AO World: Building brand awareness is our ‘biggest opportunity’ for growth

Electrical retailer AO World is investing £15m in brand-building across its current financial year as it seeks to drive growth through increased awareness.

Electrical retailer AO World is shifting its marketing focus towards brand-building as it identifies driving awareness of what the brand represents as “one of [its] biggest opportunities” for growth.

The brand is scaling and stepping up its “operational excellence”, CEO and founder John Roberts told investors today (21 November).

“There’s a real value to being bigger and brilliant simultaneously, and those things compound over time,” Roberts said. “Brand awareness of that value remains one of our biggest opportunities.”

To this end, AO will invest £15m in brand-building marketing across its current financial year. The focus of this spending will be shifted away from direct acquisition activity and towards brand-focused investment. It will invest more in channels such as TV, and less in channels like pay-per-click and affiliate marketing.

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Spend on these more-performance oriented channels has fallen as a percentage of sales, the company said, while brand investment has increased “significantly”. As a percentage of revenue, advertising and marketing spend grew in AO’s first half of its financial year, ended 30 September. It represented 3.6% of revenue versus 3.2% in the same period last year.

Marketing spend did fall in monetary terms, from £17.7m in the first half of the last financial year, versus £17.4m this year.

AO saw its revenues drop 12% year-over-year in the first half, however, unlike the same period last year, it did deliver profit of £13m (versus a loss of £12m in the first half of last year). It upgraded its profit expectations for the full year from £28m to between £28-33m.

While the company is confident that increasing its brand-building spend will drive growth, Roberts emphasised to investors “the results of that will take time to fully materialise”.

He did note the company had already seen spontaneous brand awareness growth. It is now 10% higher than it was this time last year, and 20% higher than it was three years ago, he said.

He also expressed confidence in AO’s capability to drive repeat purchase. Around 11.6 million consumers have now transacted with the brand, he said, up 3.5 million from three years ago.

“This is very important because our difference isn’t what we do, it’s how we do it,” he said.

He cited the brand’s Trustpilot reviews as evidence of this. AO has almost 450,000 Trustpilot reviews, 93% of which are four- or five-star ratings. Competitors like Argos, John Lewis and Currys have significantly less, he noted, and have a lower proportion of high-scoring reviews.

“People forget what you tell them, but they remember how you made them feel,” he said, adding: “Our product purchase cycle isn’t the quickest, which means the saplings of the service seeds we plant today take time to grow into oak trees.”

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While AO claimed its quality is setting it apart from others, GlobalData notes it is losing UK market share and underperforming in the electricals market.

“This decline in market share is representative of AO’s difficult position within the UK electricals market as it faces competition from omnichannel retailers like Currys, whilst also experiencing price competition from up-and-coming online pure plays like Marks Electrical,” said GlobalData retail analyst Oliver Maddison.

“Where AO cannot compete with Currys is on its channel proposition. It should widen its range to capture a wider section of the market, and while it may be unwilling to compete on price with other online pure plays, it can strengthen and simplify its interest-free credit offering to make its price points more accessible to cash-strapped consumers.”

AO’s Roberts did cite its 500,000 finance account customers as another key driver of its “flywheel”. Revenue from these customers makes up around 10% of AO’s retail turnover, he said.