ADVERTISEMENT

Telecomeuppance: Telecoms Impending Brand Turmoil

By: Special Guest Author Michael Megalli, Group 1066
November 2007 Communication

Try this thought experiment. You are the CMO for a top telco. Your company’s portfolio includes the expected assortment of wireless and wireline data and voice services sold to both businesses and consumers. Despite a brand-building budget of a couple of billion dollars per year, brand favorability is declining. Your CEO is becoming very concerned about the negative trend, and he wants to see a three year plan to turn it around. Everything, he makes clear, is open to exploration.

It’s a near certainty that telecom’s top marketers are facing, or will soon face, a situation similar to the one outlined above. The leading telcos are facing the beginning of a brand crisis. AT&T, Verizon and Sprint Nextel are three of the nation’s top advertisers, spending a combined total of nearly $8 billion on advertising in 2006. And while their pockets are among the deepest, none has managed to build a top 100 brand (Interbrand).

It used to be that brands took decades to build and just as long to decline. Today’s market, however, is far more open to new brands, particularly brands that offer new kinds of value or address unmet needs. The telcos were quick to take advantage of this new brand reality, with brand launches such as Verizon and Cingular getting traction in the market shortly after their launches. However, the trend cuts both ways, and the telcos need to prepare for potential brand erosion.

At the core of every compelling value proposition lies real value. The most sophisticated marketing organizations have realized that they must take an active role in creating value rather than simply communicating it. Ironically the telcos have been too distracted by their costly war over market share to make this leap. The resulting brands are by products of multi-billion dollar advertising habits rather than any real customer affinity. You can beat customers over the head with the promise that their world is now seamless, but in the end no one will love you for it.

The weakness underlying telco brands is a business risk. As data networks become more ubiquitous and more robust, consumers will have more choice. This market reality is not too far away. Next January the FCC will auction off the 700 MHz frequency previously used for analog television broadcasts. The spectrum has enormous potential for high-speed mobile data and voice transmissions, and Google has announced its intention to bring a big bag of money to the table. One can assume that Apple and Microsoft are also weighing their options.

Should Google succeed in acquiring wireless spectrum, its marketers and engineers will need to redefine the telecommunications value proposition in the same way that they have for Internet search and advertising. With billions of dollars at stake, they will need to use the equity and trust of the Google brand and convince the market to think of them in a wholly new way; as a mobile applications and connectivity company. There are many pieces that need to fall into place before Google is a player in telecommunications, but it is certain that the telecommunications market a few years from now will have little resemblance to today’s market reality.

Brand value has become elastic and highly volatile. All this brings us back to our imaginary CMO who will need to think of ways to create real value for customers. Here are some of the key flash points where a marketer could find opportunities to up the ante from a brand perspective.

The Stores Retail stores are the telco’s most grievously underutilized asset.  Until now, telcos have used the stores purely as a sales channel, pushing the latest offers on phones and plans. The stores are staffed by people without the training or the incentives to build lasting customer relationships. The customer experience is reflected by this transactional, short-term thinking. Customers should have a reason to visit the stores even when they are not in the market for a new phone or a new plan. Instead the store itself can serve to help customers get the most out of their handset and their service with education on productivity tools, networking and applications.

Pricing – Like anything else that the telcos do, pricing is a form of communication. The pricing model (heavily subsidized handsets in exchange for customer commitments to long term contracts) is restrictive and anachronistic.  Similarly data pricing is confusing and lacks clarity. Some telcos have begun to address their pricing schemes. AT&T is leading the charge with interesting new pricing bundles that approximate cable “triple play” plans. However, there is a lot of room for improvement, particularly as the walls surrounding the “walled garden” begin to come down.

Developers, Developers, Developers – The telcos need to start thinking of themselves as a technology platform on which third party developers can create and deploy applications. By supporting developers with “virtual APIs” and creating marketplaces where applications can be promoted and sold, the telcos can enlist the creative energies of a much wider array of innovators. One can imagine a slew of possible applications including education, shopping, payments, health and social networking, to name a few. Trying to do everything alone is a thing of the past. The telcos have a clear path towards a much more open model of innovation.

Hardware – Other than the automobile, cellular handsets have become the preeminent model of consumer self-identification and expression. In the coming year, Apple’s game-changing iPhone will unleash a tidal wave of new handsets from a broad range of manufacturers. These handsets will come with powerful new technologies including faster processors, global positioning chips, video capabilities including video networking and access to high-speed 3G networks. Consumers will have a far greater degree of choice in handsets. And with choice will come complexity. In order to handle the number and variety of new handsets, telcos will need to open up their model to accommodate the influx of new phones and innovate in the ways that they connect consumers with the phone that’s right for them.

Brand Partnership– Brands have become much more associative than ever before; the value of one brand can be used in combination with other brands to create a whole greater than the sum of the parts. The telcos, particularly Sprint and Verizon, have had a toe in the water of private label branding with Mobile Virtual Network Operator (MVNOs). These have met with mixed success-some like ESPN and Amp’d have failed while others like Helio and Virgin Mobile have found their niche. Handset manufacturers now have the co-branding bug and LG’s Prada phone will soon be joined by an Armani phone from Samsung. Telcos need to realize that partner brands are a terrific platform for supporting the relevance of their brand among key market segments. With the fragmentation of the mass market, they have an unmatched opportunity to become a central player in this new brand universe.

It’s been 10 years since deregulation unleashed massive changes in the telecommunications business. The transformation that ensued was characterized by a combination of frenzied industry consolidation, unprecedented changes in technology and the entrance of new competitors, particularly the cable operators. And yet, despite all this change, telecommunications marketers seem to be going through the motions. Rather than meeting the challenge to drive innovation, they are content to continue deploying their massive media budgets in the service of paper tiger brands.

Rather than seeing their role as a defensive one-building an offering and a brand to lock in customers and protect their investment in telecommunications infrastructure-telecom marketers need to free themselves to innovate on brand-building and product and service development. The answer is not more advertising.



About the author

Michael Megalli, Partner at Group 1066, strategic branding and product innovation firm. Mr. Megalli works with a range of technology and financial services companies to help them more effectively bring products to market. He can be reached at megalli@group1066.com

group1066_logo
Wiglaf Highlights