Cashing in on Emerging Market Mobile Distribution

FYI. Got recently the periodic publication that our McK colleagues send analyzing some interesting topics. This number is related to telecom sales and distribution. Having finished a recent assignment on this, I am pleased to see that we have similar points of view and approach to this specific issue in Africa. Please find next a brief summary of the publication and a mmC approach & methodology on how to address a mobile distribution engagement.

Nice reading. Best regards,

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Mobile operators that crack the complex and often overlooked emerging market distribution challenge can capture lucrative rewards. Four levers should be taken into account.

Many emerging market operators totally overlook the true potential behind “distribution,” despite the fact that it is commonly considered a key factor for success in their growth businesses. Based on our experience, mobile network operators (MNOs) that optimize distribution in an integrated way in terms of the architecture they use across their partner and channel networks, the incentive system they devise, the tools they employ, and the ways they organize their resources and activities can generate an EBITDA uplift in excess of 10 percent – a significant sum, particularly in relation to the micro-sized, often declining ARPU (average revenue per user) levels these markets often show.

Why distribution matters in emerging markets
As mobile market growth begins to flatten, efficient sales and distribution performance becomes increasingly important. During the initial “nascent high-growth” phase, competitive intensity often remains rather low. Mobile players often do not invest in their distribution capabilities but rely on a handful of distribution partners to supply products in densely populated geographies. By simply operating a reliable network, the numbers of customers magically seem to grow each month.

The days of easy growth disappear as penetration levels in major cities, even in places such as Sub-Saharan Africa, approach 60 percent. Major cities such as Johannesburg, South Africa, or Bogota, Colombia, are starting to show market characteristics similar to those found across Western Europe. However, much of the remaining growth is found in rural areas and in “bottom-of-the-pyramid” segments. This growth phase usually coincides with new mobile entrants who begin to erode value share by targeting the high ARPU segments. As customers start to have a choice of operators, dual-SIM rates of 40 to 50 percent are not uncommon in emerging markets.

To capture the remaining growth opportunity, operators start to rely heavily on partners to execute their distribution strategy. However, the capabilities of these distribution partners are often a serious concern. A fact that becomes evident only when one examines distributor conduct “on the ground.” McKinsey research shows, for example, that many distributors in emerging markets often play a less active role than one would typically assume. Many regions have no distribution presence at all.

For those that do, the availability of products is often inconsistent, and attempts to push products such as starter packs or mobile airtime at the retail level are extremely low. Among other issues, shockingly high SIM stock-out levels among retail outlets across multiple African markets – each incident marking a lost acquisition opportunity because customers swiftly shift to competitive offerings if their current operator’s product is not available.

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