Mark Ritson on branding: Mobile brands make poor call on value

Marketing 22-Jan-08

Marketing has always been about more than just sales. Getting the customer to sign on the dotted line is merely the opening volley in the battle, not the victory salute. Getting that consumer to stay with you longer and spend more are the real drivers of a company's success.

It is an obvious point, but one frequently missed by marketers. Take
mobile phone operators, for example. For years, the four big operators
in the UK have been fighting a war of acquisition intended to lure

subscribers from their rivals and onto their network. But while O2,

Orange, Vodafone and T-Mobile have succeeded in acquiring customers by
the busload, they have all failed in the more lucrative challenge of
retention.

With no new consumers entering the market and annual churn levels
hovering around 25%, the operators remain engaged in a
multimillion-pound game of musical chairs. Price reductions and special
offers lure a consumer to one network just in time to replace the one
heading across the road for the new handset and special tariff being
offered by a competitor.

In 2006, T-Mobile slashed tariffs in its infamous Flext offering. UK
managing director Jim Hyde was unequivocal about his acquisitory
motives. 'We intend to grow our market share, and simple, fair value for
our customers is at the heart of this,' he said. Vodafone's UK chief
executive Nick Read, however, was having none of it. 'With Flext,
(T-Mobile) came in, dropped the price and thought we would not respond.
We responded. They didn't gain market share and took a hit on margins.
If anyone thinks that just by dropping prices they will take share from
us, I will respond. I will compete, so they won't be getting an
advantage on pure price,' he hit back.

Aside from hurting profits, this also restricts brand equity. Rather
than investing in building this, operators have no choice but to
maintain mass awareness, communicate commodifying tariffs and promote
generic handsets. Meanwhile, consumers are actively incentivised to
break any nascent brand loyalty they may have, and switch.

If you measure branding success by the size of the marketing budget,
then mobile operators come top of the list. But if your criteria are the
amount of differentiation, loyalty and price premium created, they come
last. Hundreds of millions in marketing spend have resulted in
distinctive logos and unaided recall but little else. Rarely has so much
money been spent so badly and for so long in the name of marketing.

The biggest casualty in this war of acquisition has been use. Despite
networks and most handsets now offering the capability to access the
web, check email or send photos, the vast majority of consumers have
steadfastly continued to use their phones just to make calls. This is
the most damaging implication of an industry intent on acquiring
consumers rather than helping existing subscribers get more from their
phones (and, as a result, generate bigger bills).

Within the mobile industry, many executives have happily concluded that
the iPhone, with only 190,000 unit sales since its November launch, has
been a big disappointment. But usage figures give a different
perspective. Of the iPhone users contracted to O2, 60% use more than
25MB of data a month, compared with less than 2% of O2's other contract
subscribers. This is even more impressive when you consider that the
iPhone currently relies on WiFi locations rather than the faster and
more available 3G network.

Apple has not sold millions of iPhones. However, it has entered the
British market and achieved things beyond the wildest imaginations of
the big four operators: differentiation, price premium, loyalty, and
usage.

30 SECONDS ON ... MOBILE CHURN AND THE IPHONE

- In 2007 the rate of annual churn varied across the big four networks.
Vodafone led the pack, losing 'only' 15% of its contract customers,
followed by O2 with 21% and Orange and T-Mobile on 23%.

- In the pay-as-you-go market, one study estimates that Vodafone lost an
eye-watering 41% of customers in 2006.

- After its 9 November UK launch, some analysts predicted that up to
400,000 iPhones would be sold in the first two months. The actual number
is 190,000, just shy of Apple and O2 projections.

- O2 chief executive Matthew Key was quick to grasp the iPhone's
potential after a preview at Apple's California HQ last year. 'Two hours
after leaving I said: "That's a device I've got to offer." In the UK
market, where the top four networks have pretty much equal shares, it
offers a great way for me to get a lot of high-value consumers on to O2
and drive up data usage.'