty rate in rural areas was estimated to be at 46.9 percent, while in the NCR was only 12.7 percent. The country had a young population in which thirty seven percent of the population fell under the age of fourteen years.
Alternative solutions
In order to reach the middle and the lower-middle market segments, Smart initiated a series of alternative solutions to achieve this. The company developed the first radical innovation referred to as Smart Gold. This subscription-based offering launched in October 1999, provided contract clients an option of monthly service plans going as low as PHP120 (US$2.16). After this, Smart Buddy was introduced in mid 2000.
It was an aggressive low-cost, high-coverage service that was intended for the low-income individuals. Customers were able to access the offer by buying a PHP100 (US$1.80) prepaid, text-only SIM card that they used to reload airtime for various purposes. The airtime cards were available in various denominations that could suit the varied needs of the users. Additionally, in August 2002, the company introduced Pure Txt 100.
It was a PHP100-denomination (US$1.80) text-only card which offered ten text messages per day for a period of one month. All these alternative solutions that Smart Communications adopted revolutionized the mobile phone industry in the Philippines since it was no longer considered to be a luxury item.
Recommendations
In order to penetrate the larger consumer market that is mainly composed of those in the D and E market segments, Smart should intensify its innovative strategies. This is to avoid saturating the market since most people in the Philippines are living below the poverty line.
For example, it can intensify the services of Smart Money. Since most low-income earners in the Philippines do not have bank accounts, the service would enable more people to transfer money securely. With this service, more users will be able purchase various items and reload various denominations of airtime at their own convenience. These increased benefits of the usage of mobile phones are able to increase the number of subscribers that Smart has by increasing the penetration into the low-income segments.
Furthermore, to reach the low-income market segments, the company should engage in intensive market research so as to understand the consumer buying behavior. This is because the consumers in the five different market segments in the Philippines exhibit different purchase behavior. In order to solve the problem of the high-cost of mobile handsets, the company can collaborate with other firms in developed markets to provide its users with low-cost second hand handsets.
Prediction of outcomes
By intensifying the efforts towards increasing the number of their subscribers, Smart Company is able reach the middle and the lower middle income market segments. This is because the ownership of mobile phones by these customers do not only serve ‘entertainment and enjoyment’ purposes.
However, access to mobile phones give them increased benefits as it makes their lives to be easier and enable them to save some money. They are able to reduce the need to travel to carry out various activities, seek medical attention much easier, and communicate frequently with their friends and family members outside the country.
The introduction of low-cost prepaid cards is also able to increase the number of its users. Even though these low-priced prepaid cards do not represent the most economic way of buying, they are able to suit the needs of the users in terms of low purchase price. The company is then able to survive on high turnover, low value transactions since low-income Filipinos engage in such purchases.