This operator appeared in late 2007 as one more low-cost subsidiary of the Globalia Group (Air Europa / Viajes Halcón / Pepetravel / Pepecar). Its initial strategy was fairly simple: tap into the PoPs of the travel agents Viajes Halcón and Viajes Ecuador as its commercial outlets, offering crossover discounts between their various products (mobile telephony, travel agency and car hire).

With time, however, it has developed a “mold-breaking” strategy that is modifying the mobile telephony market and is well worth getting to know.

What they have done, quite shrewdly as it seems, is to observe and learn from the mistakes made by the rest of the mobile telephony operators, listening to users’ complaints and creating some behavioral “principles” to fill in the service gaps.

This seems quite simple at first. What is really difficult, however, is to stay true to these principles year after year, eschewing quick gains in the interests of long-term results.

This operator’s clients are asked to sign no long-term commitment clauses. They are all automatically updated to the best tariff currently being offered to new clients and are compensated for any service incidents without having to lodge any claim. No customer-capture or -retention marketing tactics are employed (only internet advertising). If a client wishes to leave, he or she is offered no incentive to stay. In fact, the telephone for new clients is 902 (a payment service) while it is a free 900 service for current clients. We could go on enumerating their list of “principles”, which they publish and keep to year after year.

Their goal is clear: generate a buzz of client satisfaction, reduce the churn rate and attract new clients by word of mouth.

Some key figures

Their financial results are very good. In 2013 they turned over more than 50 million euros and made a profit of 7 million. They ended up the year with 450,000 lines and continue to clock up positive portability figures month after month.

But the most surprising feature is the leadership they have won in terms of customer perception. All customer-satisfaction surveys show them to be one of the top-rated operators. Remarkably, they come out top not only in aspects like turnover or customer attention but also in others like “coverage”.

Not bad for a company with 14 employees, running no sales or marketing department and yet beating Movistar, Vodafone and Orange where it hurts most: in customer perception and therefore in brand value.

What can we learn from this?

The best lesson is to watch how a new firm can muscle its way into a market already on the verge of saturation just by daring to do things differently and staying true to this strategy until it begins to show results.

The standard procedure is to copy existing strategies and try to better them in fine details, on the assumption that big changes wouldn’t work because they haven’t worked before. Neither is it the normal practice to forfeit short-term results in the confident expectation of reaping more fruits in the future.

Strategies of this type have the plus value of creating extra motivation in the persons involved. They work very well in small teams (as in the case of Pepephone). Keeping the size right and costs low, with the financial backing of a well-performing group, is the only way of winning sufficient time until things come good.

But, as always, the story doesn’t stop there. The challenge now is to keep up these results over the coming years.

The Future

In the short term it seems clear that their engaging, laid-back but trustworthy image is going to stand them in good stead, enabling them to broaden their horizons to new business. Back in 2013 they already launched their broadband offer, which currently shapes up as the cheapest on the market. Under the name ofPepeenergy” they are also planning to launch another business to export this same philosophy to the power-supply business. You only have to drop into the forums to see the keen expectation. Only time will show if they are really capable of shaking up this market (let’s hope so, because it sure needs it).

Perhaps one of the greatest threats now hovering over them is copycat strategies. Some might be tempted to think you only have to copy their methods to get the same results. In my opinion it’s not as simple as that; this tactic calls for a lot of time, money and above all patience to wait for results, especially when the copycats will no longer enjoy the surprise factor as the first in the field.

The most probable outcome is a gradual decay of customer appreciation. Users tend to become fussier and less forgiving with time. Even if the same principles and service quality are kept up, this appreciation is still likely to fade and results to turn a bit sour. Will they be able to weather this storm if it comes?.

Change of operator from Vodafone to Yoigo

But I believe the biggest threat comes from within. In recent months the news has leaked out that Pepephone is planning to migrate from Vodafone’s network to become the first virtual operator on Yoigo’s network.

The reason they give for this decision (already communicated to their customers) is the current impossibility of accessing the 4G network. Apparently they already have an agreement with Yoigo to be able to use it (with some doubts being harbored by Telefónica, which is still using Yoigo).

This move comes as a shock. A head-clutching shock even. Firstly, because one of Pepephone’s prime assets is its customer’s perception of its quality, largely because they are using Spain’s best mobile telephony network (take my word for it).  Secondly, according to customer surveys, over 96% of its customers are satisfied with network coverage and quality (a higher rating even than Vodafone’s own 4G customers!!!).

So what do they gain by becoming the first virtual operator on a dodgier network that is not even operated 100% by Yoigo? Besides the logistical problem of changing all the SIM cards, the migration is bound to be beset by incidents, service cuts, billing errors, etc, just to get to a new scenario on a different network with a very questionable benefit. How many current Pepephone customers have a 4G terminal and how many of these will notice a significant difference in 4G coverage? How many current Pepephone customers will have a significantly worse coverage?

In my opinion this move, if it actually happens, could pull the carpet out from under their own feet. Under the current model Pepephone’s customers tend to blame network incidents on Vodafone; under the new model Yoigo incidents will be blamed on Pepephone.

The only explanation I can come up with is that the real reason lies elsewhere: either a considerable reduction of the costs of hiring Yoigo’s network or a huge bluff to drive down Vodafone’s asking price.

If I had to put my money on it, I’d bet on the bluff option, Pepephone finally reaching an improved agreement with Vodafone. If the migration finally goes ahead and Pepephone does go over to Yoigo, then I reckon the real reason is different from the published one and hidden from the public at large.

The author’s views are entirely his own and may not reflect the view of GMV

Autor: Crescencio Lucas Herrea 

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Las opiniones vertidas por el autor son enteramente suyas y no siempre representan la opinión de GMV
The author’s views are entirely his own and may not reflect the views of GMV

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