As Phones4U illustrates, a direct connection with customers is your lifeline

‘We are only three phone calls away from disaster.’ It’s a phrase used by Nigel Bogle, founder of BBH, to ensure his agency never gets complacent. But it’s not only ad agencies that have a precarious business model.

Ruth Mortimer

Retailer Phones4U had its three calls this week. It has been placed into administration after EE ended its contract last Friday. Vodafone did the same earlier this month, while O2 cut ties last year.

But how could the brand, which has its future at stake with stores shut and website offline, fail? It was only two months ago that the retailer launched a multimillion-pound campaign, created by Marketing Week and Cannes’ agency of the year Adam&EveDDB, which focused on the knowledge of its staff, rather than generic price and product messages. Phones 4U’s business remains profitable – claiming current profits of more than £100m – and yet the brand’s entire existence is now in question.

It comes back to that most precious resource: the relationship with the customer. EE claims its decision was “driven by developments in the marketplace that have called into question the long-term viability of the Phones 4U business.”

What are these long-term developments? For me, the biggest change is the operator brands waking up to the need to own the customer relationship. The mobile phone market’s route to more profitability for the operators is to dominate the sales process.

It’s an interesting moment, where the brand owners hold the power; they are cutting out third parties and retailers to take the entire route-to-consumer for themselves. It’s the opposite situation in the supermarket sector, where retailers control the consumer relationship. Brands are often forced to pay enormous levies to supermarkets to contribute to marketing and sales materials featuring their products.

The founder of Phones 4U, John Cauldwell, has condemned the operators for their “ruthless actions” and “predatory” behaviour. He has gone as far as calling the decision an “unprecedented assassination”, even claiming that he suspects that the operators have colluded to remove competition, although he has no evidence. Cauldwell’s claims are strongly denied by the operators.

The situation is awful for anyone who works for Phones 4U, its staff and suppliers who may be affected by the administration. But business is about survival of the fittest, fastest and most ruthless. And in 2014, it’s also about the relationship with the customer. Unless you’re steering that relationship, perhaps you’re not even three calls from disaster.

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