Membership card promotion versus price reduction in the mobile telephony market

Abstract

This study introduces a membership card promotion and compares the effects of membership card promotion and price reduction on the profits of mobile network operators and consumer welfare in Korea. The membership card promotion is one of marketing strategies that mobile network operators provide their subscribers with various kinds of membership cards with all sorts of discounts at popular joints such as family restaurants, bakeries, movie theaters, theme parks, and so on. The model employed assumes that the target number of subscribers for mobile network operators is given. The relative profitability of membership card promotion and price reduction then depends on the ratio of membership cardholders among subscribers, the division ratio of membership card promotion expenses between mobile network operators and joint retailers, and the equivalence ratio of price reduction to available membership card points. The key contribution of this paper is to evaluate the relative profitability of membership card promotion and price reduction at a viewpoint of social welfare. It gives useful information to the marketing professionals, business strategists, and regulators in the mobile telephony market.