NTT DOCOMO

3/30/2009

MKTG 6525 X Group #1

Jassim (Isabel) Alabdulrazzaq Ebube Anizor Max Billings Vishal Sethi

NTT Docomo

BACKGROUND AND ISSUES

Established in 1991, NTT Docomo (DOCOMO) is Japans leading provider of mobile voice, data and multimedia services. Over the last decade DOCOMO has consistently led the highly saturated Japanese mobile industry holding at least 50% of the market share largely due to achieving first movers advantage in the mobile digital revolution. The key breakthrough was the 1999 launch of i-mode, the world's most widely used platform for mobile Internet services including e-mail, browsing, and downloading media. The i-mode service has grown from a healthy 4 million subscribers in 2000 to an impressive 48 million by later 2008.1 In 2001, DOCOMO introduced FOMA the world's first 3G commercial mobile high-speed network; years ahead of its global competitors. FOMA has transformed the mobile landscape in Japan by enabling business and rich multimedia consumer applications while bringing the DOCOMO brand global recognition. DOCOMOs goal of establishing the mobile phones as a "lifestyle tool" was further cemented when it began equipping many of its phones with GPS and also launched Osaifu-Keitai, a mobile wallet platform enabling quick, contactless cash, credit and identification transactions for nearly 60% of its 54 million customers.2

Issues
While historically strong, DOCOMO market share dipped below 50% in 2006 due to smart product and price offerings from its two closest competitors: KDDI with a 29.5 % market share and Softbank with a 18% share3. Additionally, the introduction of phone number portability and other regulatory changes intensified the competition in Japans mobile market spawning price wars; which ultimately commoditized both voice and data services and drove down DOCOMOs revenues. Key Challenge Domestically DOCOMO identifies their primary challenges as actively engaging with customers to exceed their expectations of the company, driving innovation, and generally refreshing the brand identity to stay relevant with customers and improve its declining margin. Globally DOCOMO must enter unsaturated markets where DOCOMOs technological expertise and human capital can be exploited to grow revenue.

SITUATIONAL ANALYSIS
DOCOMOs aim is to encourage the evolution of the mobile phone from a mere communication and information device to more of a life assistance through its security, GPS and commerce services and behavioural assistant through the application of the vast amount of behavioural data that can be mined. DOCOMO plans to pursue this strategy with differing objectives domestically and internationally.4 Domestically DOCOMO is taking a marked shift from its prior focus of acquiring new customers and minimizing costly churn. Instead DOCOMO intends to enrich itself by increasing brand loyalty and extending the depth and duration of its existing customer relationships. 5

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With over 80% of the Japanese market owning mobile phones DOCOMO is forced to look overseas to markets like the US to offer its rich services to an expanded customer based and India where the mobile subscriber base is nowhere near saturation and mobile phones are increasing in popularity.

Internal Insights
Available Resources DOCOMOs success can be attributed to its extensive R&D efforts and business partnerships. Heavy R&D investments allowed the company to introduce 3G communications and i-mode data services platform. DOCOMO also effectively leveraged NTTs historical dominance to negotiate arrangements with device manufacturers, content providers and other members of the value chain leading to strong early successes. Customer Markets DOCOMO is committed to serving all needs of an increasingly diversified market. It understands the importance of segmenting customers and analyzing customer needs in the service development process. In addition, it has wholly owned subsidiaries in Europe and North America and is expanding its global reach through strategic alliances with mobile and multimedia service providers in Asia-Pacific and Europe. Key Assets DOCOMO has several unique assets in hand to enable the achievement of its strategic goals. Holding a substantial customer base of nearly 100 million customers and the largest infrastructure in Japan DOCOMO can uniquely leverage qualitative information such a customer location and behaviour information to provide unique services. As a pioneer in the industry DOCOMO also boasts of excellent technology management and ability to attract talented technical developers. Finally, DOCOMO can leverage its existing transaction payment systems as the marketplace shifts to new methods of digital commerce. Liabilities With little room left to grow in Japan to grow and service offering that is uniquely catered to the Japanese consumer DOCOMO continues to achieve lacklustre expanding outside of its home market. For example, outside of Japan i-mode remains virtually unknown. In fact in the markets in which i-mode has been The brand introduced, its foreign partners have re-branded, neglected or poorly-promoted the service. recognition and influence that DOCOMO enjoyed in Japan has simply not translated abroad.

Current Domestic Marketing Strategy

In 2008, DOCOMO launched a new marketing strategy to combat intense domestic competition and declining profitability. There is now a greater need for a marketing strategy that emphasizes DOCOMOs continual innovation of products and services. Implementing the strategy has involved upgrading the company logo, integrating its regional subsidiaries under the NTT DOCOMO banner and establishing a fourprong commitment to: strengthen ties with customers, seek out the voices and opinions of customers in hopes

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of exceeding expectations, driving innovation to earn worldwide respect and becoming organizationally energetic to overcome all challenges in pursuing the corporate vision.6 At their most fundamental level, marketing strategies are composed of sub-strategies for product, price, customers, locations, marketing communications, and brand positioning. DOCOMO has enacted tactics relevant to each of these six areas; however the strongest focus has been on products. DOCOMOs products are best categorized into three groups: handsets, network infrastructure and consumer services. Handsets In the current 2008 marketing strategy, DOCOMO has made significant investments in new handsets and superior infrastructure that is capable of handling greater volumes of wireless data transmitted at higher speeds. Since inception in 1992, DOCOMO has had strong relationships with handset manufacturers and is actively involved in the research and development of new models. In 2008, the company released 21 new handsets in four different product lines, each targeting a different segment of consumer. Network Network coverage was not only expanded, but more customers were brought onto DOCOMOs primary 3G network, FOMA, enabling rich video and mobile internet services to be delivered. By March 2009, DOCOMO estimates that 90.3% of its 54 million subscribers will be using FOMA. A robust, 4G mobile network is seen to be essential for the long-term retention of customers for the immersive and instant communication services that leverage the networks high capacity and faster speeds. Consumer Services The decline in revenue as a result of lower voice ARPU is increasingly being offset by the higher level of data packet ARPU customers are spending more on mobile internet and data services than on basic phone calls 7. This is being driven by a strong promotion of lifestyle applications, including mobile-wallet and GPS map services. DOCOMO has identified behaviour assistance as a future customer service evolution goal, underscoring the need for geotargeting and predictive information services in which customers will find tremendous value8. DOCOMOs goal is for its customers handsets to be their personal assistants, providing a range of personalized services including shopping recommendations, to secure personal data storage.

External Insights
Emerging Mobile Services While still the largest market, the anticipated size of the mobile telecoms market in Japan is expected to grind to a paltry 0.6 annual growth year by 2011 and mobile data to 3.1%. Conversely, the mobile payment, commerce, solutions and ad markets are expected to grow between 20% and 29% over the same period.9 With DOCOMOs market share, experience in mobile commerce and strategic partnerships with firms like Google it is poised to capitalize in the growth areas and replace if not surpass slumping profits from its traditional businesses.

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Global Mobile Market DOCOMO bore significant losses in its first attempts to grow the mobile data services market in the US via a partnership with AT&T. While interest in mobile data services spurred by the arrival of attractive handsets such as Apples iPhone has created new opportunities for DOCOMO to re-enter America and access a new market for services that DOCOMO has expertise in such as mobile commerce; its only presence is that of supporting Japanese consumers seeking to use DOCOMO services in the US.10 DOCOMO has entered Europe primarily through partnerships and has not been able to successfully port the i-mode platform. However in developing countries such as India where the mobile market is showing significant growth, albeit amidst an underdeveloped infrastructure DOCOMO is looking to make significant bets. In late 2008 DOCOMO announced its 26% (US $2.7 billion) stake in Tata Teleservices giving it access to the existing 29 million customers in a 300 million subscriber base expected to more than double by 2012.11 As such India warrants the primary focus of our external analysis and international recommendation.

Mobile Market in India

Environment India is a unique marketplace wherein many businesses have confessed the complexity and challenge that they have faced in finding their footing. The key source of the complexity is the intense cultural diversity that exists across the country; this is reflected in the more than 10 major languages, 256 spoken dialects and 100 religions that influence the attitudes, lifestyles and psychology of consumers. A key challenge is that 60% of Indian population resides in rural areas with poor infrastructure. Additionally, the rural populous hold a preference to communicate in local dialects and are heavily by local religious and political leaders; even for purchase decisions. Market Potential With a population of over 1 billion and just 30% mobile phone penetration, the potential size of the Indian market is staggering. For foreign concerns like DOCOMO, investor-friendly regulations allowing up to a 74% holding in a domestic entity by a foreign company makes its move into India the more sensible.12 Outside of the sheer size of the population India has attracted many suitors because of its growing middle class and educated work force in the urban areas. For a technology company like DOCOMO having a base of software engineers in India that can develop applications or extend its service certainly adds value. Competition India only has 20 million internet subscribers, so primary competition for DOCOMO will be from other mobile operators. The mobile market is distributed amongst six providers: Hutch, Airtel, BSNL, IDEA, Reliance and Tata. Airtel, an Indian based company, enjoys the largest share at 32%; Tata holds about 10%. The Challenge

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The majority of handsets purchased in India are for prepaid accounts. This presents in immediate barrier to porting the i-mode to India because the service is only available to subscribers on a billed plan. Additionally, the handsets range in price from US$20 to US$30 and generate a monthly average revenue per user (ARPU) of US$5 to $US. With ARPU in Japan comparatively at almost US$60 the question is under such conditions can DOCOMO achieve attracts returns on its investment in Tata over long medium to longer term?13

Objective
DOCOMOs actions are strongly aligned to its current marketing strategy of deepening existing customer relationships through added value and technological innovation. Our goal is to evaluate DOCOMOs current efforts and make recommendations in light of the DOCOMOs strategic goals. The aim of course is to retain and grow profitability in a saturated Japanese market and to obtain sustainable growth in developing foreign mobile markets.

RECOMMENDATION CRITERIA
DOCOMOs overall strategy to address future growth as presented earlier is quite clear. However the pertinent issues and consequently the marketing strategy differ on the domestic and international fronts. Domestically DOCOMO has clearly placed customers at the centre its s four-prong new commitments and our recommendation criteria reflects this reality. Briefly, the criteria are as follows 14: Growing profit and maintaining market share Incorporating customer feedback into offerings Increasing brand loyalty Innovation

As DOCOMO seeks to expand into growth markets a different set of criteria apply; these are: Leveraging existing asset (such as services and expertise) Fitting culturally (in terms of market needs and customer behaviour) Producing sustainable mid to long term profits

RECOMMENDATION AND IMPLEMENTATION

Based on DOCOMOs clearly articulated strategy for its domestic operations and clear need for a successful global expansion the following recommendations have been proposed. The recommendations are focussed on a marketing strategy that fits DOCOMOs overall goals and integrate the criteria presented earlier.

Domestic Recommendation
Mobile CRM as the foundation of a future marketing strategy has tremendous potential to increase DOCOMOs operating revenue. Contemporary trends in consumer marketing point to greater demand for

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participation, interactivity, and relevance by users. Consequently, communications must be meaningful; and it is the marketer who should be listening, not the consumer. The sophistication of Japans mobile landscape in terms of the highly developed network infrastructure, market saturation of smartphones, and comfort with data-rich mobile applications by phone users is a significant advantage for DOCOMO to facilitate an active relationship between marketers and targeted consumers. Services and Applications DOCOMOs greatest opportunities for financial growth in Japan are from mobile services and applications. While handsets, phone plans, cellular networks, and roaming partnerships are important sources of revenue, these are only supporting platforms for DOCOMO to create a compelling end user experience that is personalized and comprehensive of the many activities in their daily life15 . ARPU therefore, will be increased through greater use of the handset, the network, and the mobile applications because consumers recognize that DOCOMO provides value-adding features in the form of opt-in push marketing programs, conveniencebased m-commerce portals, and handset-based services that unite consumers online and offline worlds. Therefore, future marketing strategy must consider not only how to derive value from the DOCOMO product but also from the DOCOMO experience to its subscribers. DOCOMO must enhance its services with the goal of improving the user experience in order to grow revenues in Japan. Analytics and consumer modeling must be actively practiced to realize the full benefits from a CRM-based solution that choreographs raw customer data, marketing promotions, and location-based services. Execution The introduction of new handsets, phone plans, and a refreshed brand identity in Japan has positioned DOCOMO to strengthen relationships with its customers through a better experience. Stronger experiences are based on two primary business strategies by DOCOMO: 1) Engage marketers who seek to reach customers on the DOCOMO network, and 2) Push new user services to market through company innovation. These are appropriate because in both scenarios, DOCOMO maintains control over customer data, the brand identity, and the revenue stream. Examples of potential CRM-based mobile services that add value to the customers experience are described in the Appendix.

Domestic Implementation
Implementing the recommendation to pursue deeper user experiences in Japan will require focus on the part of DOCOMO in order to capture value and leverage its technological platform, key concepts in digital marketing. Marketers

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Because relevance is increased when marketing communications are targeted, DOCOMO should leverage its CRM software and analytics platform to provide a solution for marketers who are seeking to engage with the right people. This aspect to future marketing strategy deepens consumer engagement with m-commerce, direct mail, and loyalty programs 16. i-mode is an open platform that gives marketers a forum to promote pushed (to an opt-in group) or pulled (to a targeted, non-opt-in group) content to consumers. Open-platform technology gives DOCOMO an opportunity to grow revenue from licenses to create a consumer application and royalty streams from the data charges every time that application is used. New Services Innovations to DOCOMOs mobile customer service applications, including a mobile concierge, quick access panel, and real-time online communication with other users was introduced in 2008 17. Further innovations should continue to improve customer satisfaction through a providing a value-added experience. These may include data storage and rapid transfer between devices (leveraging the same technology that supports DOCOMOs mobile wallet application), GPS-enabled mobile coupons, or even handset applications supported by biometric feedback. Value Capture Capturing value implies providing users with new features and services through their handsets which simplify their lives or benefit them in some way. An effective marketing strategy that accounts for these needs pays strong attention to aspects of product and people because it is critical to not only know how to structure a service offering that will be valued by consumers, but also which consumers to target with this new bundle of services. Platform DOCOMO may consider "seeding their network" by sourcing high-data users with exclusive applications that are open-source and viral, allowing users to personalize their experience and share it with friends. This beta testing allows developers to gain feedback from users through real-time testing and also to cultivate a community of key influencers. The adoption of new experience-based services by key influencers is important for DOCOMO to extend new value-adding applications into the market because for some enhancements (e.g. which restaurants to go to), the word-of-mouth recommendations of friends are significantly stronger than what marketers could present.

International Recommendation
Obviously any successfully partnership is predicted on the joining parties bringing complementary assets to the table. With Tata and DOCOMO the strength of the partnership is based on Tatas brand power and national presence alongside DOCOMOs technological and market development expertise.

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The Tata brand is a household name with more than 140 years of history. It enjoys a reputation for quality and reliability. Tata currently boasts Indias largest sales network; comprising of 3,500 outlets. Having succeeded in the Philippines market with US$30 phones and US$5 ARPU, DOCOMO is well versed in the concepts of pricing, tariffs and promotion in markets similar to India. Naturally, DOCOMOs expertise with network infrastructure will certainly be utilized in upgrading Tatas services to support 3G. The marketing strategy that is therefore recommended exploits these strengths. Basic Services Given the low ARPU in India it is tempting for DOCOMO to focus on higher-margin services such as music downloads and video streaming; however these services (and their associated fees) could realistically only be targeted to Indias urban rich in the short term. Most of the growth in subscriber base is believed to be with the rural or less affluent customers and so simple voice and SMS services need to be the backbone of DOCOMOs offering in the near term. Penetrating Rural Markets ARPU in rural markets it said to be less than the dismal US$5 in the more urban areas on hovers around US $2. That being the case profit is likely to only be driven through volume; these means the rural areas will only be able to support two or three players profitable. 18 In order to attract the base that it requires DOCOMO will need to look into means used to grow subscribers in the west: subsidizing or financing phones. Given that the vast majority of Indians do not have access to the internet; the mobile phone will likely be the only means to access the internet. For this segment, the 3G mobile could serve as a platform for education, healthcare and financial services." 19 Long Term Growth Experts indicate that after the 500 million subscriber base is crossed, likely by 2012, growth in telecom will be difficult to achieve especially with such a large percentage of Indias living below the poverty line. So similar to DOCOMOs current challenges in Japan, growth will not be obtained through customer acquisition but rather through value-added services. So after the hurdle of getting Indians to talk on their phone is cross; it will then be to get Indians to talk more.20 Much of our recommendation is geared toward longer term growth; this involves efforts to both understand the customer better and actively shift customer behaviour to integrate mobile phones and the internet into the daily lives of the Indian consumer. As such DOCOMO can establish experimental websites, blogs or a social network presence to understand and interact with consumers; learning their key communication and social needs. DOCOMO can both exploit the learned understanding of consumer behaviour and determine the strengths and weaknesses of competitors as perceived by different segments.

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International Implementation
Producer Network Alliance DOCOMO currently produces its own phones but will likely need to reconsider this for India. Nokia is currently the most popular cell phone brand in India holding almost 70% of the market thus DOCOMO can seek a strategic alliance with Nokia an leverage that brand along with its customer insights and products currently geared for rural users (e.g. phones with multiple address books to accommodate customers that share a familial or communal device). Products and Services Given that the Indian market is fundamentally heterogeneous, DOCOMO will need to offer products and services fit for its urban and rural demographic. This will include introducing durable, user-friendly, multilingual or voice interactive cell phones designed to smartly account for regional nuances and upscale smartphones and add-on services like the mobile wallet and video streaming for the urban 3G customer. Promotion DOCOMO shall consider establishing its presence on existing popular social networking platforms such as Orkut by allowing marketers to interact with consumers, influencers. To build the trust of Indian consumers DOCOMO can hire Bollywood celebrities as brand ambassadors that can communicate to consumers on social networks, movie theatres that DOCOMO is their preferred service and style on Orkut. Indian film industry is largest in the world and the actors hold tremendous influence. Channels With Tatas retail network of 3,500 retail stores the capacity to reach the consumer is present. However DOCOMO will have to adopt a multi channel sales strategy to penetrate the market quickly by offering cell phones online and through non-Tata owned consumer electronic outlets for urban customers. personal relationships an account for the influencers in any particular area. Pricing Affluent Indian consumers are willing to pay great prices for new cell phone introductions as well as for cellular and data services however the rural market is hesitant in paying for instruments but is comfortable paying a reasonable price on a regular basis; DOCOMO can skim prices on cell phones in affluent metropolitan segments and design attractive service bundles to up sell and earn more profit per customer however in rural or low income market DOCOMO will require to capitalize volumes by offering family and friend deals in services and if necessary will have to be prepared to lose money in selling instruments in exchange for service contracts. While the latter is contrary to current customer behaviour its a needed shift if the goal is to own a strong subscriber base in the short-term and grow ARPU in the long-term. In Rural markets deploying mobile sales vans and establishing local, village-based networks to take advantage of

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Platform and Complement Networks Given the availability of software engineers in India creating an i-Mode like platform that can accommodate prepaid accounts and deliver value-added services is recommended. While rural users may not desire value added-services like video streaming they are still required to pay electric bills why not offer them the convenience of doing so on their pone. DOCOMO can partner with banks, utility companies, celebrity magazines and news channels to offers services that can influence customers and lead to platform expansion.

CONCLUSION
Intense competition, declining profitability left DOCOMO will little option but to approach its client base with a different value proposition that previously offered. DOCOMOs shift from acquiring customers through price-cutting was replaced with a drive to grow profits through deepened client relationships and increased brand loyalty; both enabled by continual product and service innovation. Our recommendation aims to achieve these goals by not only delivery value to the subscriber through the DOCOMO product but also through the DOCOMO experience. Integral to the recommendation is the leverage of the CRM data to provide appropriate opt-in marketing services, extending its location based services and further utilizing the i-Mode platform to tap into the insight of DOCOMOs user base and adjust its offerings accordingly. Through this effort the enriched customer relationship will grow revenue. Growing to international markets has been a part of DOCOMOs strategy for some time; its endeavours into development markets like the Philippines and India mark a significant opportunity but also great challenges when differing customer behaviour and relatively low ARPUs are considered. The strategy proffered for India is long term in nature and targeted to the rural user. While there is a base of urban users that can consume the value added services provided by upgrading to a 3G network; DOCOMOs should be focussed on getting appropriate phones to rural users; increasing revenue through an expanded user base and migrating customers from low margin voice and SMS services to higher margin services over the long term.

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Appendix

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APPENDIX A | JAPANESE MOBILE MARKET

Figure A1: Evolution of Mobile Phones (Source: DOCOMO (2008))

Figure A2: Voice and Data ARPU (Source: DOCOMO (2008))

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Figure A3: Japanese Mobile Service Anticipated Growth (Source: Nomura Institute (2008))

Figure A4: Japanese Mobile Service Market Size (Source: Nomura Institute (2008))

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APPENDIX B | DOCOMO OWNERSHIP

Figure B1: DOCOMO Asian Interests (Source: DOCOMO (2008))

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NTT Docomo Factbook (page 2) ,: http://www.nttdocomo.com/binary/about/facts_factbook.pdf (February 2009)

1 2 3 4

Company Overview: http://www.nttdocomo.com/about/company/index.html (figures as per Japan times and pcworld as on apr07 2008)

NTT Docomo Factbook (page 11) ,: http://www.nttdocomo.com/binary/about/facts_factbook.pdf (February 2009) NTT Docomo Factbook (page 6) ,: http://www.nttdocomo.com/binary/about/facts_factbook.pdf (February 2009)
5 6 7 8

IBID Third Quarter FY2008 Financial Results, January 31, 2009, NTT DoCoMo DoCoMos Change and Challenge to Achieve Growth, October 31, 2008, NTT DoCoMo

9An

Open Platform Stragey for NTT DoCoMo http://www.slideshare.net/gdodge/an-open-platformstrategy-for-ntt-docomo Another U.S. Foray for NTT DoCoMo? (March 2007) http://www.businessweek.com/print/ technology/content/mar2007/tc20070328_744461.htm
10

DoCoMo's $2.7 Billion Investment in India (Nov 2008) http://www.businessweek.com/globalbiz/ content/nov2008/gb20081112_170510.htm

11

NTT DoCoMo's Tata Deal: Why Global Telecom Firms Want to Dial India http:// knowledge.wharton.upenn.edu/india/article.cfm?articleid=4335
12 13 14 15 16

Partnership and Promise in India .http://www.nttdocomo.com/features/mobility22.html NTT Docomo Factbook (page 6) http://www.nttdocomo.com/binary/about/facts_factbook.pdf DoCoMos Change and Challenge to Achieve Growth, October 31, 2008, NTT DoCoMo

Ferris, M. (2007). Insights on mobile advertising, promotion, and research, Journal of Advertising Research. Vol. 47, No. 1.
17

Third Quarter FY2008 Financial Results, January 31, 2009, NTT DoCoMo

18 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4335
19 20

http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4335 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4335