Strategy Consulting at BCG

Company X is a local fictional telecom company and was facing a decline in profits over the past few years. BCG has been engaged to drive improvements in profitability. One of the hypotheses under consideration is the introduction of handset leasing.

Handset leasing works by renting new phones to customers for a monthly fee instead of selling phones to customers at a discounted upfront cost. Customers lease phones for a fixed term (usually 12 months), before they swap their used phone for a new model.

My first task today was to do some research and identify markets in which handset leasing had already been introduced.

Looked for analyst reports on the impact on revenue and profits for the telecom companies operating in those markets.

There had been an evident expansion of the generic SIM-Only Plans towards allowing handset leasing along with recycling old phones.

The SIM-Only Plans were highly adopted in south-east Asian markets but the telecom companies (Singtel & StarHub) started to experience a negative effect on revenues. These companies had started to offer handset leasing services instead, to accommodate for customer preferences for SIM-Only Plans due to lower costs.

Singtel and StarHub experienced yearly declines of 11% and 9% respectively, in post-paid ARPUs.

An evident contraction in legacy usage of phones was observed and the used Smartphone market was valued at $17 billion in 2016 with a 50% yearly growth rate.

Consumer sentiment while considering being up to date with technology also shifts towards lower up-front costs.

Handset leasing lowers the up-front costs for costumers.

This sentiment was popular amongst youth who do not have as much disposable income but also would like to stay up to date with technology.

Being able to switch phones every year or two allows customers to stay up to date with technology.

Competitors had adopted handset leasing to raise revenue and create new revenue streams.

One BCG expert sent some financial data. The market he suggested is at a similar stage of development to Company X’s home market. There were two main operators who formed an effective duopoly. Company A launched handset leasing 2 years ago, but its competitor, Company B, did not. This allowed us to isolate the impact of handset leasing on profitability.

My role was to analyze the data from Company A and Company B to determine the impact of leasing handsets on financial performance. To identify the metrics I would use to perform a financial forecast for Company X.

Then, to apply the metrics and performance impacts I identified to forecast the upside in terms of the key metrics for Company X.

During the case team meeting, the team reviewed the different initiatives that had been evaluated. The handset leasing option passed the initial screen, and now the team needed to determine how the client might implement the new handset leasing pricing models.

Together with the client’s strategy team, we created a handset leasing consumer offer that was broadly similar to the existing mass market offer, and now needed to assess if it will be attractive.

The client wanted a quick update on the project progress. My role was to develop an executive summary slide synthesizing all the findings from the project so far.

We now needed to develop our plan for the discussions with the relevant departments. My project leader, shared with me the client organization chart, and asked me to:

Identify two departments I think may have the greatest concerns/objections.

What their specific issues might be.

How we can address/mitigate those concerns.

Having come to the initial recommendations on the handset leasing model and receiving the list of Corporate functional heads attending the presentation, I could identify two departments that would raise the greatest concerns related to this project. The Department of Finance and The Technology Department. The potential Issues that would be raised in the presentation might be -

🟧 Lowering the up-front and phone upgrade costs to overcome price sensitivity of the customers might backfire in the form of revenue losses to the company as the company might gain lower profits.

🟧 Costs used to advertise the advantages of new tech amongst older people to lure them into leasing new phones instead of buying them permanently, might not be worth because some older people would still stick to buying phones permanently instead of leasing as leasing does not make them the ‘owner’ of the phone.

🟧 Introducing free or cheap insurance might contribute in gaining lower profits.

🟦 Frequent phone upgrades might cause a loss since the phone becomes ‘used’.

🟦 It would be hard to keep up with the rapid tech trends.

🟦 Tracking every new trending phone company and negotiating towards a deal might become difficult if too many trends come up.

🟫 Keeping the up-front costs around $500 since it is the most acceptable up-front fee among customers.

🟫 Allowing the customers to permanently keep the phones when the retail price gets covered up.

🟫 Ensuring old people that they get full access to the phones.

🟫 Provide free insurance up to 1 damage replacement only.

🟫 Making the customers return their phones only if they are in mint conditions.

🟫 Focusing on the more popular trends instead of all the trends.

🟫 Considering budget-friendly trends.

🟫 Expanding the Data Science teams to deal with issues regarding market research and analysis to keep track of all the tech trends that come up.

This Project was done as a part of Forage's Virtual Experience Program called the BCG Strategy Consulting Virtual Experience Program. All of the datasets used are not real, and the company X is fictional as well.