Vodafone bypasses the high street
Wednesday 19 April 1995
The scheme, which is running in the north of England, will not cut the price of phones but will save the company thousands of pounds a month and enable it to find out more about its customers. This should help Vodafone to combat the high churn rates afflicting the industry, where customers buy phones and then cease to use them.
The scheme, which will go nationwide if successful, will mean some consumers buying their phones by answering television and newspaper advertisements. In the advertising campaign phones are being offered for as little as £51.
It is a further blow to retailers following the decision by Alan Sugar in November to abandon high street stores and sell Amstrad's computers and mobile phones direct to the public.
Some retailers were critical of Vodafone's strategy, saying customers needed face-to-face contact when buying a phone. A spokesman for Comet, the Kingfisher subsidiary that has a deal to sell Vodafone packages, said: "Buying a mobile phone is a complicated business. Customers need to have someone to explain how all the tariffs work."
Traditionally, Vodafone has sold wholesale airtime on the network to middlemen called service providers. These companies then market the airtime to the customer through the dealers and high street outlets which also sell the phone. Massive subsidies are paid by Vodafone and passed on down the chain - topped up by the service providers - to allow the phone to be sold to the customer at a fraction of the market price.
This upfront cost of getting people onto the network has already resulted in warnings by Sir Gerald Whent, Vodafone's chief executive, that the continued boom in mobile telephony could be to the company's cost in the year to 31 March.
The trials now under way could save Vodafone an estimated £30 to £40 for each customer who comes onto the network through the direct sales route.
Vodafone is offering digital mobile phones for £51 exclusive of VAT through the advertisements. Consumers who sign up will be passed to the service providers, who will also be paid a fee for taking the customer on and billing them in the usual way. Although Vodafone will have to buy the phones, market them to consumers and pay a fee to the service provider, it will no longer be paying the upfront subsidy, which can be £200 or more for each person coming on to the network.
Vodafone says the savings will be modest, but believes it will gain more knowledge about its customer base. The company already spends £8m to £10m a year on advertising.
Success with the four-week trial will see the direct marketing approach extended nationwide. However, a spokesman for Vodafone denied that anyone would lose out. "This is just another way to market. The dealer and the high street retailer will always be there."
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