How To Be Successful In A Big Market

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1 I. Executive Summary There are four key issues that Skype must address next year: Develop products/accessories in house Lack of customer service or tech support Absence of promotion Controlling channels of distribution Key strategies to address these issues: Market segmentation and product strategy Increase investment in research and development (R & D) in order to develop new products Re-examine or create segmentation scheme Develop a customer service call centre Make customer service a main focus Marketing communications (promotion) strategy Increase advertising budget to start product promotion strategy Develop indirect and direct promotional strategies Channels of Distribution Develop own broadband connections to directly distribute services to customers Become sole provider for customer broadband activities Pricing Strategy Skimming pricing strategy

2 Key expected outcomes next year: Increased brand awareness by 25% Increase sales revenues by $50 million to $110 million Increase in market share by 15% Increase in ROI by 15% Recognition for being the leader in customer service for the VOIP industry Shortened channels of distribution Key expected outcomes over a five-year span: Innovated products/accessories specific to Skype and broadband services introduced Profits expected to be $160 million Continue to increase sales revenues from Skype services by $25 million/year Increase ROI by 25% by the end of year 5 Maintain or increase market share Continue to be the leader in customer service 2

3 II. Table of Contents Page umber I. Executive summary 2 3 II. Table of contents 4 III. Current market situation 5 6 IV. Environmental analysis 7 10 V. Customer analysis VI. SWOT analysis VII. Key issues to be addressed by plan 15 VIII. Objectives to be achieved by plan 16 IX. Marketing strategies X. Tactical plans 22 XI. Budgets and projected profit/loss statement 23 XII. Marketing control 24 Works Cited 25 3

4 II. Current Market Situation Size of the market: Currently small market o Huge potential to increase in the future Expected to be as large as current market for landline phones Shift from landline to VOIP Moving out of early adopter stage and into early majority Market Attractiveness: Technology replacement o Expect that VOIP phones will replace landlines Huge growth potential Potential for obtaining large profits and large customer base Sales potential: Expect to gain a 25% market share by: o Focusing on customer service and promotions Unable to attain customers who are not price sensitive and do not make long distance calls o I.e. 35% of market share is to be expected to remain with local competitors such as Shaw due to the above segment (see Fig. 1) Skype will be in direct competition with companies like Google and Vonage who will be aiming to be cheap long distance providers o Skype will need to continually differentiate themselves from the competition in order to achieve maximum sales results 4

5 Expected Market Share 20% 5% Vonage 20% Telus Skype 10% 25% 20% Shaw Other Companies (Google, Microsoft, Yahoo) Rogers Figure 1: Expected market share in a metropolitan city such as Vancouver 5

6 III. Environmental Analysis Competitor Analysis: Shaw: Size: Large company with majority of customer base signed onto both cable and broadband internet Goals: Become the number one VOIP provider in local Canadian markets Market Share: Approximately 10% Product Currently Offered: Shaw Home Phone Strengths: o Existing Customer Base o Established brand name and image o Established customer service systems and sales o Knowledge of the local market Weaknesses: o High price o May rely on brand name rather then good service o Does not offer the same unique features as Skype Such as phone number selection based on country How they Currently Serve Our Customer Segments: o Provide VOIP services to customers who previously may have been unfamiliar with VOIP. Potential for these customers to switch to Skype Skype can offer the same services for a lower price Likely Future Moves: o Lower prices to become more competitive o Merge or acquire with another company to provide more efficient services 6

7 Vonage: Size: New company and is being established Goals: To be the number one provider of VOIP services worldwide Market Share: Approximately 25% Products Currently Offered: o Vonage VOIP Service o Vonage V-phone Strengths: o Most recognized VOIP company due to strong promotion campaign o Unique product (V-Phone) Weaknesses: o Still building brand awareness o Lack of resources Skype has the resources of ebay to its advantage Could be difficult to compete during a price war How They Currently Serve our Customer Segments: o Service provided is similar to Skype s o Skype s main rival Likely Future Moves: o Decrease promotion and shift strategic goals to retaining customers o May be acquired by a larger company, as Skype was with ebay Potential ew Entrants: Giant companies like Google and Microsoft are exploring VOIP and its potential for profits Business Implications of Competitor Analysis: Potential entrants to the market could result in an enormous price war Intense promotional campaigns of competitors could result in Skype losing market share 7

8 Analysis of the Macro Environment: Demographic and Socio-Cultural Factors: Migration is a popular trend and number of immigrants is increasing each year. o Relocation of home is increasing the tendency to form long distance relationships. The need to keep in touch arises Thus increasing the need for low-cost communication methods. As stated by Statistics Canada The number of immigrants admitted to Canada in 2004 reached 235,800 (Canada 3). If the numbers of immigrants were tallied up for each country the number would be substantially large. Represents large market around the world calling home for birthdays, religious festivals, Christmas etc Economic Factors: New immigrants typically have lower disposable incomes o New immigrants generally start off working in low wage occupations Low incomes make it difficult to keep in touch with traditional and expensive landlines Economy is booming o Easier for companies to enter new markets o Highly competitive market 8

9 Political/Regulatory Factors: Restriction on who can compete in North America o Large telephone service providers, such as Telus, are restricted from entering the market (note: restriction has been lifted as of Nov. 16, 2006 [Pilieci] ). Allows Skype and others to gain a competitive advantage before monopolistic competitors sweep away the market. Technological Factors: Companies that offer broadband connections have the technology to block VOIP providers that use their internet connection to get their product across to consumers o Tactics to block Skype and others have not yet occurred (Reisman). o Other tactics are being employed. Some companies, such as a division of T-Mobile in Europe, have threatened customers with termination of service if found to be using third party VOIP providers (Reisman). o In contrast, In Mexico [,] the government run monopoly is crack[ing] down on competition, and there are many reports of blocking VOIP providers (Reisman). Middle Eastern countries follow this strategy Technological advances o Fewer dropped calls o 911 is currently not available 9

10 IV. Customer Analysis Customer Trends: Immigration around the world is increasing o International calls increase as call family back home o Companies are becoming more global Need for long distance calling to communicate with contacts worldwide Shift from early adopters to early majority o Early majority will be boom stage and represents 34% of potential customers o Attaining the early marjority is key for Skype to being successful Segmentation Analysis: Separated into residential and business Residential includes: o Immigrants o Exchange students Business includes: o Multinational corporations o ebay users Customer Profile: Customer needs o Ease of use o Reliability o Low cost o Security Decision making criteria 10

11 o Is it the lowest cost? o Are the customers able to try it out? o Is it safe to use? o Does it have a benefit over the current product used? Key personnel involved in decision making: o Corporations: purchasing managers o Residential: parents or head of the household Children play an important role when head of the household is unfamiliar with the technology o They demonstrate how to use the product Business implications of customer analysis: o Skype must promote its product as safe and reliable o Skype could consider to extend its free trial period, so that a greater number of early majority consumers are able to try the product 11

12 VI. SWOT Analysis Strengths: Owned by a large company with mass resources (ebay) Highly competitive local and long distance rates Set up is fast and simple Ease of payment i. Uses familiar and secure service PayPal Extremely fast growth rate in the number of users (Fig. 2) i. Oct ,000 users (Skype) ii. April million users (Skype) Offered in 27 languages Specification of country and area code for phone number selection Awards for product safety, not containing viruses or other forms of malware Figure 2: Growth of Skype (Elgin) Weaknesses: Limited target market as you must have internet access and a computer Still need a regular landline phone Call quality varies depending on internet traffic and your internet connection Uses up a large amount of bandwidth Poor technical service and support Low product awareness Continuous upgrades needed to deal with security threats 12

13 Opportunities: Expand into developing countries i. Provide internet connections and develop broadband infrastructure Localization of large markets Unsaturated markets i. Great potential in existing markets Develop new products and accessories Threats: Highly competitive industry i. Could result in price war, thus lowering profit margins Spammers may flood VOIP networks i. Broadband will be used up ii. Thus, affecting call quality and customers may not be able to make calls at all Infections of virus and worms Companies may decide to block Skype from their network i. Threat to channels of distribution 13

14 VII. Key Issues to be Addressed by the Marketing Plan ext Year Develop products in house: o Currently no products specific to Skype. Skype is relying on third parties to provide products that are essential to their service. These include phones, a pre-loaded USB V-Phone device, or headsets, which, competitors such as Vonage are offering o Developing products in house provides Skype the opportunity for increased profits and additional promotion/advertising can occur if they place their brand on products Lack of customer service or tech support o Customer service will be a key differential between VOIP providers o Skype should strive to become an industry leader in customer service. Excellent service in turn will allow Skype to obtain larger market share and competitive advantage Absence of promotion o Although Skype ultimately has no promotion strategy, it remarkably has a large customer base o On the other hand, Vonage presently has an immense advertising campaign that could impair Skype s market share (being that Skype has no promotional strategy in place). o Promotion is extremely important during the growth stage and Skype must begin advertising to either increase or retain market share Place o Skype does not control their channels of distribution Skype requires an internet connection to operate and thus relies on internet service providers to distribute their product to customers 14

15 VIII. Objectives to be Achieved by Marketing Plan Financial Objectives: Short Term Next year Increase return on investment by 15% Increase sales revenues from Skype services by $50 million to $110 million Current sales figures are $60 million (Shipside) Long Term Next 5 Years Increase return on investment by 25% (from year 1 to year 5) Continue to increase sales revenues from Skype services by $25 million/year Obtain (and increase) positive profits from product/accessory and broadband sales by $160 million over the next five years Marketing and Sales Objectives: Increase brand/product awareness (worldwide) by 25% Increase and maintain current market share by 15% Shorten channels of distribution by providing broadband services Invest in research and development to continually innovate product and develop accessories in house Create an effective and efficient Customer Service Centre Marketing research objectives o Online questionnaires to ensure customer needs are met and analyse customer impressions of Skype Develop new market opportunities o Develop broadband infrastructure in developing countries o Develop products in house Pricing objectives o Skimming pricing strategy 15

16 IX. Marketing Strategies Product Strategies Market Segments Selected and Targeted: Multi-cultural communities (particularly in metropolitan cities): o Targeted since these customers account for a large number of long distance calls Many of these customers are immigrants and will call their home countries often As Statistics Canada states 80% of immigrants chose to settle in the Toronto metropolitan area. This represented some 100,000 people in As well, the majority [of] immigrants chose to live in the province s largest cities, namely Montreal and Vancouver (Canada 3) Further, low income status of immigrants will force them to selectively choose companies with the lowest rates o Skype will target this segment by displaying how it beats the competition by offering the lowest rates on long distance calling Current ebay users: o Since ebay consumers are loyal, targeting this segment by affiliating Skype and ebay brands will make consumers more likely to adopt Skype services Skype should be the means of communication between buyers and sellers conducting ebay transactions o Segment should be targeted by promotions on the ebay website Relation between Skype and ebay is not vigorously promoted ebay should begin to advertise Skype on their website to obtain a larger market share 16

17 International Corporations: o Targeted due to the fact that these companies conduct numerous calls daily between their subsidiaries as well as international suppliers thus creating the need for low cost long distance calling o Target this segment by creating direct sales teams Direct sales teams promote Skype directly to companies to try and get as many successful signup contracts from companies selecting Skype to be their VOIP provider o Targeting this segment will result in additional promotions Companies signed up with Skype will recommend Skype to businesses that they deal with Exchange Students: o Price conscious, low income consumer who is looking to call home regularly Target this segment by: Focusing on being the lowest cost provider for long distance calls Advertising with the school s exchange programs o Technology savvy consumers Students know how to find the best deals online Skype must ensure they are in fact the lowest cost provider to prevent consumers from switching to competitors 17

18 Positioning Relative to Competition: Skype can gain market share as the low cost provider in the market of international callers, since competition is lacking in this sector (Fig. 1). Nonetheless, Skype can attempt to move into the local market to gain even more market share as a low cost provider (see Fig. 1). However, the costs of this strategy could outweigh the benefits, as they will be competing against large (monopolized) companies that are familiar with the local market (i.e. there could be a price war that could be very costly to Skype). Thus, a move into local markets would not be beneficial for Skype Figure 3: Perceptual Map of Product Positioning Customer Service Strategy: Skype should be known as the leader in customer service o Guarantee live help rather than automated o Develop call standards Minimize waiting and problem resolution durations Quality of service Differentiate with customer service quality to gain competitive advantage o Eventually, price war will end and all companies will have the same price level Differentiation will thus be the key factor in customer acquisition 18

19 Product Lifecycle Strategy: Currently in the growth stage o Profits are expected to increase and peak Goals: o Encourage brand loyalty o Heavy advertising to counter new competition o Preparation for a price war; reduction of price Expected Product Modifications/Improvements: Develop products/accessories in house o Telephones, modems, routers produced and sold by Skype with Skype brand name/logo o Produce a USB type device similar to what Vonage has developed Development of ew Markets: Since VOIP has just recently emerged (untouched market) the market for such services has tremendous growth potential. Potential for new market in developing countries o Absence of broadband infrastructure in these countries Invest in R & D to establish infrastructure If infrastructure provided Skype will have the advantage of obtaining additional revenues Pricing Strategy Skimming strategy o As the market becomes more competitive Skype should lower prices to attract more customers 19

20 Channels of Distribution Strategy Develop own broadband connections in order to control channels of distribution o It should be noted that this strategy should only be employed in developing countries where the infrastructure is unavailable Developing infrastructure in developed countries will not be a successful strategy since Skype will have to compete heavily with current internet service providers (who already have a strong grip on the market) Promotion Marketing Communication Strategy: o Indirect and direct promotions Mass promotional campaign on televisions, newspapers, and billboards (indirect) Direct sales to corporations Use of sales representatives o Cross-promotions on the ebay website in order to attract current ebay customers Increase brand awareness o Employ the promotions strategy above to successfully achieve Portray how Skype is the VOIP company that provides the lowest international rates Marketing Research Strategy Longitudinal design research study o Ensure customers are happy with service, their needs are met and they maintain a positive impression of Skype o Main source of data/research will be online internet questionnaires Use cookies to determine whether customers are searching other VOIP provider websites and whether they are purchasing their services. 20

21 X. Tactical Plans Figure 4 21

22 XI. Budgets and Projected Profit/Loss Statement Year 1 Year 2 Year 3 Year 4 Year 5 Sales (millions) VOIP Services Product Sales Broadband Costs (millions) Advertising R&D Broadband Customer Service Profit (millions) Market Share (%) ROI (%) Figure 5 22

23 XII. Marketing Plan Control Quarterly trend analysis to examine financial reports o If ROI not at desired level: Re-examine allocation of funds Monthly segmentation analysis o Examine if sales from each segment are at desired level If not at desired level: Reconsider appropriate segments and determine corrective course of action Corrective action could include: o Increasing promotions o Offering discounts or trials If sales still not at desired level: Consider dropping segment Continuously monitor online customer questionnaires o Ensure customers are improving on or maintaining their impressions of Skype o If not at desired level then: Hold a work shop on customer service relations Semi-annual marketing audits o Examine effectiveness and efficiency of marketing programs o If not effective or efficient then: Examine and locate areas for improvement in the marketing process Establish plans to correct these errors and rework the marketing budget 23

24 Works Cited Canada. Statistics Canada. Report on the Demographic Situation in Canada 2003 and Ottawa: Demography division, < Elgin, Ben and Robert D. Hof, and Andy Reinhardt. Getting Skittish about Skype. BusinessWeek. 28 Nov Pilieci, Vito. Gov't overrules CRTC on Internet phone calls:[1]. CanWest News. 16 Nov p. 1. ProQuest Newspapers. ProQuest. SFU Lib., Surrey. 19 Oct < Reisman, Art. Analysis: ISPs Are Going To Eat Vonage's Lunch; Art Reisman of APConnections thinks that market forces will take care of Vonage far sooner, and more effectively, than any efforts to block its services. ExtremeTech.com. 26 June p. 1. ProQuest Newspapers. ProQuest. SFU Lib., Surrey. 16 Oct < Shipside, Steve. Skype Hype. Microscope. 19 Sept p. 15. ProQuest Newspapers. ProQuest. SFU Lib., Surrey. 8 Oct < Shaw. Home page. Date accessed: 21 Oct < > Sirsi, Ajay K., et al. Marketing: Real People, Real Decisions. 2 nd ed. Toronto: Pearson Education Canada Inc, Skype. Home page. Date accessed: 10 Oct < > Vonage. Home page. Date accessed: 20 Oct < 24