2009: O2 Brand Extension - Case Study

Snapshot

O2 undertook an imaginative brand extension into entertainment which increased customer loyalty and helped create the world’s most popular music venue.

Key insights

• O2 wanted to give its brand a more tangible feel and build closer customer relationships in a market notorious for churn.
• Although the decision to give its brand to what had been a national laughing stock — the Millennium Dome — was fraught with risk, partnering with a leading entertainment group made the venue world-famous for attracting big names.
• More importantly, it enabled O2 to forge close bonds with its customers through a variety of customer benefits, including special areas for customers at the arena and priority booking.

Summary

O2 is a UK leading provider of mobile and broadband services to consumers and businesses in the UK. Part of the Telefónica O2 Europe group, it was formed in 2001, following the demerger from British Telecom of its former mobile business, BT Wireless. Since the concept of turning mobile networks into brands first took hold in the early 1990s, operators have viewed brand extensions as a diversion from the job in hand: growing customer bases as quickly as possible.

Even as market penetration reached 120% (because of multiple SIM card ownership), brand extension continued to be an unexplored option. Instead, operators continued to focus on acquisition by luring customers from rival networks with ever
more attractive deals.

However, O2 recognised that a brand extension could play a role, but not in the conventional sense of delivering a new revenue stream. Instead, a brand extension could be used to create an asset that boosted core revenue streams through increased loyalty.

Forming a partnership with the owners of the much-derided Millennium Dome was both inspired but also very risky. The bet paid off hugely: by the end of 2008, the return on investment was 26:1. More importantly, The O2 has become the world’s most popular music venue.

Determined to be different

In 2007 the big six network operators — Vodafone, Orange, T-Mobile, 3, Virgin and O2 — spent a total of £256 million on advertising. It is estimated that over 50% of this was spent on direct advertising, mainly promoting the latest tariff and handset offers.

This was a market driven by the latest deals. Consequently, loyalty was hard to come by. Exacerbating this situation were two other factors. Firstly, the nature of mobile networks is their intangibility. This lack of physical presence made it hard to create brand affinity. Secondly, the most tangible representation of the brand-customer relationship was the payment. As any utility provider is aware, a relationship based on bill payment is not one that engenders loyalty.

To drive allegiance, the brand required a more tangible and visible presence. Yet O2 recognised that brand expression needed to be more than a simple badging exercise as per traditional brand sponsorship. What was needed was a true brand extension, which would enhance the customer experience and provide a rational and emotional reason to stay.

Alongside this condition sat the complex and ever more important issue of convergence between communication, technology, media and content. The convergence trend is perhaps best exemplified in the way music consumption has been transformed in recent years. Strengthening O2 credentials in this arena was therefore a key strategic opportunity.

Risking the odds

Back in 2006, in a prime location on the banks of the Thames, stood a giant empty structure which had been unused since its inglorious incarnation as the Millennium Dome. Even at its peak, the Millennium Dome had never achieved anything
close to popularity. Such were the connotations of the Dome that any form of revival seemed pure fantasy. Indeed, demolition seemed a real possibility.

But then along came a visionary partnership between two leading brands: O2 in telecommunications and Anschutz Entertainment Group (AEG) in entertainment. For its part, AEG was looking for a partner with a UK reputation and stature to assist
in its vision of creating a concert and entertainment venue not previously seen in Europe. At O2, a core team was convinced this partnership offered an opportunity to deliver a brand extension the like of which had never been seen before.

Unsurprisingly, this optimism was not universally shared. There were grave concerns that the Dome would tarnish O2’s hard-won reputation. The proposal had to go to the company’s board of directors before finally being given the green light.

In the end it was the high level of risk that helped clinch the deal. O2 realised that with both partners dependent on each other for success, this was a partnership that could be shaped to deliver beyond traditional expectations. In the three years before the venue was launched, both parties worked closely together. While AEG’s expertise lay in the venue’s content, O2 focused on ensuring the design reflected the enhanced customer experience that it sought to deliver.

By the time it was ready to be launched in July 2007, the venue boasted a 22,000-seat arena and a more intimate 2,000-seat concert hall, named ‘The IndigO2’. In addition, O2 designed exclusive customer spaces, including the Blueroom bar and the O2 Lounge, where access was granted through mobile bar codes. O2 also created ‘O2 Angels’, a team of people trained to greet and direct visitors.

All these contributions were a powerful demonstration of O2’s commitment to its customers at the venue. However, the O2 team also recognised that for the venue to truly drive loyalty, there was
a requirement for a powerful pre-arrival customer benefit.

Creating strong customer bonds

The Priority Ticket offer was thus developed to give O2 customers a very simple but extremely attractive benefit — the chance to buy concert tickets 48 hours before sale to the general public.

Beyond offering this VIP treatment, it would also create a dialogue with O2 customers while building a database of those interested in the Priority Ticket offer. Customers could register their music and entertainment preference through the O2 special phone line (an interactive set of menu options that a caller selected from the phone key pad for more information), or at the Blueroom site online.

Nor did the experience end when customers left the venue, as they could re-enter the Blueroom online after the event and download music, as well as watching exclusive interviews and streamed video.

Creatively turning a negative into a positive

Although now The O2 is an established part of the London landscape, at the beginning the proposed partnership had been steeped in scepticism and worried about failure. So the creative strategy behind the launch had to fulfil three key criteria:

• Ensure the name stuck and that “The O2” entered the nation’s vocabulary.
• Communicate that this was not a re-badging exercise. O2 was extending its brand into a new territory with real customer benefits – most importantly, Priority Tickets.
• Above all, create a sense of unassailable confidence that it would succeed.

The launch campaign focused on driving home the association between O2 and the venue through TV, outdoor and print advertising (Figure 1).

Because multiple messages had to be delivered, the advertising agency VCCP developed a communications plan to run across all media (Figure 2). For example, the outdoor and print campaigns forged a link between the new name and the iconic image of the white tent. The 30-second TV campaign was an opportunity to take the nation on a taster of the varied entertainment on offer at The O2 and communicate the Priority Ticket message.

A second phase of activity in late 2008 focused purely on driving home the customer benefit of Priority Ticketing through a multi-media campaign (Figure 3).

Winning on every front

By any reckoning The O2 has proved to be a phenomenal success, as the myriad of positive press articles have attested. However, this positive endorsement was never going to be sufficient. For a brand that had, until this point, lived in the ether, here was an opportunity to be touched, played with and talked to.

1. Customer participation

At its most basic level, this was a brand extension that needed to become a successful music venue. By December 2007, just seven months after launch, The O2 Arena had welcomed a staggering 1.4 million music lovers. The O2 is now the ‘world’s most popular venue’, selling more tickets that any other venue in the world and outperforming the legendary Madison Square Gardens and the new Wembley Arena. The magazine Music Week voted The O2 the arena of the year in 2008.

2. Customer interaction

The O2 database was equally successful: by the end of 2008 over one million O2 customers had signed up for Priority Ticketing. O2 also sold out its allocation for over 50 pre-sale events, giving in excess of 180,000 priority tickets to O2 customers.

Over the same time period there were over 100,000 entries for The O2 Blueroom competitions and 100,000 live music downloads. On average, SMS campaigns received a response rate of 4%, while email campaigns achieved a significant 15% response rate.

In fact, from the launch of The O2 until the end of 2007 over 900,000 unique visitors spent time on The O2 section of the Blueroom, which was developed by the agency AIS. There was thus massive uplift in customer engagement with the brand: three months post-launch there was a 263% uplift in pre-pay customers logging their music preferences.

3. Boosting brand perception

There were early indications that this success was having a measurable effect on perceptions of the O2 brand. Those aware of The O2 showed significantly more positive attitudes to the brand on nearly all attributes. What’s more, as Table 1 shows, the brand attributes most influenced by experience and awareness of The O2 were strategically relevant.

Table 1. Impact of The O2 on brand attributes 2007 Source: Millward Brown

Unprecedented return on investment

In order to assess the impact of The O2 on revenue, an econometric model was developed to look at the impact on customer loyalty. This showed an immediate but lasting impact on churn among the whole customer base. This equated to approximately 10% for post-pay customers and 20% for pre-pay. Without taking into account acquisitions generated, the model calculated a return on investment of 26:1 by the end of 2008.

Perhaps the greatest testament to the success of this brand extension is the roll-out of similar venues in other O2 markets. In September 2008 O2 World opened in Berlin, followed in December 2008 by the opening of The O2 in Dublin.