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

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.