Telco Channel Mix evolution due to Pandemic: “Round Trip”
The Covid pandemic caused significant changes in Telco Channel mix, but the journey ended up being almost round-trip. Still, some efficiency gains opportunities are pending.
After the pandemic, Digital channel sales contributions dropped back to almost original levels. Retail has mostly recovered its original weight in the mix with fewer shops and less traffic per shop, but with improved productivity per PoS
More channel externalization and PoS coverage concentration to new or good existing partners will continue in Telco Retail as a way to improve commercial efficiency without jeopardizing productivity
During the Covid pandemic, the need to reach the customer and the customer to reach the Telco suddenly became more than just a business hygiene factor. This turned the concept of retail traffic upside down. At the same time, the market grew, ie., the need for remote interaction in school, business, and life in general drove increased demand. Telco services became more essential, but access to Retail PoS more restricted. Customers began to use more remote channels. This forced a change to the traditional channel mix of Telcos. Share of retail contribution to sales dropped by 20% to 50% depending on the market. Call center contribution increased by 20%-30% and Digital (mostly online) tripled or more. Most Telco executives believed that digital & remote had jumped 5 years ahead, and they built up their digital channels accordingly.
This resulted in haircuts for retail channels. Channel development strategies moved away from retail: plans were made for PoS rationalization. Shops were closed and/or headcounts cut. An unspoken “20% close” rule emerged in some markets. The logic was simple: if footfall had reduced by at least 20% or more, then it only made sense that around 20% of shops should be closed, albeit selectively. Retail staff were used for other channels’ activity including outbound, inbound, and even HW deliveries in some cases. Digital was finally delivering on efficiencies CFOs had been waiting for since the 2010’s. Telco Retail relevance dropped significantly.
Then the Pandemic (hopefully) ended. Although remote channels have gained relevance in the commercial ecosystem, Retail’s share of sales is returning to its pre-Covid levels; even though footfall has not – remaining at only 85% - 90%. Online sales are going down to previous levels, perhaps only +1/+3 pp. up in the mix versus the initial situation. Customers are visiting shops again, especially when they intend to make a purchase. Purchase intent in retail shops has risen by nearly 30% vs. pre-Covid numbers. Less footfall and higher purchase intent has translated into improved conversion rates of around 20% to 30% versus pre-Covid. Developing in-shop call center capabilities have also contributed to this in two ways: more push activity and more organized traffic through pre-scheduled visits during the day.
Additionally, Telcos continue gaining efficiencies by externalizing to third parties, particularly in Retail. Those telcos who are not there yet are evolving towards an optimized external-to-internal Shops of 80:20 mix, although this can vary per market circumstances. This allows for highest yielding shops or strategic locations to be owned and controlled by Telcos while leaving a large enough share of partner PoS in the channel to drive economies of scale. By properly concentrating partners in the channel with a logical geographical distribution, significant efficiencies of scale and operational synergies are gained by the partner. With this, the operator saves on commercial budget by reduced commissions. A win-win profitability equation that needs to be continuously monitored and improved.
In summary, Retail still continue having a huge relevance in Telco Channel Mix, and online is not yet a solid replacement, even though a pandemic was recently in place. Perhaps a lost opportunity for a significant shift in Telcos´ commercial strategies.