Safaricom On Charm Offensive as Dealers Dither

Telecoms

When Safaricom's new chief executive Bob Collymore took over the reins on November 1, he had very strong words for his firm's dealers. "At a personal level, I will depend on you, our trusted dealer partner, to give me feedback from the customers who are often closer to your retail outlets than they are to us," he said in a letter dated November 1 to the dealers.

The letter seen by The East African was addressed to the over 400 Safaricom dealers countrywide. Collymore was simply acknowledging that to win the war and maintain the market leader position, he had to work closely with the dealers. This is where Safaricom has won its war against initial competitors like Kencell, now Bharti-owned Zain, and new entrants like Telkom Kenya and Essar Telecoms.

Dealers are the mobile phone services foot soldiers. They are closer to Safaricom's customers -- estimated at 16.7 million in the half year results released this week --than the executives perched at Safaricom House. As the competition has intensified, thanks to the price wars, Safaricom has had to appease its foot soldiers.
 
It has either had to increase the dealers' margins or face discontent. Increasing the margins for dealers pushes Safaricom's costs north. Collymore noted the need for a tricky balance. "It is unlikely that I will always do as you would like me to, but I will always act in the best interest of our mutual relationship," he said.

Hence Safaricom has opted to play a tactful customer connection and merchandising war. Dealers now get three free Sim cards -- usually they buy the Sim cards for Ksh100 -- from Safaricom for each branded phone the mobile phone services subscriber pushes through them. Think of the Sh1,000 phones dotting most dealer shops. These are the low cost phones from phone manufacturer ZTE.

From the dealers' perspective, Sim cards are lucrative because they earn a percentage of each top up as long as they are in use. For example, each time you top up, a certain percentage of the airtime accrues to the dealer who sold you the Sim card. This is how large dealers like Capital Airtime clock revenues of about Ksh800 million ($10 million) a year.

Through their retail outlets, dealers distribute airtime vouchers and mobile phones; run the M-pesa agencies and often act as the first port of call for most customers in case of any network related problem. The relationship between Safaricom and its dealers has been strained in recent months, as calling rates have dropped. Now dealers sell less airtime -- one of their biggest revenue earners.

For instance, they get the Ksh100 Safaricom airtime top up for Ksh93, allowing them a Ksh7 profit.Mobicom, once the largest Safaricom dealer with an estimated 10 per cent of the market, jumped ship to Telkom Kenya's stable in July 2010.