|
|
|
RADIO STATION BUSINESS CASE
|
|
Radio Station DSMS
(The name DSMS and other names has been changed in accordance with the client's
wishes)
Introduction:
In the beginning of 2002 the use of SMS was heating up to unbelievable
dimensions. Everyone was using it for everything. Marketing Manager Jose
Acunsion working for radio station DSMS, was thinking about how he could
integrate SMS into the marketing offerings, DSMS was giving to its customers.
He wrote down on a piece of paper:
-
I must be able to make as much income from the SMS services as on normal
radio advertising.
-
I must not take advantage of my listeners, but make an offer that is
relevant and engaging to them. (In a recent customer survey the radio
station was being penalized for having too many commercials many users
were beginning to listen more and more to other stations*)
-
It must work on a very restricted budget.
* The Survey: a gross group of 5,000 was questioned about their radio habits,
439 of these knew the name DSMS and recalled the signature of the radio station.
Of these 142 said that they listened daily to the station (the figures a year go
was 734 and 314) the most frequent complaint was the intrusive advertising blocks
in the program. Advertisers was beginning to notice the lack of response in the
campaigns using DSMS.
The Market for SMS services
Manila the Philippines is the world capital in SMS services, about 2/3 of the
population has mobile phones and are primarily using them to send SMS or text
messages. This amounts to almost 100 Mil messages per day in Metro Manila alone.
The two main providers Globe Telecom (45% market share) and Smart Communications
(48% market share) are offering so called InfoText services that enables companies
to send a SMS reply for free but the user (sender) must pay 2.5 PhP per message.
The normal rate for a SMS is from 0.5 PhP to 1 PhP depending on the users
subscription plan. These value added services from the telecom companies are free
to the companies providing the services (all they need is a Internet web server,
and an Internet connection). An additional benefit is that the number given out
is normally short, 3 or 4 digits and this means that the number is easily
remembered. On the downside this service don't forward the senders telephone
number to the company, the company has to convince the Telecom company that
this is a valuable service and that the number is only given for a limited
period of time (usually 3 months).
On the other hand there are a number of independent providers of SMS gateways
that can give the same functionality as the Telecom companies but can't perform
the micro billing and therefore the company will have to pay for every outgoing
SMS themselves. One such company is IC Jacobsen Inc that has a product called
ISMS, it provides a so-called OTA (Over The Air) solution to SMS sending and
receiving. A total solution featuring two telephone numbers usually cost about
200,000 PhP including hardware.
The Economics Globe/Smart InfoText vs. IC Jacobsen ISMS.
Establishing the System.
Covers all the hardware and Software needed to run the system.
|
|
InfoText
|
ISMS
|
|
Server Hardware + Software
|
50,000 PhP
|
50,000 PhP
|
|
Special Software
|
0 PhP
|
100,000 PhP
|
|
Other Hardware
|
0 PhP
|
50,000 PhP
|
|
Software Development
|
20,000 PhP
|
20,000 PhP
|
|
Total Investment
|
70,000 PhP
|
220,000 PhP
|
The ISMS is about 3 times more expensive to establish than
the InfoText service.
Running the System.
From the listener base of 284,000 listeners (based on the last survey)
Jose Acunsion of DSMS estimates that about 10% will participate in the
competition over a month. Some will send every day and some only once. A
rough estimate is that every month 40,000 will participate.
|
|
InfoText
|
ISMS
|
|
Number of Messages
|
40,000 PhP
|
40,000 PhP
|
|
Cost per Message
|
0 PhP
|
0.5 PhP
|
|
Total Cost / month
|
0 PhP
|
20,000 PhP
|
This was too good to be true for Jose Acunsion and he decided to
work with the InfoText service as a first proposal.
The Concept
Jose Acunsion would establish a competition where you send a SMS every
day during a week with an answer to a question (new question every day)
and from the correct answers DSMS will draw a winner. However because
InfoText don't forward the telephone number of the senders the users will
have to include their telephone number in the message.
He decides to test the idea without any investment at all, at 4:00 Monday
morning he asks the DJ to announce a competition where the listeners can
participate in a draw for an electric kettle. Send a SMS with an answer
to the question ("what is the name of the DJ in charge of the show") and
participate in the draw. This leads to the following numbers 88 sends a
SMS to the competition, 62 forgets to include the telephone number (33)
or enters a wrong number (29) (since Jose was using his own phone he
could see the actual number being sent) that is almost 70% of the
participants. 5 users sent twice, however this might be a result of
the network that sometimes sends a message two or 3 times. In the end,
Jose looks at the numbers: 93 messages sent, 5 duplicates (with different
numbers included in the message) and 26 valid entries, of these 13 has the
correct answer, and he draws one lucky winner. This result makes him think
twice about the idea of letting participants enter their own telephone number
again, but maybe these telephone numbers has a value to advertisers. Jose
Acunsion decides to look beyond the investment and examine the business
opportunities offered by these two very different SMS technologies.
The Business Opportunities:
Using InfoText:
With InfoText the use of the telephone number is worth nothing, Jose Acunsion
concludes so the business proposal must be based on airtime alone:
-
Normal rate is 1,000 PhP per 20 second spot and the competition will have
to be announced at least 6 times over the day giving a total cost to the
advertiser of 6,000 PhP plus the price and a total air time of 2 minutes.
However, this is a product very similar to the competition products already
offered by DSMS and Jose is finding it increasingly harder and harder to
sell this product, in fact only 2 times per month is this happening now.
Another problem is that several of the competitors are offering this type
of product and it is not very successful.
Using ISMS:
With ISMS there are a lot more opportunities to make a new and different proposal:
-
Instead of paying for air time the advertiser pays per entry to the
competition.
-
After the competition is over he will in the following weeks be able to
send a message to all participants 3 times.
-
The advertiser will pay 5 PhP per unique entry and 2.5 PhP for duplicates
(the users that send twice) also he will pay 3 PhP for each advertising
message sent to the users so the economics looks like:
|
Total number of Users
|
28,400
|
|
Users that participate more than once
|
8,400
|
|
Number of messages over a month
|
40,000
|
|
Income per Unique User
|
ยด 5 PhP
|
|
Income per duplicate
|
2.5 PhP
|
|
Income from Unique Users
|
142,000 PhP
|
|
Income from Return users
|
29,000 PhP
|
|
Estimated Direct Income
|
171,000 PhP
|
|
Follow Up Number of messages
|
85,200
|
|
Income for follow up (3 p each)
|
255,600 PhP
|
|
Total Income per Month
|
426,600 PhP
|
However for this to come true Jose Acunsion will have to spend 2 minutes per
day in advertising to the customers at about 6,000 PhP per day. For a total of
30 days per month it becomes 180,000 in lost advertising time, also a total of
125,200 messages at a cost of 0.5 PhP each will have to be sent giving a Net
Profit of 426,600 PhP - 180,000 PhP - 0.5 * 125,200 = 121,400 PhP. This profit
will pay for the investment over the first 2 months of operation.
Conclusion
DSMS is better off using the ISMS than the InfoText because it gives a
possibility to develop innovative services (pay per participant) that will
attract more advertisers and new advertising possibilities (like sending a
direct SMS to the participants) in effect the radio station can compete with
direct mail companies in targeting special customer groups. Over time DSMS
can collect information about specific users and for each time they
participates in a competition ask questions about use habits of specific
products. DSMS ability to establish a meaningful dialog with the customer
increases many times by using a direct response media like SMS.
|
|
<< Back to Business Cases
|
|