Wednesday, November 19, 2008

In a Recession, Will Mature-Market Consumers Follow Emerging-Market Behavior?

Virgin Mobile appears to be faring well in spite of the recent economic downturn, beating analyst expectations and gaining subscribers. The results of a commissioned survey on spending priorities have Virgin Mobile USA executives cautiously optimistic. The survey found that, when budgets get tight, consumers say they will trim other expenses before cutting back on cell phone usage. Many are likely to dine out less and defer big ticket purchases, and a surprising 41% said they would buy fewer groceries, compared to only 32% who said they would reduce cell phone spending. Some respondents pointed out they would send more text messages in lieu of making voice calls, and two-thirds said they would consider watching advertisements in exchange for free airtime. Price-sensitive consumers also cite the benefits of alternative payment terms such as prepaid service.

Virgin Mobile's research is timely and provides valuable insights that are contrary to conventional wisdom. Few expect that consumers would cut food expenses before cell phone spending. Yet a study sponsored by IDRC in rural Uganda suggests that women on very low incomes are willing to sacrifice both food and travel in order to purchase mobile air time, such is the premium that is placed on mobile phones. Virgin Mobile’s survey responses suggest that, as mature-market consumers become more price-sensitive due to the economic downturn, they are beginning to behave more like emerging-market mobile phone users. An affinity for pre-paid services, the perception of mobile phones as a necessity, increasing use of text messaging, and even choosing mobile phone service over groceries are all characteristics of the customer base in emerging markets.

Companies that have conducted research and gathered data on consumer spending in emerging markets may be positioned to use that knowledge and expertise in developing strategies for weathering the current economic downturn. By understanding the spending habits, prioritization, trade-off decisions, and plan preferences of emerging-market consumers, companies will be better prepared to address the needs of more cost-conscious consumers in mature markets. If mature-market consumers are truly adopting the preferences and perceptions of emerging-market consumers, this is probably good news for the telecommunications industry. With cell phone connectivity increasingly perceived by consumers worldwide as a basic necessity, the mobile industry may not be as vulnerable as others during an economic downturn. Nevertheless, pre-paid services and other programs for price-sensitive consumers will be an advantage in a tough economic environment.

Also in the news:
  • Vodafone chooses ZTE for 35% of its handsets
  • Low-cost laptops hurt Microsoft sales
  • Asus focuses on innovation and leadership


Jose J. Arocha said...

Love this smart, well-written article. Thank you.

Underlying this article, It is interesting to me how much the human need to communicate and socialize compares to other seemingly, more basic needs. When we are facing these trouble times, our support groups such as family and friends are critical and even more so in the context of a society with our support groups spread across geographies. From this perspective, being disconnected would isolate people further and make their situation even worse. An extra dinner vs. no free weekends with my son on the phone? hmmm.

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