2012: O2, Long-term Marketing Excellence - Case Study

O2’s ‘customer first’ strategy and innovative marketing has made it a major player in the competitive mobile phone network.

Key insights

• Since its transformation from BT Cellnet to O2 in 2002 the company’s philosophy of putting customers first has generated a stream of innovative marketing ideas.
• Its campaign a few years after launch to keep customers loyal set it apart from competitors suffering from increasing churn.
• Its sponsorship of what is the world’s most popular entertainment venue—The O2 arena—has given the brand global recognition.

Summary

O2 is a leading provider of mobile services and part of Telefónica Europe. Since its transformation from BT Cellnet in 2002, its strategy has been based on a single consistent principle: putting the customer first. It has been executed in ever more diverse and innovative responses to a changing market. Furthermore, O2 has maintained a dedication to measuring and isolating the effectiveness of its marketing.

This ‘customer’ first’ attitude has shaped everything, from product positioning to sponsorship to staff conferences. It has generated a stream of innovative ideas such as Pay & Go Wild tariff, bolt-ons and the free text and calls ‘Happy Hour’ promotion.

To incentivise customers to stay with the network, in 2005 O2 rolled out its ‘A world that revolves around you’ campaign, visualising the customer as both the centre of their own network and its own philosophy. More recently, O2 used its sponsorship of The O2 and O2 Academy venues to find innovative new ways to continue the strategy.

Throughout the years O2 has transformed its fortunes, taking and subsequently extending leadership over the competition across key brand and business metrics. Moreover, econometric analysis has repeatedly demonstrated the significant value to the brand delivered by the marketing communications with a return on investment (ROI) of up to 80:1.

From launch to leadership

In November 2001 mmO2 plc was demerged from BT plc, creating a wholly independent holding company. The UK brand, BT Cellnet, was relaunched as O2 in April 2002. It faced significant challenges, challenges that BT Cellnet had manifestly failed to tackle. The market had matured, penetration had plateaued and revenue growth was increasingly hard to come by, hampered by the difficulty of securing technical advantage. Differentiation had to come through marketing (Figures 1 and 2).

But the new brand faced extremely well-established competitors: Orange and Vodafone. BT Cellnet had enjoyed neither the presence of Vodafone nor the appealing image of Orange, lacking clear identity or forward momentum. O2 would also have to face the launch of two new brands, T-Mobile and 3. Struggling on all key metrics –new connections, total subscriber base, non-voice transactions, average revenue per user (ARPU) and revenue—it was hardly surprising that pundits weren’t optimistic about O2’s chances of success.

But O2 proved its cynics wrong, building a strong brand that, through total visual and strategic integration, turned around flagging business performance. The level of visual integration O2 achieved was impressive, consistent not just within campaigns, but across every brand touchpoint. This approach, still followed today, is epitomised by the internal mantra: ‘It only works if it all works’.

But from the start O2 was devised to be more than merely a new look. The relaunch represented a radical strategic departure from the fusty, technologyheavy days of BT Cellnet. Rather than a provider of mobile technology or a mobile visionary, O2 set out to become the most ‘enabling’ brand in the marketplace, existing to provide better ways the customer can work, play and communicate.

This ‘customer-first’ attitude shaped everything, from product positioning to sponsorship to staff conferences. It generated a stream of innovative ideas: Pay & Go Wild, bolt-ons and Happy Hour among others (Figures 3 and 4). While BT Cellnet had a conventional ‘manufacturer’ discount approach, with bolt-ons O2 created a new vocabulary of value in text messaging that was proprietary and more universally and emotionally appealing.

Making its mark

The results from this approach were remarkable. Where BT Cellnet suffered, O2 thrived. After just two years:

• O2 became the leading brand for both top-of-mind awareness and preference.
• Spontaneous advertising awareness rose rapidly to the level of its well-established competitors.
• All key business metrics improved: revenue, new connections, total subscribers, average revenue per user. Since launch, O2 was generating more than a million new connections per quarter.
• Based on advertising awareness per TVR, Millward Brown calculated that despite an actual share of voice of 14%, O2’s effective share of voice was 33%. In other words, O2 advertising was delivering more than double the value of competitors.

According to independent analysis from Accenture: “The O2 launch has been the most successful mobile brand launch that Accenture’s ROI group have seen. Based on numerous studies that we have conducted, the brand is rare in exceeding our most optimistic targets. The results are a testament to the potency of the brand identity and advertising creative.“ Econometric analysis isolated the impact of advertising and sponsorship, proving that it generated 4.1 million connections from April 2002 to December 2003, generating £493 million in additional margin for O2. This represented a return of 6.3:1 on the money invested, with the ultimate long-term payback reckoned at 62:1. Perhaps more importantly, the foundations had been set for long-term brand success.

Building on success

By the end of 2004 the market was changing again. Customers found themselves rewarded for changing network, not for loyalty. This was bad for operators. It eroded their own margins, paying money to retailers that could have been re-invested into service and created increased churn and higher acquisition costs. (During 2004, O2’s churn rose from 30% to 35%).

And it was not even much liked by customers, who could only obtain discounts at the inconvenience of frequently reviewing complex offers and changing operator. Unable to differentiate between brands offering little emotional attachment, customer satisfaction was sliding for all networks.

What was to be done? The pressure to attract new customers was difficult to resist. Simply substituting acquisition programmes for ‘loyalty’ deals would risk losing share, as other operators continued to offer ‘jam today’ rather than ‘jam tomorrow’.

Consumer research showed the way. O2 had made a good start in creating a relationship with its customers, but focusing on acquisitions rather than rewarding existing customers was problematic, not just practically but symbolically. It said: ‘We don’t really care about you.’

O2 needed to change, showing deep commitment to its own customers, backed up by deeds as well as words. It required:

• Operational improvements in service, including hiring extra customer service staff.
• A shift to rewarding loyalty not defection: offering the same deals to existing customers as well as new.
• Communicating the new strategy and rewards.

The consistent visual identity, a contrast to the often frenetic world around mobile phones, was still ideal for building emotional attachment. O2 would not make the mistake of Orange, which had launched with a powerful visual identity but later lost clarity and consistency. Instead, O2 needed to refresh the current identity to carry the new messages, for the first time speaking directly to existing customers.

Mounting a creative coup

The creative solution was: ’O2: A world that revolves around you’. This visualised the customer both as the centre of their own network and the centre of O2’s concern (Figure 5). As a result of the campaign, O2 became the leading UK brand in this sector:

• It amassed the largest user base.
• Churn fell while that of competitors rose.
• Fastest net acquisitions increased. Although targeting existing customers, the campaign had as strong an effect on new prepay connections as previous acquisition advertising.
• ARPU held up because, despite giving customers more rewards, the company retained high-value users.
• The strongest brand awareness and image metrics in the market, including consideration and satisfaction.

By strengthening brand affinity and successfully exiting the battle for acquisitions, O2 could pay less to retailers relative to competitors, investing in service and rewards of benefit to the brand.

Financial payback

All this immediately showed up on the bottom line: the earnings before interest, taxes, depreciation and amortisation (EBITDA) outperformed the market throughout 2005. Moreover, econometrics isolated the effectiveness of the marketing:

• One million disconnections were prevented by this campaign between April and December 2005.
• Over the next three to four years, reduced disconnections would repay the media budget 17 times over.
• New customers joining as a result of the campaign would, over their lifetime, generate margin to repay the media budget 18 times over. Longer-term, the total additional margin was expected to repay the media budget 63 times.

Retention and acquisitions effects produced a payback of 80:1. Share price grew and, in November 2005, O2’s board accepted Telefonica’s offer to buy the company for £18 billion, a testament to the brand and business value generated since launch.

Innovating from the front: from mobile brand to media brand

Within four years, O2 had become the leading mobile provider in the UK, with a reputation for putting customers first and an enviable track record for effective, consistent communications. Over the following years, as the communication world had become more diverse and fast-moving, this strategic and creative focus enabled O2 to maintain and stretch its leadership and expand successfully into new categories such as personal finance.

Rather than attempt to tell the whole story of these years, this case study focuses on one element that typifies the innovation and ambition O2 has brought to its communications and is perhaps the best evidence of the brand’s founding principles: the sponsorship of The O2 and Priority Tickets.

From white elephant to global star

It’s easy to forget now how the Millennium Dome was seen by the British public in 2007. Beset by controversy, after a year of use the building sat empty and neglected and was widely seen as an embarrassing waste of money. In fact, Anschutz Entertainment Group (AEG) was already planning to re-open it as a major entertainment venue and looking for a sponsor to buy the naming rights. Such was the reputation of the ‘Dome of Doom’ that there was little enthusiasm. But O2 saw the opportunity (Figure 6).

With the scale and ambition of the venture, the desire was to set a new standard for sponsorship activity. Strategically, it needed to be true to the O2 way of doing things:

• Put customers first: make a better experience for customers.
• Breathe not badge: demonstrate the difference the brand was making.
• Be accountable: bring a new standard of measurement to sponsorship.

Special service

Visiting The O2 highlights the results of this approach:

• While everyone has a great time, O2’s own customers are made to feel special. Before the visit they can register for Priority Tickets, on sale up to 48 hours before general release. This is a valued benefit when most concerts sell out (Figure 7).
• On arrival, customers are eligible for fast-track entry, special offers and access to exclusive zones: the Blueroom Bar and the O2 Lounge. ‘O2 Angels’ greet and direct visitors, while ‘O2 Gurus’ offer advice on getting more from your mobile. You can download music and explore new technology. After the event, you can visit the online Blueroom to watch new footage.

Today the O2 is undeniably the world’s most popular entertainment venue. It sold 2.35 million tickets in 2009, or 75% more than the next most popular venue.

The benefits of the sponsorship were significant. By the end of 2009:

• Awareness of The O2 (72%) and Priority Ticketing (64%) had reached very high levels.
• 1.5 million customers registered for Priority Tickets.
• O2 led the category for making a difference to the events it sponsored and association with music sponsorship, according to tracking studies.
• Those aware of and having experienced The O2 and Priority Tickets were significantly more likely to rate the brand highly across a range of attributes.
• Brand awareness, perception as the leading brand, consideration and recommendation scores have all increased to give O2 clear leadership.
• 2.6 million customers had been added since the launch of The O2, nearly double that of the nearest competitor Orange.
• O2 grew value market share to 30.9%, with revenue growth more than double that of the next most successful brand, Orange.

Peerless performance

Econometric modelling demonstrated that The O2 and Priority Tickets worked harder that any other campaigns at driving brand consideration and recommendation. They also delivered connections: the Priority campaign in Q4 2009 contributed nearly 12% of all connections.

The model enabled the company to quantify actual and projected impact of the activity on gross connections (Table 1).

This impact was in line with the strategy approach: badging a venue would not drive real business value. Only by putting customers first through Priority Tickets did the sponsorship really deliver at rates not seen since the momentous early days of the brand launch.

The contribution to profit to December 2009 based on incremental gross revenue was £279 million, giving an ROI of 6.3:1, with an expected ultimate contribution to profit of £639 million, giving an ROI of 14.5:1.

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