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Mobile telephone adverts: what effect on loyalty?

Within the next eight to twelve months, European mobile phone users may well experience a surge in ‘spamming’ and indiscriminate advertising from some companies rushing to exploit the new mobile marketing channel. This concern was revealed in a study of focus groups of mobile telephone users in Europe carried out by GartnerG2, the business growth research service of Gartner Inc.

GartnerG2 thinks that this could deflate the market for mobile advertising before it has even begun. Consumers may well harden against it, and consumer groups may begin an active campaign to protect mobile users.

Loyalty is already precarious
The loyalty of customers in the mobile telecoms sector is notoriously bad. The sector has one of the highest rates of customer churn in the marketplace. Initially, (and quite sensibly in a brand new market) the strategy of mobile telephone providers was skewed heavily towards acquiring customers; expensive handsets were deeply subsidised and income was regained by expensive call rates. As the market matured, the strategy needed to change to a retention-based one. Operators in the sector are working hard towards achieving this.

On one hand, it is not a time when they can afford to upset customers. On the other hand, they desperately need to recoup some of the vast amounts of money that they spent on G3 licences. An initial industry estimate is that, unless providers can find a new, lucrative stream of revenue, they will have to practically double the current income from each subscriber. What can they do?

GartnerG2 recommends advertisers should start mobile advertising with limited objectives whilst privacy legislation and codes of conduct are being established. The mobile network operators and advertising industry groups must work together to define best practice for mobile advertising. “This new medium of advertising sounds exciting, but companies must look at this from a customer’s point of view or they risk seriously damaging their brand and customer relations,” says Catherine Nichols, analyst for GartnerG2. The company’s research has developed five “golden rules” for companies that want to advertise directly to mobiles without alienating customers.

Five Golden Rules
GartnerG2’s five golden rules are: All users (but especially business users) must be able to easily turn off the advertising at any time. The advertising must be relevant to each user, which means that users will have to agree to willingly supply enough personal data to enable operators to target the advertisements accurately. It appears that users would like the advertising to be unobtrusive: text messages are more acceptable than voice messages. Rather surprisingly, the average user would tolerate three to five messages per day. Some would tolerate even more if rewarded with some tangible benefit like a reduction in the cost of calls or SMS messages. And finally, there should be no room for the user to think that the advertisements bear a hidden cost such as airtime charges, phone memory or even battery charge. The advertisements could carry some form of direct compensation, like loyalty points.

Will it catch on?
Gartner thinks that it will succeed if marketers can adapt proven advertising “payoffs”.  For example, TV subscribers accept advertisements as a trade-off for cheaper services. Internet users will accept unsolicited messages if the content is entertaining or useful to them � they may even forward it to friends (the principle behind viral marketing). Mobile operators coud use humour, or “piggy back” an advertisement on a free SMS message, or on a free sports result alert.

“Subtlety and humour, used correctly, can make mobile advertising a valuable channel. The big danger is to kill this nascent market with an ill-thought-out, scattergun approach at the outset,” says Nichols. “Customer preferences will always vary between pre-pay and subscription users, age groups, and business and personal users. However, the five rules are the common denominator that bring all these groups together.”

The impact of technology
Today’s technology offers mobile phone advertisers little more than SMS messages. WAP technology allows text and image advertisements, but users have to contend with sluggish mobile browsers. However, GPRS and 3G technology should increase the effectiveness of mobile advertising by being faster and always on.

Black clouds on the horizon
Proposed new EU regulation may stop it before it even gets off the ground in Europe. The UK Department of Trade and Industry has published a public consultation document on the new regulations; the document can be viewed online by going to:
http://www.dti.gov.uk/cii/ecommerce/europeanpolicy/ecommerce_directive.shtml

While apparently targeting spam e-mail, the ‘Electronic Commerce Directive’ has a section on ‘Commercial Communications’ (it doesn’t define precisely what media are involved). This section contains requires all providers of information society services (including advertisers) to give at least their name, geographic address, e-mail contact details and the particulars of any supervisory authority to which they belong so that recipients of unwanted e-mails can readily take action to avoid receiving such communications in future.

It is not yet clear whether this will affect SMS messages or not. If it does, and given the limit of 160 characters in an SMS message, it will be really bad news for advertisers. The regulations are due to come in early in 2002.

More Info: 

http://www.gartner.com

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