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In 1992, the Government of India decided to introduce mobile cellular phone services in India and invited applications from the private sector. Licenses were granted for 4 metros - Mumbai, Delhi, Kolkata and Chennai, and 2 licences were awarded for each city. These were city-specific licences. Few may now remember, but the first 8 players in the Indian mobile cellular phone services were: BPL and MaxTouch in Mumbai; Airtel and Modi Telstra in Delhi; Usha Martin and RPG Cellular in Kolkata, and Skycell and Sterling Cellular in Chennai.
Only one of the original 8 is still around - and happens to be one of the most successful in the business. Airtel's story of successfully evolving with the rapidly changing dynamics of the industry offer a great lesson for the mutual fund industry and its distributors - who are right now going through the huge disruption that the mobile industry witnessed in the last 2 decades - of transforming from a high cost - low volume service for affluent customers to a low cost - high volume proposition for the masses.
Out of the several decisions that Airtel took over the last two decades to continually come out on top of every market and regulatory disruption, we are going to focus in this piece on two key aspects, which we believe offer the most valuable lessons for our industry.
Understanding the changing face of the customer
When cellular phone services were first introduced, tariffs were fixed at Rs. 16 per call at peak hours and the first set of bulky basic mobile phones cost over Rs.45,000, some 20 years ago. Airtel was among the first to grasp the fact that this pricing structure made the service a purely top end offering for affluent consumers. Its entire marketing and communication strategy focused on the "Power to keep in touch" - an empowering feeling that only a select few in the country could now enjoy, of being in touch, anywhere, anytime. Airtel understood that high end consumers would always look out for "more" from their preferred service provider, and hence Airtel focused on ramping up what in those days was known as VAS (value added services), launching several industry firsts including smart mail, fax, call hold, call waiting etc.
By 1999, Airtel was recognized as one of the best players in the market, having perfected its proposition for affluent customers. Then came the new telecom policy in 1999, which changed the entire game. Licence fee was replaced by a revenue sharing arrangement and licence periods were increased to 20 years. This opened the floodgates for prices to be slashed and the service to be taken to the retail segment.
Airtel responded brilliantly by repositioning itself in a manner that included retail consumers without jettisoning its loyal franchise among affluent consumers. Its "Touch Tomorrow" campaign promised a new age experience to a new set of retail consumers, at a more affordable price point. Its stores starting sprouting at malls and shopping complexes to make it more accessible and yet its focus on keeping everything "hi-tech" including snazzy looking e-kiosks, preserved the "up-market" feel for the brand, to ensure that the existing customer base felt comfortable with the change. A Magic Prepaid card was a key innovation that brought in the youth - who then became the foundation of Airtel's next leg of growth.
Music maestro A.R.Rahman composed the famous Airtel signature tune that kicked off its "Live Every Moment" campaign in 2000, followed by the "Express Yourself" campaign of 2002 - both of which targeted urban youth across large cities. Then came its famous "Baat karne se hi baat banti hai" campaign that became a big hit in rural India and drove up its semi-urban and rural consumer base.
More recently, in keeping with changing times, Airtel's latest campaigns are crowd sourced - where the public is invited to give suggestions on logo changes, tag lines and positioning statements, the best of which are then actually incorporated in campaigns.
Its been a long journey for Airtel from serving Delhi's elite to serving every Indian across the country. At every stage, Airtel has been able to successfully add a new set of customers from a completely different demographic, without alienating its existing customers. Today, the Airtel brand is neither seen as only a mass market brand or only an affluent brand - it is a brand for every Indian, and has something to offer to every segment of Indian consumers.
Outsourcing masterstroke
Apart from its commendable marketing prowess, another key feature that enabled Airtel to emerge a winner, and the only player to have survived from the original lot, is its strategic decision on outsourcing.
In 2003, when Reliance entered the market with its CDMA technology and a hyper aggressive pricing strategy, Airtel understood quickly that the game had changed. Margins were going to go down substantially, but at the same time, the market was going to explode as a whole mass of consumers would now be able to access mobile phones.
Airtel took what many at that time thought was an extremely rash step - it outsourced its entire network and only retained two aspects - connect with the customer (service, marketing, sales) and finance. It outsourced its day to day network management to international giants like Ericcson, Nokia and IBM and focused its entire attention only on engaging with its customers. This not only brought down costs, but set the platform for rapid increase in scale, as its network was now in the hands of experts who understood managing scale at levels beyond what the Indian market had seen at that time.
The decision to outsource its network has now become a case study for management students - such has been the impact of its success in helping Airtel slash costs and simultaneously ramp up scale to serve a rapidly growing market. The wisdom of Airtel's management in understanding exactly where it brings its competitive edge and which parts are commoditized operations, is the key learning that management students take away from this case study.
Lessons for distributors
We are right now seeing an explosion in retail investor interest in mutual funds. 3 years ago, nobody would have guessed that our industry today will be servicing 5 crore folios and will have a SIP book that grows by Rs.4000 crores each month. 5 years from today, these numbers could be much, much bigger. In 10 years from now, the mutual fund industry could perhaps be as large as the bank deposit base is today, maybe even larger. We are right now going through that transformational era where the industry moves on from being the preserve of HNI and institutional investors, to truly embrace the aam aadmi.
At the same time, we know that a combination of regulatory pressure and technological advances will relentlessly push costs down, year after year. TERs are bound to come down in the coming years, margins will come down substantially. For successful players, volumes will increase very significantly. Those who cannot operate on a low cost - high volume environment can get squeezed out in a low margin environment.
If your commission revenue (top line) were to reduce from say 1.25% to 0.5% in the next 5 years, will you be among the players who can seamlessly grow your client base by 3x in these 5 years, to emerge larger and stronger from this transition? If you take margin reduction as a given, the only realistic option is to look at how you are going to get that 3x growth in customers and serve them seamlessly.
Just as Airtel did, its time for distributors to take a long hard look at their businesses and understand where their competitive edge lies and what aspects are really commoditized. Its perhaps time to embrace a platform of your choice, to which you outsource all the commoditized efforts and focus your attention on serving existing customers and gaining new customers. Look for a much leaner operating model that will enable you to serve 3x clients without adding a single new headcount in your office. This will mean re-training or replacing operations staff with client servicing staff.
The other key lesson from Airtel is to learn the skill of embracing different customer segments, without diluting focus on those who helped you build your current base. If you presently have an HNI focussed model, think about introducing a semi-robo retail model that can help you capture a slice of the huge retail growth wave, without diluting focus on your core HNI model.
We are witnessing a massive transformation in our industry which will change its complexion completely in the next 10 years. Are you going to evolve your game as Airtel has so successfully done, right here, in our own market?
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
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Wise Advice: Evolve
A little over 2 decades ago, 8 brave new companies set out to create the cellular mobile phone industry in India. The industry has grown by leaps and bounds in these 2 decades, beyond the wildest imaginations of any market participant. One would imagine that these 8 companies would have become wildly successful, having the priceless advantage as early entrants in the biggest growth industry our country has witnessed in the last 2 decades. Strangely though, only one of those original 8 is still around - and has maintained its leadership position in the industry through all the ups and downs the industry has seen. Airtel's story is a timely message for our industry, which is on the cusp of a similar huge growth wave - one which will catalyse exponential growth for those who will wisely evolve their business models, while making life very difficult for those who don't evolve with changing times.