Mark Ritson: Dial ‘m’ for murder of the mobile brands

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.

Ritson_thumbs_Down

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, 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.

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.

Latest from Marketing Week

NOT REGISTERED? IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now

THE BEST CONTENT

Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here