Dial 'm' for murder of the mobile brands
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Study a good bit of market research and it provides a veritable MBA in brand strategy. Last week, for example, uSwitch published the results from its May survey of 6,721 mobile phone users in the UK. The data presents some fascinating insights into the nature of brand extension and the dangers of supplying private label.
Let’s start with brand extension because the best overall performer in each of the pay-as-you-go and contract categories was an entrant from a different sector. In pay-as-you-go, Tesco trounced O2, Vodafone, T-Mobile and Orange for overall customer satisfaction. In the contract sub-category, Virgin enjoyed that success, finishing ahead of all the incumbent mobile phone players. It’s an extraordinary result.
The reason why Tesco and Virgin have triumphed in the mobile phone sector is a story in two parts. First, both Tesco and Virgin have strong core competencies in the areas of customer knowledge and customer service, while the dominant mobile phone brands have a specific deficit in these areas. Of course, the likes of Vodafone and T-Mobile like to boast that they are great marketers. But the reality is that as a sector in general, it is pretty crap at serving its customers well. Hence the entrance, and subsequent success, of Tesco and Virgin.
But the second part of the success story should not be underestimated. Both Virgin and Tesco have imminently stretchable brand equity. That means a combination of high general brand awareness and very positive and non-specific brand associations. Take Tesco’s core values of trying harder for customers, treating people as we like to be treated and its “every little helps” philosophy. There is no specific mention of grocery shopping anywhere in the list and as a result it’s an approach that, if applied to mobile phone networks, adds significant value to its offer.
It is a similar story at Virgin, which is widely perceived as being innovative, brilliant in service delivery, fun and offering value. You’ll note again that music retailing does not feature anywhere in the brand despite it being the original category from which Virgin emerged. The stretchable nature of the Virgin brand has, in the past, proven a double-edged sword. It has opened up access to markets such as airlines that have been phenomenally successful for the company. But it has also led it to enter categories where it found it very hard to make any money. I’d argue that any brand extension into cola, which Virgin did a decade ago, is moronic because between Coke, Pepsi and private label there is simply no money to be made. Just because your brand equity opens the door to a category does not mean you should necessarily walk through it.
In mobile phones, Virgin and Tesco have discovered a hugely profitable category dominated by big, dumb operations
In mobile phones, however, Virgin and Tesco have discovered a hugely profitable category dominated by big, dumb and relatively badly run operations - the holy grail of brand extension. Even better, the barriers to entry to these categories are very low. One might expect it would be quite tricky to set up a mobile phone network. But, of course, mobile phone operators lowered that barrier several years ago by agreeing to sell some of their excess network capacity to brand extension entrants. Tesco uses the O2 network, for example, while Virgin uses T-Mobile.
It’s really a private label strategy. With excess bandwidth available, both O2 and T-Mobile opted to sell some of it to low-priced competitors. Just like a national cereal manufacturer that has excess production lines and offers that capacity to supermarkets, the major mobile phone networks embarked on the dangerous game of being a brand in their own right and a seller of commodity network capacity too.
See Mark Ritson appear at The Annual, Marketing Week’s new conference on 29 September 2010 www.theannual.co.uk
We have 20 years of private label experience to tell us what happens next. First, you create a rod for your own back and help new entrants establish themselves in your market. Then, as they grow share and require more capacity you start to suffer from a peculiar form of strategic schizophrenia as you try to build a mobile phone brand with one hand while supplying commodity network space to your competitors with the other.
And there is one more fascinating insight in the uSwitch data. In the pay-as-you-go section of the survey, Virgin Mobile’s customers were significantly more satisfied with their network coverage (69%) versus T-Mobile’s customers (60%). That’s interesting because the two brands use exactly the same network so the coverage of both brands is identical. The disparity in satisfaction derives from the power of stronger brands to make customers perceive something in a more positive way. It’s not some voodoo subliminal implication of brand equity but rather a reminder than customers never make their decisions objectively. They view all products and services through a subjective lens and one of the things that can twist that lens towards a more positive assessment is the presence of brand equity.
Mark Ritson is an associate professor of marketing, an award-winning columnist and a consultant to some of the world’s biggest brands
For more information or to book your place at the Annual go to www.theannual.co.uk
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Readers' comments (11)
Simon | Thu, 26 Aug 2010 0:35 am
This has been coming for a long time. Brands with real customer insight and execution capability will continue to take out large chunks of share and make brand gains as long as the incumbents fail to understand the business of managing customers and I dont meant CRM. Brands like Virgin and Tesco live and breathe relationships and trust. Sadly incumbents have laid the groundwork for their own demise and by not addressing the huge operational demands that sit on their backs and freeing up time to get close to customers. Add to this the pursuit of random wholesale strategies with little regard for the core brand and it makes for a lot of blood in the water, and Tesco is never far away ;-) Throw in the threat from Apple and Google (whose intentions we are only just beginning to understand) et al and its probably time to get out of running infrastructure whilst pretending to be bleeding edge consumer brands. The real brands are already doing it buy renting not buying....
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Keith | Thu, 26 Aug 2010 10:52 am
More confirmation of the difference between product(ion) thinking and brand thinking. Having spent 10 minutes in an o2 store yesterday without even being acknowledged (before walking out again) I'm not surprised. If the global carriers end up being little more than white label suppliers to brands who really understand and commit to their consumers, then it's their own fault. Like you say, Mark, there are plenty of years' experience in other sectors to learn from
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Stuart Russell | Thu, 26 Aug 2010 2:39 pm
Virgin is a really interesting brand insofar as the successes have been successful and the mistakes (Virgin Cola, Brides, Vie, Vodka, Cars, Vision, Jeans, Blue, et al) have all been strangled soon after birth and never spoken of again. Remarkable how the failures arguably outnumber the successes and yet Branson's personal brand equity still remains high...
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David Lundholm | Thu, 26 Aug 2010 4:20 pm
Mark, I actually want to stick up for O2 here. At least on the implication that they are rubbish at customer service. My home (in South Bucks, 20 miles from London so hardly a rural idyll) has a weak or no signal for everyone but O2 so we all have O2 phones. Every time I've had to report issues, such as kids' lost phones, transferring numbers, account or bill queries, I've had professional "one call and done" service from O2. And they reply to emails quickly as well.
You make a great case about the strategy of letting other strong consumer brands brand -extend into the telcos' core business - but in my sample of one experience, not every mobile company is the same.
And yes, I have had Orange, Virgin and Tesco phones before and experiences, albeit now some years old, with their contact centres.
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alison meldrum | Thu, 26 Aug 2010 5:05 pm
That would be 'eminently' stretchable brand equity, I believe..otherwise, great post
Best.A. Pedant
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mark ritson | Thu, 26 Aug 2010 10:46 pm
Alison alas is right. When I read my column this week I realized it was 'imminently' flawed in that someone would eventually spot my mistake. Should have just wrote 'very' instead.
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Carlos Correa | Mon, 30 Aug 2010 2:52 am
Impressive Mark. I wonder what would be the brand extension boundaries for private labels brands with strong brand equity and consumers knowledge in the mass consumption market. Still there is a lot to do here in Australia.
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Anonymous | Tue, 31 Aug 2010 11:51 am
I find this very simplistic. Of course mobile brands are relatively weak/undifferentiated but in my opinion this article doesn't get into the true reasons why.
If Tesco & Virgin are so mega successful in mobile and against the 'dumb incumbents' please can you explain :
1) Why has Virgin's mobile customer base been declining and Tesco's mobile customer base been largely flat for the last few years? Surely not consumer apathy with their 'me too' propositions?
2) Where is the evidence that Tesco & Virgin and making superior profits in mobile to the 'dumb incumbents' as you claim?
Virgin are the kings of low value prepay customers and Tesco mobile - while successful - is actually a JV with O2 (so the dumb incumbent shares 50% of profits).
3) Where's the evidence that mobile brands are continuing to go down the private label route in a big way?
My reading is that the private label market has stalled in the UK because mobile operators no longer have surplus capacity - because of rising mobile data usage.
Cheers.
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Anonymous | Tue, 31 Aug 2010 3:54 pm
I tried to buy a mobile phone in Tesco yesterday. When we eventually found someone (from the mobile dept) they were totally clueless about phones. At least Orange et al know what they are talking about and can give you the answers you need. Tesco is overrated for staff service, in store at least, unless it's just the stores I've been in. Clubcard is a great concept, but I still don't get very personalised communications. And Virgin scores poorly on customer service in its broadband operation. So is it really about good service or the perception of good service?
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Kieran Kilmartin, Portrait Software | Fri, 3 Sep 2010 9:06 am
With brands such as Tesco and Virgin successfully entering the mobile market, it is important to recognise how they have managed to establish positive perceptions in the minds of customers – through trust.
Gaining customers’ trust is not something that can be done overnight and both Tesco and Virgin have had substantially more experience in this field compared to their relatively young mobile competitors. For Tesco and Virgin, decades of delivering high levels of customer service has enabled them to build strong relationships with customers who in turn expect that they will experience the same levels of service in whatever industries these brands enter – a substantial competitive advantage.
Building trust takes time, which is a luxury that the established mobile operators do not have. As such, it is critical that they ensure all interactions with customers are as relevant and rewarding as possible and the use of insight-driven technology will enable operators to intelligently make the right offers and marketing approaches to their customer base. Not only will this increased relevancy help to foster a relationship built on trust, but it will help to realign customers’ expectations and therefore help to negate issues such as the perceived network satisfaction gap that you’ve highlighted.
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