Events & presentations

21/11/2006

Speech to the Marketing Society

‘The key reasons why Cellnet valued at £6 billion grew into O2 worth £18 billion’

Good morning ladies and gentlemen.

I’m a regular reader of the Financial Times and so I know that it’s not often that the paper gets a story wrong. In October 2001, however, they did.

Under the heading, ‘Investors hope BT’s problem child can make it alone’, they ran a story about the demerger of BT Cellnet and the launch of O2. It included the following:

‘…despite the inevitable protests from anxious investors and unions, there are plenty of reasons why the timing of this separation might not prove as much of a hindrance as its much derided name – mmO2.’

Yes, they got it wrong – seriously wrong. The problem child turned out to be a child prodigy and far from being a hindrance, the O2 brand – just over four years later - added £5 billion to the company’s value.

At the time of the demerger, all of our operations were having a tough time, with our largest - BT Cellnet - a poor third or fourth in the UK, and the whole business was valued at £6 billion. Earlier this year Telefonica bought O2 for £18 billion – making it the second largest cash acquisition of any company ever in Europe.

Telefonica wasn’t just interested in our customer base – it wanted the O2 brand and was prepared to pay serious money for it. The price it paid for O2 was over £5 billion more than the book value of the company’s assets.

But for me one of the most rewarding things about the story is that all this was achieved without any – I repeat – without any increase in our marketing spend.
So, anyone here who was hoping I would help provide a case for increasing their marketing budget will be disappointed!

Before we launched I told the investment community that we would spend no more on our launch than our normal budget. As you can imagine it was music to their ears – but it wasn’t so well received by our marketers. They were shocked and disappointed.

Once they had got over it – and it didn’t take long - they rose to the challenge and created one of today’s most successful and valuable brands – on budget and on time.

The achievement was all the more remarkable because of what was going on in the market place. Orange and Vodafone were both well established and investing heavily in marketing. One2One was relaunched as T-Mobile at the same as we launched O2 and the launch of 3 was soon to follow.

So, there was a lot happening – and a lot of money being thrown at competitor marketing.

If we were going to have any chance of taking on the big boys, we were going to have to punch hard and above our weight.
 
I want to share with you today the story of how we did that – how the O2 brand came into being – and what challenges it now faces.

So, let me start with the idea behind the brand.

As a result of the demerger from BT, we inherited four separate brands – Viag Interkom in Germany; Telfort in Holland; ESAT Digifone in Ireland and, of course, BT Cellnet in the UK.

All four brands were well established in their own markets and so the easy decision would have been to stick with them. It certainly would have been a more popular decision within the company.

But we knew a fresh start was needed so we decided to change and merge the branding into one.

The big question of course was what the branding should be.

Like a lot of great ideas, the O2 concept only came about very late in the day.

We were running out of time to launch without creative that worked so at the last minute took a big gamble and switched to vccp – a relatively unknown young agency at the time.

For us, it was simple. Customers were our future so they – rather than our products – had to be at the heart of everything we did.

At the time the market had started to mature making revenue growth increasingly hard. With more and more people owning mobile phones, growth had to come either from enticing customers away from competitors or by encouraging the usage of non-voice services and reducing churn through increased loyalty.

Our research showed that people thought of their mobiles as essential for life – just as you need oxygen to breathe. They weren’t interested in the technology but what the technology could do for them.

Rather than being a provider of mobile technology we set out to become an enabling brand. Our purpose was to provide more ways for customers to work, play and communicate.

Our first advertisements didn’t even show a handset. Instead, we conjured up the magic of the mobile experience. We wanted to excite people about the enabling power of mobile – as our advertising said, ‘O2 – see what you can do’.

In stark contrast, our competitors were focusing on technology and pricing.

The success of the O2 branding is that it’s not about individual products and services. It’s about a lifestyle that O2 can offer.

It was a fresh approach. The market had always been technology led and products had been promoted as technical gizmos.

So, when BT Cellnet promoted WAP – a new technology linking mobile phones to the internet – it took a typical manufacturer led approach. Customers were told to ‘surf the net, surf BT Cellnet’. Instead of leading with a customer benefit, it led with a technological capability. Not surprisingly, customers largely rejected it.

When we launched MMS - picture messaging - the communication was benefit led. We wanted people to see it as simply another form of social interaction – rather than a new technology. Customers were invited to take part in this new aspect of social culture and ‘invent their own language’.

But in order for a brand to achieve its full potential it has to be true to itself. You need a ‘belief system’ which creates a real common purpose and sense of direction.

Great branding isn’t about the brief to the advertising agency or a quick lick of paint here or there. It’s about everything you do – the way people behave, pick up the phone and develop new products and services. A brand has to match your customers’ – and your employees’ – expectations, at every touch point.

The values that the O2 brand stands for are bold, open, trusted and clear. Those are the values that we as a company try to live and breathe each and every day.  On joining O2 every new employee has to sign up to them and is expected to remain committed to them.

We also make sure that our customers’ experience lives up to the brand promise.

We have invested heavily in our customers – whether it’s improving our operations, the network, point of sale, the retail experience or after sales customer care.

Our pricing is clear and fair. Our products are reliable. And our customers know that when they come to us they’ll get a great experience – first time, every time.

Our approach to 3G is a very good example. We were not prepared to use our customers as guinea pigs.

Our competitors rushed in so that they could be the first. The launch of 3, for example, promised customers a whole range of 3G services that were before their time. The technology wasn’t ready – neither was the market.

We decided to take our time – to make sure we got it right before we offered it to our customers.

Deciding not to be first was a bold decision. We were prepared to be different because we believed it was in the best interest of our customers. And it was.

And that certainly wasn’t the first or last time we’ve shown our challenger mentality and been prepared to buck the trend. In order to remain true to our brand values we need to be bold and dynamic.

So, we’ll throw our weight behind new ventures we believe in.

Take Big Brother. Sponsoring what was a new concept in TV programming was a risk. But we liked the idea and took the risk. The risk paid off - by the end of the fourth series, 78% of 16-34 year olds spontaneously cited O2 as the sponsor of Big Brother.

The O2 was another bold decision because the Millennium Dome had become something of a white elephant. But believe me – it’s going to become one of the most exciting entertainment venues anywhere and we’re going to be an integral part of it.

Physical events and sponsorship are important because they help build customer relationships and encourage customer loyalty to the brand.

The O2 and the O2 Wireless Festival are the physical manifestations of the O2 brand. The O2 Wireless Festival had sell out crowds this summer and rave reviews.

The O2 opens next summer and will provide great customer VIP treatment on a massive scale. Once again we will make sure that everything we do matches the expectations of the brand.

With most relationships, the more you put into them the more you get out of them. It’s the same with our customer relationships. We are constantly investing in our customers with loyalty schemes and interactive partnerships which give them something extra back. Loyal customers are rewarded, for instance, with special O2 Treats or free music downloads.

The move from brand awareness to brand affinity is an important one. With more mobile phones in the UK now than people, growth depends on keeping customers and increasing usage. Customer loyalty and trust are therefore critical.

The success of the O2 brand has been – and continues to be – phenomenal. We now have over 37 million customers across Europe.

We have taken over the number one brand spot from Vodafone in the UK. Young people – who are the real momentum behind future growth – when asked spontaneously to name an operator, put O2 right out in front with 78%. And when asked which network a user would consider when purchasing mobile services, O2 has gone from fourth position in October 2002 to number one today.

But it’s when you look at our marketing spend that you realize the full value of the O2 brand. The power of the O2 brand is such that we can get more for our bucks. We spend, for instance, half the amount as Orange on marketing but it gets us the same effective share of voice. More music for the ears of our investors!

O2’s clear brand values along with our focus on customers, have successfully set us apart from our competitors. We’re now out there in front.

That brings me on to the challenges we – and the brand – now face moving forward.

The first challenge is that of being market leader.

It’s tough at the top. As you get bigger there is more pressure to conform. Expectations are high and you’ve got to live up to them.

We’ve become the establishment which is at odds with our challenger mentality. People often say it’s easier to be in opposition than government – I can now see why.

Being at the top can lead to complacency. You start believing your own press. And once you do that it’s a downward spiral.

For our brand to be true – and for us to continue to lead the market - we have to stay fresh. We mustn’t conform. We need to raise our game and continue to be bold in what we do.

And we must never underestimate the competition.

This last point is critical because in this new converging market we’re facing a new type of competitor - the communication super brand. Our competitors aren’t as obvious as they once were – we need to look further a field than the other network operators.

What we are seeing is the coming together of the worlds of telecommunications – mobile and fixed –with the worlds of PC’s, internet and entertainment. The exciting thing from our point of view is that they are coming together – or converging – into one space – our space – mobile space.

We need to stay alert and true to our brand because this new breed of communication superbrands are hungry, keen and have a habit of appearing like magic from nowhere.

Look at YouTube – it started in somebody’s garage and 18 months later was sold to Google for a staggering £900 million. Sky, MSN, Carphone Warehouse, Nokia, and iPod are all other successful communication super brands.

We need to be true to our brand and think outside the box. In this digital world where the customer is king, we have to look at everyone in a new light. Competitors might be potential partners. We need to ask ourselves whether there are ways that we can work together in new and exciting partnerships.

The answer of course is yes. Partnerships are the way forward and we’re already seeing new partnerships form as everyone converges into the mobile space.

The second challenge is the need to be trusted and act responsibly – not only so that we can build up customer loyalty but to avoid abdicating influence to regulators.

As an industry we have proved that we can act responsibly in matters such as adult content, child protection and personal safety. We need to continue to build trust so that we have the freedom to develop the market in the way our customers want.

I am proud, therefore, that the O2 brand is regarded by consumers as the most trustworthy and reliable network operator. We will continue to do everything we can to build on this trust.

But the biggest challenge facing the O2 brand is whether it can stay relevant as we grow in the communications and entertainment market – and in new geographical markets.

Because the O2 brand represents a set of desirable qualities rather than capabilities it has great stretch potential. Our values all have universal appeal.

Telefonica rather than imposing its own identity onto the business, is actually replacing all its existing branding in Europe outside Spain with the O2 brand. With Telefonica the O2 brand isn’t being swallowed up – it’s growing fast.

Telefonica O2 Czech Republic now offers all its services under the O2 brand. The company recently underwent a complete make-over which involved rebranding 26,000 pay phones, 3,400 vehicles, the exteriors and interiors of hundreds of shops and buildings, employee uniforms and id cards, as well as logos on the displays of mobile phones.

With the new branding will come improvements to customer care and support through a single contact number and internet address. In addition, all shops will be unified under the O2 brand and soon customers will be able to choose the option of receiving a unified bill for mobile and fixed services.

The Telefonica approach is very different to the one taken by France Telecom when it bought Orange, or to Deutsche Telecom when it took over One-to-One. Orange and One-to-One – both very successful brands – have lost the momentum they once had.

In Telefonica’s case they recognized the true value of the O2 brand – were prepared to pay the price for it, and having paid that price wanted to leverage maximum value from it.

The ‘stretch’ value of our brand provides us with enormous opportunities in the new digital age.

The mobile phone has become the ultimate mass consumer product – there are now over 2.5 billion mobile phones and customers are signing up at a rate of 1,000 per minute.

But it’s not just a numbers game. There have been huge cultural changes. In the UK, a recent YouGov survey sponsored by Carphone Warehouse, showed how mobiles have become essential to people’s lives. 92% of mobile phone users can’t get through a typical day without using it; 90% take it everywhere and 5% would rather lose their job than give up their mobile phone.

As customers become more dependent on mobiles, they expect more from them. They want to be able to do everything they do in a fixed world in a mobile one. They want all the content and entertainment of the digital world, any time, any where – whether it’s coming home from work, out shopping or visiting friends.

For our customers O2 offers them all these opportunities. It’s not just a brand. It’s not just a mobile phone. It’s a mobile lifestyle where anything you want to be done, can be done.

The concept of an O2 lifestyle is so clear in people’s mind that when we asked a research group what they thought an O2 hotel would look like, they could tell us immediately.

An O2 hotel would be a calm oasis. It would be slightly Zen in character with lots of relaxing massages and plenty of fruit smoothies and caffe lattes. The décor would be blue with the occasional bubbles here and there.

We’re not planning to diversify into hotels – well not yet at least – but when we do our customers clearly know what to expect!

I started off by talking about how Cellnet valued at £6 billion grew to become O2 worth £18 billion.

I want to end by saying that the best is yet to come. The real value of O2 is yet to be realized.

The universal quality of the brand means that it’s not restricted by anything. As long as we keep on nurturing the brand – and remaining true to it – O2 can become as big as our ambition.

So, to me the question now is not so much what O2 can do – but what can’t the O2 brand do?

Back to list