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.'
This article was first published on