Success for no-frills service provider

Back in 2005, E-Plus was fighting an uneven battle in the saturated German mobile market. Vodafone and T-Mobile were aggressively pushing their full-service offering to high-end users, while competition in the low-cost market was getting tougher by the minute.

One operator, several brands

In a bid to differentiate its offering from rivals, E-Plus launched a whole range of independent sub-brands, in addition to its own. Most of the brands had a low-cost, no-frills focus, but each was targeting a different audience.

Simyo was the first to hit the market. It was the most basic of basic products: a prepaid SIM card for low-cost voice calls, only for sale online. Instead of subsidizing handsets, E-Plus offered subscribers reduced minute prices.

Finding niche target groups

Following up the success of Simyo, the operator launched another four brands in six months, all no-frills, SIM-only affairs. VIVA Mobile added SMS functionality to the Simyo offering and BASE offered frequent users reassuring flat rates. Another first was a co-branded SIM called Aldi Talks, which was sold exclusively in Aldi Stores, targeting the typically price-sensitive Aldi customer.

An even more groundbreaking success was the launch of the Ay Yildiz brand. Referring to the Turkish flag, the name means “moon star” in Turkish. Around 2.5 million Turks live in Germany, but this was the first time any operator had targeted them with a dedicated mobile brand offering with a tailored pricing matching the needs of the segment: prices for the traffic between Turkey and Germany were optimized.

Multi-brand strategy raises margins

This decisive break from the usual strategy of attracting customers to a single high-value core brand paid off. E-Plus is today the third largest operator in Germany with 16 million subscribers. Using the same back office and network for all brands has helped to push costs down, and raise margins by as much as 50 percent.

Having independent service providers (MVNOs) in charge of the focused customer acquisition and relying heavily on online sales points has brought subscriber acquisition costs down by 50 percent and has helped to increased usage by 33 percent in a traditionally low-usage market. E-Plus has thus been able to improve both their profitability and their market share in a fully-saturated and heavily-competitive German market!  An achievement very seldom seen in any industry.

Impressive figures aside, E-Plus’s biggest success is proving to be its highly-segmented customer base. In a world where mass marketing is increasingly a thing of the past, knowing your customers’ needs and preferences is a highly-valuable asset.

A new direction

This led E-Plus CEO Thorsten Dirks to announce a completely new strategic direction at the beginning of 2008. He predicted that, in three years, declining tariffs would render call-based business models obsolete. In the near future, end users are going to pay a flat rate for basic services and operators will have to make money from advertisers and partners instead.

Inspired by Google’s business model, Thorsten Dirks revealed that E-Plus is going to open up access to its customer base to advertisers and partners like Yahoo and Microsoft. Research shows that a majority of subscribers are willing to receive advertising in exchange for cheap services, provided that the advertising is meaningful to them.

From single brand, to house of brands, to partner ecosystem

Moving away from the traditional telco “one-brand-fits-all” model to a house of brands and further to an ecosystem of external partners has been a radical case of business transformation that has proved very successful, but it might be a very well-timed move. Call tariffs are already hitting rock bottom, and full-service operators are increasingly relying on data traffic to remain profitable.

In this climate, abandoning the traditional and proven success strategy to leverage the value of a uniquely segmented customer base is probably less risky than it would seem at first glance.