Profile: Sir Charlie Mayfield

John Lewis Partnership Chairman

Does your brand have the stretch factor?

O2 is stretching its brand into healthcare, education and financial services as it seeks to bring great customer experiences to new sectors, but should your business consider a similar strategy? O2’s marketing team explains to Mark Choueke how they did it

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It came as a surprise to many this summer when telecoms company O2 launched itself into the financial services sector. But what was perhaps more astonishing is that in just seven weeks, O2 had issued 100,000 pre-pay cards, making it the biggest card launch in the history of financial services in this country, according to its partner NatWest.

Now, as revealed in Marketing Week two weeks ago, O2 plans to become a serious player in healthcare and education, as well as financial services, by using mobile technology at the core of all activity in the new growth areas.

As O2 chief executive Ronan Dunne puts it: “The mobile phone is the remote control that the next generation will use to manage their lives, so we have a fantastic opportunity to define and host that process for them.”

But stretching the O2 brand with such scant regard for traditional business sector borders is far from risk free. The brand could not only face expensive failure in new sectors, but also alienate its original mobile customer base.

David Taylor, author of Brand Stretch: Why 1 in 2 Extensions Fail and How to Beat the Odds, and founder of consultancy The Brandgym, warns: “About 99% of the analysis on brand-stretching goes wrong because it focuses on the brand and not the business model.”

A number of companies have already shown that their brands can extend across categories – Tesco has moved into home furnishings, personal finance and mobile and internet services, while Virgin can offer everything from flights to broadband. But the mobile operators have not until now successfully done the same.

Can O2 add new revenue streams, broaden its customer base and strengthen its relationship with consumers? Or will stretching its brand into so many areas prove to be one step too far? Marketing Week spent some time with the O2 marketing team at the brand’s headquarters in Slough to see if other brands could learn any lessons from its brand stretching process.

Along with Dunne (see View From The Top), marketing director Sally Cowdry and customer director Tim Sefton are tasked with plotting a new future for their company.

Dunne, Cowdry and Sefton have worked together since before the O2 brand was born out of BT Cellnet following a demerger from BT. The fact that Sefton and Cowdry are board-level marketers at O2 means that the pair, along with Dunne, are given more licence than most other marketers to define the future of their business.

“We have responsibility within marketing for all the profit and loss margins of the business,” says Cowdry. A rare thing indeed and the reason O2 marketers are steeped in concern for return on investment. Sefton continues: “We understand a few of the anchor points that separate successful and unsuccessful businesses. We knew from the start that marketing, not finance and not IT, was going to determine our strategy.”

As CEO, it might be expected Dunne would have more concerns about finance than his marketers, but he claims that he, too, wants O2 to be consumers’ “most trusted brand” and adds that even in his previous role as chief financial officer of O2, he took more than a passing interest in strategic business development and marketing.

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“I genuinely believe that if you do the right thing for customers, you can’t go wrong,” he says. “We couldn’t even think of moving outside the mobile sector if we weren’t delivering great customer experience and value within that core market. We simply wouldn’t be trusted.”

It is this relationship with the customer that Dunne believes will allow O2 to stretch further than its rivals across business sectors.

When asked what share of the telecoms brand’s revenue he wants financial services, healthcare and education to account for, he replies: “We want a single relationship with the customer where we are the aggregator of choice, either through our own business or through our relationships with partners. The correct market share question is ‘how much of the relationship with each customer will we own?’”

Taking a single customer view across the whole business should be easier for O2 than other companies as its marketing department is responsible for managing the brand’s entire customer base of the business as well as the profit and loss statement.

“We don’t just do the advertising here,” says Cowdry. “We gather all the data about our customers in one place. We don’t have multiple business units, we have one customer who has multiple relationships with us.”

O2 has chosen to move into financial services, healthcare and education because each of these sectors offer Dunne and his team the chance to act as a “connectivity service brand”.

For example, the pre-paid debit cards offer consumers more “control” over their money because O2 sends them a text every time they use the card, keeping them up to date on their spending. Now Dunne is ready to take this culture of immediate consumer control into other areas.

“We’re going into B2B2C,” says Dunne. “I think we bring a fundamentally different view of customer experience than many of the companies operating in areas such as healthcare or education. We want to improve the customer or patient experience while reducing the cost of delivering the service.”

Dunne points to the £100bn the NHS will spend in 2010 compared with the entire mobile industry’s revenues of £22bn and says: “The opportunity for us to own a tiny piece of that NHS budget could be significant.

“An awful lot of that spend goes on the ongoing monitoring of people’s health. You might go and see your health practitioner every month or every three months for problems like asthma or high blood pressure, but a huge proportion of NHS appointments are cancelled because people don’t turn up. We can offer solutions.”

Dunne talks of developing technology by which regular blood tests or weight monitoring can be done at home with the results automatically sent via a text message or iPhone app to the correct hospital department. While The Brandgym’s Taylor thinks this is an interesting idea, he cautions: “Do I trust O2 to deliver my confidential medical details to hospital? I’m not sure anyone in the mobile industry has earned that amount of trust as yet.”

However, Taylor does acknowledge that O2 could make a valuable partner for the NHS in a similar way to how it works with NatWest on its financial projects. He is not sure it has earned consumers’ trust enough yet to be a standalone brand in this area, but could build this through further partnerships.

When talking about the opportunities in education, Sefton describes his visions for “a more multimedia-rich learning environment, probably eliminating the need for text books”.

Sefton adds: “The beauty of mobility is that you can take education out of the classroom and do more field-based and remote education. We already have e-readers but the education system is still built around the whiteboard in the classroom. By moving to a more multimedia base you can transform the opportunities for learning.”

Other potential new markets include the gaming sector, along with ticketing, in which O2 is already interacting with music fans through its venue sponsorship of The O2 in London, with a system where it offers subscribers advance tickets to concerts.

It is also looking at ticketing opportunities in transport. “We’re very interested in how ticketing works and how we can use it to make our customers’ lives easier,” says Sefton.

The Brandgym’s Taylor says that O2 is right to be considering its options. “As the mobile phone market becomes more commodity based, with T-Mobile offering free texts for life, broadband now widely available and so on, O2 is absolutely right to look outside its core sector for new revenue streams.”

He warns, however, that stretching a business also means stretching the company’s people and this can cause problems. “The question to ask is not whether the brand can stretch, but whether it has the capability, the resources and the people to extend its business in this way.”

With the concern about over-stretching fresh in the minds at O2, Sefton acknowledges that one idea previously discussed and rejected was O2 hotels, which he describes as “a stretch too far”. “Our customer insights tell us that they give us permission to try something new, but that they will reserve judgement. If we cock it up or fail to add value, the whole thing will unravel.”

But that’s the beauty of working as a board-level marketer for a brand-led company, says Cowdry. You get to have conversations about the ideas that might seem truly extraordinary in other companies, where such outlandish schemes might be dismissed.

Sally Cowdry

Sally Cowdry

Fair deal for all

 

“We’ve done a lot of things in the last five years where we couldn’t make them work on paper, where there simply wasn’t a business case,” she claims. As a demonstration of this ethos, she gives the example that O2 was the first in the mobile market to flout the convention still widely practiced by many financial services and telecoms companies where offers and promotions are made to new customers only.

“We have a philosophy called ‘fair deal’. All existing customers get at least as good a deal as new customers. To do that meant changing our whole financial set-up and cost us millions of pounds. On paper, you can’t get that money back. But thanks to such innovations, our churn is significantly lower than anyone else and we have a higher value customer on average than our rivals,” says Cowdry.

Other innovations are also encouraged. The team gives the example of when Blur played at the Newcastle O2 Academy. Queues were huge and a female employee of O2 attending the gig took it upon herself to buy all the stock at a nearby hotdog stand, persuaded the hotdog seller to bring his stand to the queue and gave every O2 customer a free hotdog and drink.

“It’s about being relevant. Not doing new things because we can but because they’re right for the customer.”
Sally Cowdry

“That kind of thing isn’t a big deal and didn’t cost much,” adds Shadi Halliwell, O2’s head of brand communications, whose remit covers advertising and sponsorship. “But it meant our customers were fed and watered in the queue. It makes them remember us. That girl did what she did with no authority; it was just an idea that she had and we encourage that.”

Dunne agrees: “It’s all about our people culture. You can’t create great customer experiences unless you deliver a great people experience to those in your organisation – that is the moment of truth. You need the same relationship with your people that you expect them to share with customers. Our employees must be fans of O2.”

The implication is that the more people, whether they be customers or employees, are willing to accept O2 as not just a telecoms brand but one trying to facilitate consumer lives, the further it can stretch into new industries.

But despite the team’s keenness to expand, each new venture will be built from a strong base of customer insight and permission, promises Cowdry. “We’re moving further into the centre of the world with our data. It’s about being relevant. Not doing new things because we can but because they’re right for the customer.”

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View from the top

Ronan Dunne, CEO, O2 UK

“Customer insight directs everything we do. We have a brand that leads our business. Most have a business that includes a brand.”

Listening to Ronan Dunne eulogise about the roles of the brand and customer within O2’s philosophy and operations, it is difficult to believe that he trained as a “numbers” man and not a marketer.

Dunne joined O2 before its demerger from BT in 2001 in a financial role that typified his career, and prior to becoming CEO, had worked most recently as the chief financial officer at O2 UK. Before he arrived at O2, Dunne, a fellow and former council member of the Institute of Chartered Accountants, held senior financial positions in banking and the corporate sector.

With this background, it might be expected that Dunne would not be open to structuring a company around the customer or putting a marketing team in charge of building the business. But he talks like a classically trained marketer. “We need to go from a functional to an emotional relationship with our customers,” he says.

Dunne says he has always believed in the power of change and transformation to succeed in business. “We’ve always looked to how we define the rules of the industry and changed the game as we go. We are architects of our own destiny.”

He reports to Matthew Key, former O2 CEO, who is now head of Telefonica in Europe. That allows Dunne a certain amount of autonomy as well as the scale leveraged by a company with 260 million customers across 24 countries.

This summer, Dunne travelled to Telefonica markets in Brazil, Argentina and Columbia to see how marketing was being executed but in many ways the UK, Telefonica’s third-largest market, is leading the way.

“The journey of the brand goes on. We have built trust with the customer in the way we deliver brand experiences; they see us as an experiential brand. That means they trust us that if we bring them something else, it will be something with real value,” he enthuses.

“We’ve always looked to how we define the rules of the industry and changed the game as we go. We are architects of our own destiny.” Ronan Dunne

The extent to which Dunne puts marketing at the heart of O2’s philosophy and operations is reflected in the answers he gives to the tougher questions.

When asked about rumours that O2 has placed its entire marketing department in redundancy consultation, Dunne doesn’t flinch. The consultation on a new structure with new positions started in September and will conclude at the end of this month, resulting in a loss of about 10% of the company’s marketing headcount.

“We’re in a fast moving business,” says Dunne. “If you’re customer-led, the changes you make are those that take you along with customers and keep you close to them.

“This is not about cost cutting – yes, the effect it has may change our cost base – but we only want to invest in things that customers value. That sometimes means shifting your cost base from area to area.”

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O2 partnerships

 

When Bon Jovi took to the stage for the first concert staged at new music and entertainment venue The O2 on 24 June 2007, it signalled the end of a miserable history for the exhibition centre Millennium Dome.

US leisure and entertainment group AEG had taken over the operation of the Dome and was looking for brands to partner with when O2 opened talks with it in 2004.

“The deal with AEG was a very big symbolic step for us in terms of being more than just a mobile brand,” says customer director Tim Sefton as he remembers the period of negotiations with AEG. “But we had already defined ourselves as a brand that could deliver great customer experiences. When AEG came knocking, we saw the opportunity to catapult a strategy we already had.”

Even from the beginning, the deal included priority tickets and reserved VIP accommodation for O2 customers. The “added value” typifies the approach the brand takes to its sponsorship deals, which include a partnership with the England Rugby Union team.

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O2 doesn’t use the word “sponsorship” internally, preferring instead the term “interactive partnership”. Ronan Dunne, CEO of O2 UK, claims this reflects the company’s use of its associations with outside events, suppliers, venues or brands to build customer relationships rather than vehicles for exposure.

“Ultimately, marketing is about customer relationships,” says Dunne. “An O2 customer’s relationship could be defined by their mobile contract or by their experience at The O2. We define and are accountable for the experience of our customers when they are on AEG’ premises – the fact that a lot of our customers think that we run The O2 or decide what gigs go on there is a positive for us.”

“It’s about far more than badging a property… Priority ticketing is one of our most successful propositions.”
Shadi Halliwell

Because O2 partnered with AEG from the beginning, the brand worked with AEG’s architects to shape the internal experiences. “We influenced the look, the feel and the design of The O2,” says Shadi Halliwell, head of brand communications. “It’s about far more than badging a property.”

One of the things discussed in early meetings when the opportunity to associate with the venue emerged was that O2 was keen not to just call it “The O2” and be done with it.

“There are lots of naming rights discussions occurring in football at the moment but it has to go further than just naming a venue. We wanted to give access to our customers, which is where priority ticketing comes from. Two years on, priority ticketing is one of our most successful propositions,” says Halliwell.

Shadi Halliwell

Shadi Halliwell

Halliwell describes how the concepts of engagement and relationships have seeped into the 13 Academy music venues that launched under O2 branding in February and will expand next year.

“We haven’t changed the layout of any of the venues, we’re not looking to disrupt or own music, but rather embrace it. The audience we’re talking to here is younger and perhaps a little more grassroots, ‘spit ’n’ grit’ in their love of music. But we have the O2 touches.”

By this, Halliwell is referring to photobooths in each Academy and digital picture frames along the walls of the venue, where the pictures fans have taken will appear during the gig as well as appearing immediately on the O2 Academy Facebook page.

Exclusive artist content, messages from the bands before the gig starts or video footage of them hanging out backstage is sent out to the audience via Bluetooth – 25% of gig goers currently receive this content. “This is what we mean by interactive partnerships,” says Halliwell. “We don’t just put our logo on beermats and walk away.”

How ‘stretchy’ is your brand?

What you need to know before entering new sectors

Offer something different

Ronan Dunne, CEO, O2: “I always ask ‘why will it be different when O2 does it?’ If we can’t explain the essence of why it will change the rules of the game, then we shouldn’t be doing it.”

Know what you want to achieve

Dunne: “We won’t buy a bank, we won’t run a hospital and we won’t try and run a school. We will bring what we can to the customer experience in the financial, healthcare and education spaces and make it different through the way we interact with the suppliers or the environment.”

Listen to customer advice

Sally Cowdry, marketing director, O2 UK: “Customers felt that because we have delivered in our core market we have the right to stretch our brand. But not in any sector we choose – we couldn’t start a car company, for example. We have the right to play in connectivity, in service brands and in entertainment.”

Be coherent

Tim Sefton, customer director, O2 UK: “We’re not doing what Virgin does, we’re not licensing our brand to unrelated businesses. We’re extending our business and strengthening relationships with customers. We’re not diversifying but innovating coherently to add service and value.”

Be prepared to fail

Cowdry: “We’re working in a beta environment when we move into new sectors, co-creating with customers, failing fast and moving on. We’ve adopted a ‘test and learn’ philosophy. You have to be prepared to fail.”

Get the right people involved

Cowdry: “You need people with the passion and energy to keep focusing on what is right for the customer. That’s more important than having pots of money to keep you afloat in case it goes wrong. We launched O2 in 2002 with none of Telefonica’s financial strength, but we had internal people who were passionate about succeeding with this brand.”

Don’t neglect your core business

Dunne: “Our right to bring great new experiences to customers is founded on us being a great communications company. That is what earns us the right to do the other stuff. That will always be the foundation on which our great relationships with our customers is built.”

O2’s marketing in numbers

8.6% – The response from a recent DM campaign executed on behalf of Fitness First by O2 Media, a service whereby mobile customers opt in to receive relevant offers and promotions from third-party advertisers.

64 – The number of teams that recently competed over three days in Newquay at one of O2’s eight regional “Scrum on a Beach” events for rugby fans up and down the UK. Teams register free then meet, train with and play against England rugby stars as part of O2’s England Rugby Union sponsorship.

15 – The number of people working on giffgaff, O2’s latest “people powered” mobile virtual network operator (MVNO), a SIM-only online service that offers monthly bills repaid to customers who help grow the business through new members or key decisions.

700,000 – The number of customers enjoying priority ticketing for live events. Priority members register their music and entertainment tastes online for the chance to claim tickets for gigs 48 hours before they go on general sale.

21 million – The number of O2 mobile customers in the UK, of which 10m are pay-as-you-go.

O2 essential facts

  • O2 has naming rights for The O2 venue in London, as well as identical venues in Berlin, Prague and Dublin, and 13 Academy music venues around the UK (partnerships with AEG and Live Nation).
  • The brand uses priority ticketing to text customers who register the type of music they like on the “blueroom” at O2.co.uk, offering tickets 48 hours before general release, plus VIP experiences and content.
  • O2 has sponsored the England Rugby Union team since 1995 and supports both the grassroots and professional game. O2 customers receive priority treatment at Twickenham and can receive a free pie, pint or programme and meet England players when they visit the “blueroom” in the West Car Park.
  • O2 Money offers two pre-paid credit cards in partnership with NatWest. One comes with a bank account and one without. O2 sends a text to the customer every time the card is used to help them keep abreast of spending.
  • O2 Media uses data to offer consumers the chance to opt in to receive relevant offers, promotions and information from third-party advertisers.
  • O2’s freestanding digital device The Joggler is marketed as the replacement for the fridge noticeboard as the organisational hub of the family home. It incorporates a calendar linked to home computer, digital radio, wi-fi and holds the schedule of every family member so it can send alerts of all events to mobile phones.
  • The brand’s home broadband service launched in 2007. O2 customers get financial benefits as an added incentive.
  • O2 also operates giffgaff, a SIM-only phone offering. Customers who attract more people to giffgaff or come up with successful business ideas for the operator are rewarded with free minutes and top up.

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