Preventing telecom brand commoditization in the digital age
Key Highlights Telecom operator brands are becoming increasingly
commoditizedin their core business, making it difficult to sustain
differentiatedpositioning Digital brands are emerging as direct
competitors to telecom operatorsin more and more segments as a
consequence of shifts in the digitalvalue chain Telecom operators
should focus on strengthening their brands in theaccess space to
sustain premium positioning and be recognized as thebest in class
in their core business Delta Partners propose a roadmap that starts
with strategic reflectionon the operators long-term business model
and its intended role in thevalue chain, cascading down to customer
experience definition andbrand strategyThe problem: Telecom brand
commoditization in the digital ageAre classic telecom brands still
relevant in the digital age? Definitely, but they have been unable
to keep pace with the constant market changes. Evidence? A glance
at the latest top 100 brands report from Interbrand reveals not a
single telecom brand in the list a consequence of the digital age
having shaped emerging culture and customer behavior drastically.
In order to remain viable and relevant, telecom operators need to
respond to these changes and continue playing a significant role in
the consumers decision-making process.
Marketing guru Philip Kotler once said, If you are not a brand,
you are a commodity. In todays competitive markets, the risk of
commoditization has never been greater. In this digital age,
telecom operators compete against an unprecedented volume of brands
for limited share of mind among consumers - and there is no room
for commodities.
However, certain warning signs are apparent that suggest that
telecom brands are slowly but surely becoming commoditized:Telecom
brands are becoming less relevant and meaningful to consumers. A
recent study performed with one of Delta Partners clients suggested
that telecom brands endure a much weaker positioning compared to
other consumer brands to the point that consumers would not care if
telecom brands disappeared. This is a consequence of customers
lower attachment to operators brands and their limited overall
relevance to consumers lives (See Exhibit 1).
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Telecom brands are becoming less differentiable. Telecom players
face increasing difficulty in creating distinct brand attributes
vis--vis their direct competitors. A comparison of the top two
telecom players in selected European, APAC and LATAM markets shows
minor or no statistically-relevant difference across brand
attributes (see Exhibit 2). Therefore, it is becoming increasingly
difficult to differentiate in the eyes of consumers.Telecom brands
are lagging behind in brand value creation versus digital players.
Delta Partners research into a clients customer base in key
developed markets demonstrated that digital brands outscored
telecom operators in the eyes of the consumer by a factor of four
in overall brand strength. This is further supported by the slower
growth of telecom brand valuations: between 2006 and 2013 the brand
value of the leading digital players increased at a 24% CAGR
compared to just 6% for telecom operators (see Exhibit 3).However,
one caveat needs to be factored into the three trends identified.
The degree and pace in which these trends are materializing is far
from homogenous across markets at different stages of maturity. In
developed markets these trends are already a reality, while in
developing markets only the first signs are starting to appear. As
a consequence, the top telecom brands1 in developed economies have
lost on average 10% of their value over the last two years.
However, the top telecom brands in emerging markets2 have done the
opposite, increasing their brand value by approximately
10%^3.Although these warning signs are indicative of poor branding
health, Delta Partners believes that branding is neither the only
solution nor the sole cause of the commoditization trend. The
overall definition of the business model and the delivery of the
value proposition to the consumer is the underlying cause. This
white paper therefore tackles the following key questions:
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What are the potential strategic options for an operator in the
digital space? What are the key levers that an operator can use to
prevent brand commoditization? How should an operator stretch its
existing access brand into the digital space? How suitable is the
current portfolio of brands to play in the digital space? Are new
brands needed? Under what brand architecture?
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Delta Partners five-step approach to prevent brand
commoditizationDefine your playing fieldThe first step involves
selecting the telecom operators role in the digital value chain.
Broadly speaking, there are three main roles that operators can
choose to pursue (See Exhibit 4): Access provider: Providing
connectivity both in voice and data across different technologies
Enabler: Interfacing, enabling and commercializing new digital
services leveraging the existing capabilities of the operator and
reselling these capabilities to third parties Services creator:
Exploring new digital business opportunities (content, apps and
services) beyond the telecom operators footprint, customer base and
touch-pointsThe business model will ultimately influence the value
proposition to customers and hence the branding strategy.
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Listen to your customer
The core asset of a brand is its ability to represent and
amplify a set of values and attributes that are intended by the
brand and sought by the customers. Accordingly, customers
expectations will serve as an appropriate starting point to
determine these intended brand attributes and focus of the customer
experience. For each role that a telecom operator can play, these
can be summarized as follows: As an access provider: Functionality
and service reliability are the key expectations from customers.
The brand will need to support these by building on attributes such
as reliability, quality and customer attention. In this model,
customer touch-points are entirely owned by the operatorAs an
enabler: Expectations will Differ significantly if addressing
business customers (B2B) or residential customers (B2C). In B2B,
customer expectations and hence the brand attributes will focus
mainly on functionality and customer service. In B2C, consumer
expectations will be more demanding as they will additionally seek
emotional and innovative attributes. This will require
incorporating a new set of attributes into brand equity that in
most cases are currently not (yet) owned by operators. In both
cases, the customer touch-points and hence brand delivery are still
entirely owned by the operator As a services creator: Expectations
are driven mainly by the emotional and innovation components of the
experience; brand attributes will therefore need to focus on
building emotion, innovation and performance equity into the brand.
In this model, the customer touch-points can be owned by the
telecom operator (e.g. proprietary apps sold via the operators app
store with direct billing and integrated customer care), but can
extend beyond the telecom operators control into the over-the-top
(OTT) market (e.g. OTT applications sold via third parties app
stores reaching customers beyond the telecom operators
footprint)Deliver on the promise in access provision by providing
impeccable and segmented customer experience providing access and
connectivity services remains the key customer promise for telecom
operators. Vodafones CEO Vittorio Colao recently pointed out that,
the threat of reducing the gap between operators to zero is real
and this is why I am making relevant investments in order to offer
a better customer experience than my competitors.4 Other operators
including Verizon in the US and Swisscom in Switzerland have moved
in the same direction over recent months. Hence, the priority is to
position their brand as the best-in-class access provider which
helps to further reinforce key functional attributes.To achieve
this brand promise, telecom operators need to distinguish
themselves from two key players: 1) other telecom operators by
offering better-quality access and connectivity services, and; 2)
digital players (e.g. VoIP and OTT) by mastering the fundamentals
of customer touch-points.With this objective, the traditional
customer journey analysis combined with competitive benchmarks can
help to shed light on this area. Three challenges, however, need to
be considered: Customer satisfaction assessments need to go beyond
the telecom industry. Measuring satisfaction evolution across the
customer journey against other telecom operator competitors might
be the wrong measure as customers now factor in other elements and
experiences. Recent research at a Delta Partners client showed an
inverse relationship betweenmarket sophistication and the general
level of consumer satisfaction with an operators service quality.
In other words, the customer satisfaction index in developing
markets exceeds developed markets by more than 15% on average. This
can be attributed to the more advanced digital landscape beyond the
traditional telecom industry and higher consumer sophistication and
hence expectations in developed markets New digital touch-points
have changed the formula to maximize brand equity. The advent of
the digital age has dramatically altered the overall customer
journey and relative importance of touch-points in driving customer
satisfaction. Currently, digital platforms make up 70% and 60% of
the most influential pre- and post-purchase touch-points
respectively. Operators need to have a deep understanding of the
new process, identify the key touch-points (digital and
traditional) and ensure differentiated delivery The importance and
relevance of customer touch-points and experience drivers varies
significantly based on customer segment, particularly in more
sophisticated markets. A tailored customer experience for each
segment is therefore required to maximize ROIC. This ensures that
the best quality of service is reserved for the highest-value
customers, instead of over-delivering across the customer base
(e.g. differentiated network quality, in-store shopping experience,
payment and delivery facilities, etc.)Build new brand attributes by
stretching brands into the digital spaceThose operators intending
to expand into the digital space will need to stretch their current
brands.Brand stretch involves taking the brand beyond its current
core space into new and untapped categories. Most telecom operators
have identified this need in order to meet customer demand, drive
growth and counteract the threat from OTTs.However, there are four
key success factors to consider when stretching the telecom
operator brand into the digital space: Operators will need to
nurture their brand equity with innovation supported by
breakthrough launches Only a handful of initiatives will have the
potential to stretch the telecom operators brand and will likely be
in the Enablement role. Innovations in the Services Creator role
are unlikely to carry the existing access brand given the
unconnected customer touch-pointsThe B2C space will need to produce
the silver bullet initiatives to stretch the brand. Innovations in
the B2B space are unlikely to escape the business segment, limiting
their potential for mainstream adoption Successful B2C initiatives
are likely to be in e-payments, M2M, music and video given their
greater chance of achieving the critical mass necessary to develop
the required brand attributes (Refer to our white paper Darwinism
in the Digital Age for more on this topic) Define an effective
go-to-market process. Telecom operators will also need to ensure
that innovation receives the appropriate level of focus. The main
challenges for operators to overcome are the frequent day-to-day
focus on short-term results (i.e. on the access business), the lack
of communication budget and varying realities across markets (only
for large groups with a multinational footprint) Exploit the
existing access brand. Stretching the existing brand equity avoids
the proliferation of new, non-strategic brands that will further
dilute the product portfolio. Selective launch of new brands should
therefore only be considered when there is a clear leadership
ambition in the category and the launch has the required resources
to be sustained over the short and medium-term (as detailed in the
next sub-chapter) Maximise equity transfer to the access brand.
Telecom operators need to ensure that new products are not launched
in isolation to avoid creating silos of brand equity and limiting
equity transfer between company brands. The new brand should
instead form part of an ecosystem that allows brand equity to be
fully exploited. For instance, Apples visual identity and i
presence in its productNomenclature is a powerful and simple tool
for catalysing an ecosystem of equity transfer between sub-brands
Selectively launch new digital brands
There will be cases, though, where the launch of new brands is
needed to complement telecom operators existing brand portfolios
and support new product launches or acquisitions in the Enablement
and Service Creator roles. This process, therefore, requires
stringent selection to filter out products and acquisitions that
may cause brand dilution or negative brand equity.There are three
potential branding models that operators can employ to launch a new
product: New brand - standalone: The new brand plays a primary role
without the presence of the access brand. This model conveys a
strong message of leadership ambition and innovation, allowing the
product to expand beyond the operators footprint and touch-points.
However, it requires a genuinely-innovative breakthrough,
significant resources to support the brand and will create limited
digital equity for the telecom operator brand. The launch of the
Libon communication app by Orange in 2012 is one such example of
the standalone model New brand - endorsed: The new brand plays a
primary role leaving the access brand as the endorser, albeit in a
secondary role. This model conveys a message of innovation and
leadership in the category that is transferred to the access
(mother) brand. This will, however, require significant resources,
transfer of brand equity from the telecom operator brand to the new
brand (which may not be desirable) and carries the risk of failure
which may backfire on the telecom operator brand. In the digital
space, the launch of Surface (endorsed by Microsoft) is one such
example of the endorsement model
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Line extension: The new brand plays a secondary role as the
product is launched as an extension of the existing access brand.
This model allows the creation of digital equity for the access
brand and requires few resources but has the limitation of sending
a message of no relevant innovation to the consumer. A good number
of the television ventures by telecom operators have followed this
model (e.g. Claro TV, Orange TV and T-Mobile TV)The different
models illustrated in Exhibit 5 can and probably will coexist in
organizations as the industry and need for different brands evolve.
Companies, and in this specific case telecom operators, will need
to manage increasing complexity across their brand portfolio.As a
reference point, in-depth analysis of the evolution of the brand
portfolio and architecture of digital players reveals huge
transformation of their business models and how their brands have
had to adapt.The brand portfolio and architecture of Microsoft is a
prime example of such huge transformation (See Exhibit 6). Although
the company started consistently with a traditional endorser model
(Microsoft Windows, Microsoft Excel, Microsoft Hotmail, etc.), it
has been forced to evolve over recent years to a company with
multiple examples across each brand model, given specific events:
App explosion: Demands brands that are neutral to the mobile
operating system (e.g. Hotmail) Expansion beyond software:
Necessitates brands that appeal to different needs and segments
(e.g. Xbox) Recent acquisitions: Requires protection and continuity
of acquired assets brand equity (e.g. Skype)
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Therefore, there are no clear rules to obey in selecting the
branding model and telecom operators continue to test the
suitability of each model for their portfolio. There are, however,
three considerations that will drive the final decision: Is the new
digital initiative commercialized via the operators touch-points
only or beyond?New and successful products serve as great tools to
transfer innovation equity to the access brand. Therefore,
launching products via endorsed brands or line extensions should be
a priority. The customer experience model and brand model, however,
must be clearly aligned to avoid inconsistencies along the customer
journey. For example, operators may choose to extend beyond their
traditional touch-points or customer base by launching OTT
products. In this case, the presence of an access brand might not
only limit the addressable market, but also generate customer
confusion (i.e. OTT customers calling the telecom operators contact
center or visiting its own shops) Is the new digital initiative
targeted at B2B or B2C?Depending on the segment addressed, the role
of the brand will differ according to the relevant customer
expectations. In B2B, the brand still needs to deliver a message of
innovation, but the components of reliability, quality and customer
attention remain the key drivers. Therefore, the equity of the
access brand will be required through an endorsed brand or line
extension. In contrast, innovation and emotion will be the key
drivers in a B2C context, where a stronger and more distinct brand
identity will be required Is there clear leadership ambition and
appropriate resources behind the brand?A new, standalone brand can
be the catalyst to achieve leadership in a specific category but
requires significant resources to support it. On the contrary, the
use of line extensions can provide a quick and efficient take-off
at the cost of limited longer-term potential. Operators will need
to factor in the opportunity ahead and the business plan in order
to optimize the model for each opportunity
ConclusionThe digital age is quickly changing players, positions
and perceptions. Telecom operator brands are becoming increasingly
commoditized in their core business, making it difficult to sustain
differentiated positioning. Meanwhile, digital brands are becoming
progressively stronger in the eyes of consumers and emerging as
direct competitors to telecom operators in more and more segments
as a consequence of shifts in the digital value chain.This white
paper is a call to action for operators to place branding at the
center of their strategic decisions in order to stay relevant in
the post-digital age. Telecom operators should focus on
strengthening their brands in the access space to sustain premium
positioning and be recognized as the best in class in their core
business. At the same time, they need to digitalize their brands
and build on the required attributes.However, while the symptoms
are related to the branding strategy, the underlying causes and
eventual solutions lie in the overall value proposition to the
consumer. Delta Partners proposes a five-step brand roadmap that
starts with strategic reflection on the operators long-term
business model and its intended role in the value chain. This
cascades down to customer experience definition and brand strategy,
namely the brand positioning and architecture. This approach can be
summarized as follows: Define your playing field. Clearly define
the operators strategy and role in the value chain: play solely as
an access provider; expand into enablement, or; become a services
creator to evolve into a true telecom operator 2.0 Listen to your
customer. Fully understand customer expectations across each role
to define the priorities for product, service and brand attributes
Deliver on the promise in access provision by providing impeccable
and segmented customer experience. Position the access brand as
best in class by mastering the fundamentals in a segmented fashion
to optimize customer experience and maximize ROIC Build new brand
attributes by stretching brands into the digital space. Nurture
existing brand equity with a solid array of innovative P&S,
maximize the go-to-market process to ensure that innovation reaches
end users; exploit the access brand when launching new digital
P&S, and; create a brand ecosystem that maximizes brand equity
transfers between brands Selectively launch new digital brands.
Select the optimal brand architecture on a case-by-case basis to
complement the existing portfolio with new brands to support
digital product launchesIt is paramount to understand that there is
no one-size-fits-all solution. The specific challenges that each
telecom operator faces in its own market require a customized
understanding of the current situation and development of the
strategic direction. Nonetheless, this five-step approach provides
a sound framework for telecom operators to avoid the looming
commodity trap in the post-digital age.