You will act as an external consultant


Carphone Warehouse ( CPW ) was set up in 1989 by Charles Dunstone selling nomadic telephones. This was CPW’s chief concern until February 2003, when TalkTalk ( TT ) was launched as the place phone ( fixed line ) company from CPW. It had one clear message for clients: to ever be cheaper than BT.

In April 2004, The CPW became the first company to offer free calls everlastingly, between all clients on its land line service, irrespective of length of call or location. clients. TT has grown both organically and with the acquisitions of Onetel and Tele2’s UK and Ireland concerns. Terrestrial time now has about 2.5 million clients in the UK giving CPW an overall market portion of 10 % of residential lines.

CPW operates in several states in western Europe and besides has a concern every bit good as a retail client base. However, by far the largest concern country geographically is the UK and retail gross revenues dominate the concern and so UK retail will be the focal point of this study.

The study is divided between the nomadic and fixed rtelephony sectors and, in peculiar, focuses on CPW’s public dealingss jobs with its debut of broadband. The study finishes with lessons which can be learned from these jobs and besides proposes ways frontward to increase customers’ life-time values, which is one of the cardinal aims of selling and besides one of CPW’s chief benchmarks of success.

Figure 1 provided by OFCOM, shows the overall market background in which CPW has competed in the last five old ages.

Figure 1 Background information on theUnited kingdomtelecoms industry, 2002-2006

Beginning: OFCOM “The Communications Market 2007”

  1. The historical selling environment for the company

The environment in which CPW has operated for its Mobile concern has been one of steady growing since its origin in 1989. Figure 2 shows that growing has continued even though the mean figure of endorsers in the UK now exceeds its population.

Figure 2 figure of nomadic endorsers in theUnited kingdom, 2002-2006

Furthermore, for 2007, OFCOM forecasts a small under 75 million endorsers by the terminal of 2007.

The grounds for the growing are twofold. First, the development of 3rd coevals webs ( 3G ) towards the terminal of 2003 has helped gross revenues and in fact, 3G nomadic connexions tripled between 2004 and 2006. A 2nd factor which has assisted the growing of CPW and other nomadic retail merchants is the dwindling existent cost of runing a nomadic phone. Figure 3 demonstrates that the existent cost of nomadic phone ownership has fallen since 2003 and in absolute footings since 2004.

Figure 3: mean monthly cost of nomadic subscriptions in theUnited kingdom, 2002-2006

Fixed Line Telephony

In 2003, CPW branched out from being a marketer of nomadic telephones and contracts to being a fixed line operator, with the launch of its TT subordinate. As we can see from figure A, the figure of fixed lines has been steadily worsening, but the chief attractive force to CPW was the go oning domination of the market by British Telecom ( BT ) , in malice of the market being efficaciously deregulated.

By 2006, nevertheless, BT’s portion of fixed line gross had declined to 63 % of the sum for the industry but, in footings of volume, BT’s portion fell below 50 % ; the disagreement between these two figures is thanks to BT bear downing a higher rate per call than its rivals.

Figure 4 shows that the decrease in fixed telephone cost has non merely fallen in absolute footings but has accelerated since 2004. This autumn is due non merely to BT dropping its ain monetary values in response to competitory force per unit areas but a loss in its portion to cheaper operators such as TT.

Figure 4: Cost of fixed telephone, 2002-2006

Beginning: OTFEL/Operators

  1. The company ‘s offering – merchandises

Mobile Telephony

As mentioned above, CPW operates in two separate markets in the UK. First it sells nomadic telephones in the UK, with or without contracts to the major Mobile operators and its ain, in-house nomadic practical web operator, Fresh. There are three major distribution channels for nomadic telephone:

  • through its ain shops, which numbered 786 in November 2008, up from 508 in April 2004 ( an addition of over 50 % ) ;
  • its ain web site ( hypertext transfer protocol: // ) ; and
  • via two farther web sites ( hypertext transfer protocol: // ) ( hypertext transfer protocol: // which focus more on end-of-line nomadic telephones and deep discounted nomadic duties. Both these sites are the consequence of acquisitions instead than organic growing by CPW.

Although CPW does non interrupt down gross revenues by its distribution channels, a recent Mintel study gives an indicant into the domination of the company’s retail shops over its internet mercantile establishments.

Figure 5: Retail volume gross revenues of nomadic phone French telephones, by mercantile establishment type, 2002-06




% alteration

000 units


000 units


000 units


Specialist multiples








Electrical/general multiples
























Internet/telephone/mail order
















Beginning: “Mobile Telephones and Network Providers” ( Mintel, October 2007 )

We can see from figure 5 that although cyberspace channels and gross revenues from supermarkets have grown peculiarly strongly, gross revenues have been taken from non-specialist shops instead than CPW or Phones4U, the two prima specializer ironss.

Fixed Telephony and Broadband

CPW entered the fixed telephone market in 2003 and efficaciously declared war on BT in March 2004 by offering free local calls to its clients. As the fixed line voice market is efficaciously a trade good market in which lone monetary value differentiates one operator from another, TT’s major monetary value scheme in add-on to its free local calls was to construction its duty in the same manner as BT so that monetary value comparings between the two could be easy made [ 1 ] .

In November 2005, TT announced a major enlargement into broadband and in April 2006, TT announced that, other than a set-up fee of ?30, the cost of its broadband would be zero. Not merely was the offer widely promoted in newspapers, telecasting and hoardings as “free broadband, forever” but the reaction of incumbent operators who objected to to the service being promoted as free ensured that TT’s offer attained a high degree of consciousness.

Talk Talk and the Acquisition of AOL

By the first October 2007, TT and AOL ( bought by CPW in October 2006 ) had a combined market portion of 17 % , doing them the 2nd largest supplier to utilize the bequest BT telephone web ( Virgin Media provides its services via dedicated overseas telegrams ) and larger than Orange and sky combined, who besides provide broadband with no monthly charges – please see figure 6.

CPW places its two broadband trade names at different mark markets. AOL is more of a premium service with paid for content and has traditionally enjoyed a high degree of client trueness and satisfaction ( see figure R below ) , whereas the TT offering is strongly focused on value and bring forthing new clients. In November 2007, AOL cost ?15-20 per month, including a free radio router and a laptop, whilst TT broadband continues to be marketed as a free addition to a telephone talk bundle.

Figure 6: Market portion of broadband service suppliers

Beginning: Carphone Warehouse Group PLC Interim consequences 2007 ( 8ThursdayNovember 2007 )

Summary of CPW’s place in the last five old ages

From figure 7 below, we can see that from zero in 2002, fixed telephone has come to rule CPW’s concern, with three quarters of the gross and 60 % of operating net income. As we shall see in following subdivisions, nevertheless, a major spread between service promises and existent public presentation has had a major negative impact on the company.

Figure 7: Gross and Contribution of Fixed and Mobile Telephony

Note: these figures refer to the Telecoms division and screens

all B2C European operations for Mobile and fixed telephone

  1. The company ‘s offering – service

The major difference between nomadic and fixed is that CPW is simpler the jobber in nomadic telephone but with fixed line services, the client has an on-going contract with TT. In footings of service, nomadic telephone chiefly involves a one off face to confront dealing in one of the shops, whilst fixed line telephone requires much higher degrees of service. In peculiar, whilst personal merchandising is a cardinal component of the promotional scheme for nomadic telephone ( a treatment of demands between the client and a gross revenues representative in the shop ) , the promotional mix for fixed line telephone and broadband is weighted more towards advertisement.

In brief, CPW announced a combined broadband a telephone offering which was less the half the monetary value of the following cheapest rival and a fraction of a similar package provided by BT [ 2 ] . This offering followed the same doctrine as the “shock tactics” on local call pricing announced by TT antecedently but on a much larger graduated table. CPW recognized that the danger ballad in the executing of the scheme and this is in fact what occurred. Thankss chiefly to a deficiency of foresight of the overpowering demand that this offer would do, CPW merely could non get by with the demand and clients in some instances had to wait several months to be connected.

A 2nd factor was the undependability of the service once it was provided [ 3 ] ; for many people, internet entree is a critical public-service corporation and so the loss of this service caused major dissatisfaction, as shown in the undermentioned figure.

Figure 8: Customer Satisfaction Index Scores

A similar study by Uswitch by contrast reported in November 2005 that TT came top and that 92 % of clients would urge the service to others.

The impact of decreased client satisfaction can be seen through the 3Rs of selling: keeping, referrals and related gross revenues ( delight see Annex ) .


A status of the TT broadband bundle was a demand to subscribe up to an 18 month contract and the first broadband clients are now coming to the terminal of this period. Harmonizing to a Sunday Times article published in September 2007 ( provokingly titled “Talk Talk: Get out now” ) , around 870,000 customers’ contracts are up for reclamation during Autumn 2007.


Whilst referrals can hold positive consequence for a company if clients or satisfied, the contrary is true with disgruntled clients, merely more so ; a survey undertaken by the US section of consumer personal businesss in 1986 reported that whilst satisfied clients told an norm of five other people of their experience, unhappy clients told 11 others. Therefore, the knock-on effects of the hapless service encountered by clients during the initial stage of broadband rollout are likely to be important.

Related Gross saless

Service bundling is common in the telecoms sector, as demonstrated by figure 9 below. There are two peculiar characteristics which may be highlighted from this figure. First, in TT’s instance, the bundling is mandatory and, 2nd, even though CPW is a nomadic operator in its ain right ( with its Fresh trade name ) , there are no bundled offers at CPW which include both fixed and nomadic telephone. This deficiency of bundling options reduces CPW’s range for developing related gross revenues.

Figure 9: Bundled service offers from major providers, June 2007

  1. Measuring CPW’s selling public presentation

CPW does non print inside informations of its advertisement outgo, nor the cost of its telecasting sponsorship trades ( Big Brother and X Factor ) . This sector hence briefly discusses a chiefly theoretical attack as to how the company measures it public presentation.

To estimate the impact of its selling public presentation, CPW can utilize several steps. First, to measure the impact of its promotional spend, it can analyze the ratio of marketing disbursal to gross revenues. Ideally, this procedure should be carried out with a underside up attack and could be segmented either by distribution channel ( shops, web sites, name Centres ) or merchandise ( nomadic telephones, fixed line telephone, AOL, etc. ) CPW could so measure the extent to which alterations in selling outgo were reflected in grosss figures. For this exercising, nevertheless, it would be of import to hold a control group – for illustration, an addition in gross revenues of 5 % may look impressive, but non if the industry as a whole achieved 8 % !

Once the client is induced to come in a shop, the effectivity of personal merchandising may be gauged by the proportion of footstep to gross revenues. This step of gross revenues transition is measured by CPW on a regular footing [ 4 ] .

  1. Recommendations

By August 2007, it appeared that CPW’s repute was get downing to better ; harmonizing to Point Topic, the figure of disgruntled clients had fallen from over 13 % to 9 % . However, it is apparent that future “big bang” undertakings such as free broadband should possibly be undertaken on a pilot footing foremost to mensurate the firm’s capacity to react to the effects of the offer. When a free good is offered, peculiarly when the monetary value of a similar merchandise from rivals is important, it is highly hard to measure demand ( as was proved by the debacle of the free vacation offer by Hoover [ 5 ] in the early 1990s ) .

A 2nd cardinal recommendation is to develop more synergism between the fixed and nomadic divisions of the concern by offering packages of Mobile and fixed telephone. CPW has been something of a dawdler in this country and, now that the jobs with broadband connexions appear to be bettering, it could be seen as a manner of spread outing the company’s client base

  1. The hereafter selling environment for CPW and decisions

Harmonizing to OFCOM’s 2007 study on the communications market, “bundled communications services are progressively popular with consumers, with

40 % of families now taking more than one communications service from the

same supplier ( up a 3rd on last twelvemonth ) . A bulk of broadband clients take it as

portion of a bundle.”

As CPW is peculiarly weak in this country and has less roll uping chances than most of its rivals ( see figure 9 ) , CPW is will necessitate to give consideration in future as to how to react to these alterations in its environment.

A 2nd characteristic mentioned by OFCOM is the increasing permutation of nomadic phones for MP3 participants and games consoles. Given that CPW remains a major participant in the nomadic telephone market, a tendency towards a multipurpose device.

However, the major addition for nomadic telephone in the close hereafter is likely to originate from the usage of a phone as a method of payment. The nomadic telephone is bit by bit being introduced as a agency of payment for railroad tickets and little value payments and increased usage of Mobiles is likely to take to farther replacing and upgrading.

In decision, the mentality for CPW looks bright so long as:

  • it has learnt the lessons from its broadband enlargement scheme and undertakes a more cautious attack to selling future major events ;
  • it capitalizes on the turning popularity of nomadic phones for non-communication utilizations and adjusts it marketing scheme suitably ; and
  • it considers as a precedence a agency of improves client life-time value through the development of a related gross revenues scheme and offers more of its merchandises in packages.

Word count: 2,492

Annex word count: 319REFERENCES ( in alphabetical order )

Carphone improves client satisfaction, August 17Thursday, 2007 hypertext transfer protocol: // [ accessed 25th November 2007 ]

Carphone Warehouse, 2007.Interim consequences2007. [ Online ] . Available at: hypertext transfer protocol: // c=123964 & A ; p=irol-presentations [ accessed 24 November 2007 ]

( old years’ presentations and consequences are available from the same beginning )

Heskett, J.L, Sasser, W.E. & A ; Schlesinger, L.A 1997.Thyminehe Service Net income Chain. New York: The Free Press.

hypertext transfer protocol: // [ accessed 24 November 2007 ]

Office of communications ( OFCOM )The Communications Market 2007[ online ] 23 August. Available at: hypertext transfer protocol: // [ accessed 24 November 2007 ]

Smith, E. , 2007. Paying by Mobile, that’ll do nicely,Sunday Times[ online ] April 29th. Available at: hypertext transfer protocol: // [ accessed 25 November 2005 ]

US Office of Consumer Affairs,Consumer Complaint Handling InAmerica: An Update Study, Part II( Washington DC ; Technical Assistance Research Programs research Institute, April 1st, 1986

Annex – the three R’s of Marketing

In their book “The Value Profit Chain” , [ 6 ] the writers introduce the construct of the three R’s of marketing which supplement the 4 P’s and apply peculiarly to the service sector. Each component contributes to the life-time value of a client, which is a factor of importance to CPW.


What proportion of this year’s clients will still be retained following twelvemonth? In the telecoms sector, this is referred to as the churn rate. Clearly, the higher the degree of clients retained, so there is less need to pull new clients to accomplish growing. Developing new runs to pull new usage is more expensive than retaining current clients.

Related Gross saless

Once a client has bought a basal merchandise ( in the instance of CPW a nomadic phone and contract ) , the retail merchant can so seek to sell the bing client more merchandises. For an air hose, an illustration is priority embarkation, as on easyJet ; for package houses, ask foring clients to upgrade from the free version of their package and for CPW, selling fixed line telephone services and broadband.


If client satisfaction is at a peculiarly high degree and clients become “apostles” for the company ( to utilize The Service Profit Chain’s nomenclature ) so the company can anticipate to bring forth concern from referrals made by the really satisfied client. However, this is a two-edged blade: extremely disgruntled clients can go “terrorists” and take every juncture to convey the company into discredit.

Lifetime Value of a Customer

In ciphering the life-time value of a client, companies need to take history of:

  • the initial acquisition cost of the company ;
  • higher net income per client from related gross revenues
  • reduced operating cost through lower promotional activity ;
  • a bit by bit increasing net income from the base customer’s referrals ; and
  • a monetary value premium which can be charged to this client due to the high degrees of client satisfaction attained in the relationship.