The Australian MVNO market has been booming, eating into the share of the big three players. The number of MVNO subscribers has increased by 10% pa since 2011 and is not slowing down. As reported by Venture Insights, consumers are increasingly embracing cheaper MVNO alternatives to the big three MNOs. Part of the uptake has been driven by bundled offerings such as Amaysim's energy bundle and Dodo's broadband and entertainment bundles.
The MVNO mobile market share has reached a tipping point in Australian cities. A recent survey by Venture Insights shows that MVNOs currently have 22% metro market share – larger than Vodafone!
As a result, MNOs need to look hard at ways to maintain and grow retail share, even as they compete with each other in the wholesale market.
Flanker brands could be the answer. Admittedly, Virgin Mobile was ultimately subsumed back into Optus. However, that experience should not negate a potential growth opportunity. In my view, there are three key reasons why a flanker brand strategy could be the way to go.
1) Flanker brands will help to stem the flow of customers to MVNOs. I expect MVNOs to continue to make up ground on Optus and Telstra. Close to 40% of respondents to Venture Insights' recent consumer survey who indicated that they were likely to switch mobile phone providers indicated that they would select an MVNO over Telstra, Optus and Vodafone. The facts are pretty clear: consumers want value and MVNOs are providing that. Flanker brands would allow Optus and Vodafone to compete more aggressively in the market whilst preserving more premium offerings for their customers
2) Flanker brands will enable the operators to position 5G as a premium service. The consumer use cases for 5G are relatively thin, but consumer research suggests that there are a significant number of early adopters prepared to pay a premium for the service, especially if it delivers an improved video experience. Flanker brands would allow Optus and Vodafone to serve this premium segment, competing against Telstra, without losing their competitiveness in the more value conscious market segments.
3) Experience both at home and overseas suggests that flanker brands can help incumbents to grow share - Belong, Skinny, Koodo may not be household names just yet, but these three successful challenger brands are owned and operated by Telstra, Spark and Telus respectively. Flanker brands give incumbents more options. For example, Spark has used Skinny to target younger consumers in the New Zealand market and has performed well, with ComCom reporting it had 5% market share in 2018.
Setting up a successful flanker brand is not easy. Positioning, product and pricing need to be determined with as much care as any other new product launch. And after launch, the team need to be given the space and freedom to act based on market signals. It is all too easy for the parent to start competing against the child, especially if the new brand has some early success. I led a Venture Consulting team that helped to launch Skinny back in 2012, so I am familiar with the challenges.
This strategy is not a panacea. MNOs will still need to work hard on delivering the customer experience that today’s consumers have come to expect. However, if done well, flanker brands would allow these incumbents to cover off more market positions, enabling them to grow share, work their network assets harder and improve shareholder returns.