O2 Marketing Analysis

The importance of evolving solid marketing drive in companies has been underlined by the need to gain appreciable market share and competitive advantage for its products. Jobber (2007) stated that since customers cannot be chased at whatever price, good marketing and differentiation plans and implementations will be the core elements that would separate the products and by extension, attract worthy patronage that would assure a business of substantial and consistent profitability in the course of its trade in the industry.

O2 Network, a telecommunication company is one of the main competitors of the UK telecoms industry that needs to evolve workable marketing strategies to gain competitive advantage in the highly competitive telecoms market. The telecoms industry is such a sophisticated one that employs technological innovations in rendering its services and surviving the market. This report will examine the marketing strategies of O2 with the aim of determining the durability of its plans, strategic positioning and future directions.

COMPANY BACKGROUND.

O2 one of the leading providers of mobile and broadband services to businesses and individuals in the UK was established in 2001 as a result of the splitting of British Telecoms from its mobile services arm, BT wireless (Company Website, 2010: http://www.o2.co.uk/abouto2/history) . After the demerger, O2 was eventually bought by the Spanish telecommunication giant Telefonia in 2006. At present, Telefonia 02 UK offers mobile and fixed line broadband service across its territories. The company ranks among the leaders in non-voice services, including text, media messaging, games, music and video, as well as data connections via GPRS, HSDPA, 3G and WLAN (Company website, 2010).

O2 UK is currently a part of the Telefónica O2 Europe group which includes integrated fixed/mobile businesses in the UK, Slovakia, Ireland, the Czech Republic and Germany – all of which use ‘O2’ as their consumer brand. Also, O2 has established the Tesco Mobile joint venture business in the UK and Ireland, in addition to the Tchibo Mobilfunk joint venture in Germany. O2 is a wholly-owned subsidiary of Telefónica S.A.

Company’s Mission Statement:

The mission statement of Telefonia 02 UK encompasses its main essence of doing business which is to ensure that their customers make the most of their services in terms of patronage and utility, this of course would be met by satisfying the customer needs. The commitment to acquiring and retaining customer loyalty is aimed at ensuring more business responsiveness. Finally, from a larger scope, the company seeks to be positioned as an integral telecommunication group, where the commitment and responsibility line is at par with the stakeholders.

Company’s Logo:

Company’s logo is part of the fundamental elements that makes up for the identification of the company also referred to as branding. O2 has a very unique brand that makes it easily identifiable amongst other players in the industry.

Fig. 1: Logo used for Logo used for communication General O2 Logo.

Communication with institutions with consumers

O2 has been able to establish itself as a brand with these logos and it has enabled its easy recognition on all products and services offered by the company.

Business Objectives of O2

The core business objective of O2 is to seek continuous development of core business units, in order to attain and sustain competitive advantage. This is based on the desire to increase sales revenue from derived sources; like the business to business (B2B) and business to customer (B2C), in addition to deriving customers’ loyalty. Consequent upon the business targets for the year 2009, O2 has their objectives set on;

Increasing awareness and access to Telefonia 02 UK products and services, among groups that patronizes and derives satisfaction from mobile internet technologies and also the groups of people that are digitally reluctant.

Raising accessibility in terms of range of available products and services.

Empower organisation’s employee towards voluntary community support.

ORGANIZATION ORIENTATION

All businesses are bound to have an orientation or philosophy that guides and dictates the focus of the establishment and how it will go about doing its business within the industry and market (Aaker, 2004). There are three main orientations from which business may select which one to adopt. These are: Marketing, Production and Sale or financial orientations. All these orientations are founded on the approaches employed by various companies to carry out their business activities and what informs their marketing strategies.

Productions Orientation: The production orientation is manifested in businesses in two ways. First, the management of the will become cost focused, taking cost as the central point of its job in order to attain economies of scale by producing limited range of products in a manner that minimises cost of production (Jobber, 2007). In the second way, production orientation can be revealed in the belief held by management that the business should be defined along the lines of production facilities. Example of this is film companies that define their business in terms of the films they produce.

Figure 2: Diagram of the Production Orientation

PRODUCTION

MANUFACTURE

AGGRESSIVE

CUSTOMER

Sales or Financial Orientation: Beside the production orientation, another prominent philosophy that guides business marketing is the sales or financial orientation. Companies that are sales oriented usually focus on short-term returns, hinging their management decisions more on financial ratios than customer value. Also, sales oriented companies lay more emphasis on sales push rather than the adaptation to customer desires.

Marketing Orientation: In its case, marketing orientation focus on the need of the customer. Companies that are marketing oriented beliefs that change is imminent and the survival of the business is consequent upon its ability to adapt to changes. For these companies products and services are developed to meet with the needs and expectations of the customers and also these companies are very sensitive to the changing needs of the customers.

MARKETING ORIENTATION OF

For Telefonia 02 UK, market orientation is of very big strategic importance in its business operations. This it does by taking customer factor into account rather than just the current products, they do set a clear direction for themselves. They have considered appropriately, measures that steps towards 3G market-driven technology for faster, better deliverable mobile data service. This operational success has bought about an action portal that currently provides innovative contents for customers. In the same vein, the Apple Company established an exclusive two year deal with O2 for the launch of 3G iphone in UK and Ireland to redefine what are achievable on mobile phones.

Customer service is of paramount interest at 02, for instance, any product that falls beyond the required standard normally flags off the initiation process for a new action plan, followed by another re-survey. As a result of continuously improvement, the customer service process now includes a new self-service bill tools on the company’s website.

At present, many companies offer some kind of reward scheme, for example Tesco has its reward scheme as programmed on its clubcards points reward plan, so does many companies. Reward schemes have been highly successful in understanding market orientation. The then 02 UK director, Peter Rampling wanted to apply a similar scheme which was sub sequentially launched in October, 2008.

Figure 3. A Diagram representing the marketing orientation of O2 Telefonia.

CUSTOMER NEEDS.

Quality telephony, high speed web browsing

POTENTIAL MARKET OPPOTUNITIES.

Developing m-commerce in relation to social networking,

Gaming, entertainment

MARKETING PRODUCTS AND SERVICES.

02 Active and 02 Blue Room

CUSTOMERS

Availability of products and services that meets customers’ demands and expectations

Although, marketing orientation is mainly focused on customer needs, there are examples of how social marketing do play complimentary roles. At the first instance, social marketing involves managing program that provides customer/community voice alongside a voice for programme beneficiaries. For example, Telefonia 02 UK created the ability awards in 2008, in recognition of the contribution disable people have made to the economy. The company took the opportunity to develop and market a range of accessible products for the disabled niche market. A case of such initiative includes the voicemail that can turn SMS into voice. Another example includes the SpinVox service which translates voice messages into text.

: THE COMPETITIVE ADVANTAGE

Competitive advantage is achieved when a company has a superior performance through differentiation to provide superior customer value, or by managing to attain lowest production cost over its competitors (Jobber, 2007). Competitive advantage is mainly the link between the target market and the competitor targets. In order to succeed, companies must attain a clear performance differential over competition on factors that are of utmost importance to customers. According to Day (1999), the very most successful methods are rested on some combination of three advantages; Being better, in terms of superior quality; being faster, in terms of response to customer needs faster than the competition and being closer; in terms of establishing close long-term relationships with customers.

The telecommunication sector of the UK has progressed competitively over years, bearing in mind that the current markets are apparently saturated. Nonetheless, rivalry among competitors to increase market share and customer loyalty is of high importance. These are some of the competitors of O2 in the UK market;

VODAFONE

Vodafone was established in the year 1985

It launched 3G service with mobile connect 3G/GPRS data card in the year 2004.

In 2005, “Vodafone Simply” was a jargon used for showing easy voice/txt service along with new voice roaming price plan.

“Vodafone live” with 3G reaches 10 million customer base in 2006.

THREE (Hutchison UK ltd)

The company was set up in the year 2002

It became the first operator in the world to introduce 3G license in 11 markets

It had 6.8 million customer subscriptions over 3 years of existence.

It offers some free video content – which is considered as a quarter of UK customers.

The first telecoms company to integrate facebook to handset/device.

Presently, the telecommunications industry is fast becoming more saturated and most of the UK citizens now owns mobile phones. Porter (1980) developed three generic strategic theories for one to achieve sustainable competitive advantage. To achieve superiority over competitors, 02 naturally looked at what product lines/ services can be differentiated and whether its intended for a wide, narrow, niche or focus market. According to Porter, an organisation can achieve advantage through either low cost or differentiation.

Figure 4: Competitive position of

COMPETITIVE ADVANTAGE

Differentiation leader

Technological innovations

Segmented products

Cost Leader

Differentiation Focuser

Premium,

Platinum,

Silver.

Cost Focuser

Differentiation Strategy

Differentiation strategies are achieved by companies upon the business ability to select one or more bottom-line that are used by patrons in an industry and then positions itself to specially satisfy these criteria. This achievement of differentiation also goes with higher prices for its products as reward for the added value to customers.

Differentiation Leadership of

From the diagram, it can be observed that 02 is not stuck to one or more approaches, because if it fails, their competitive advantage will be endangered. Unlike some other competitors whose primary focus is on low cost pricing scheme, 02 promote a “lifestyle” theme of work and play. The company do believe that technology will play an important role in being different. The benefit of its differentiation is that 02 can segment its markets in order to target products and services at specific group, thereby setting a high price than the average. The UK telecommunications industry this year has seen a net loss of customers for three years. Despite grim reading, 02’s retail revenue outstripped the long established Vodafone, and gained mass number of subscribed customers since 2004 (Mintel, 2008).

Differentiation Focus: Some companies adopt strategies that would see them segment the market and focus on one or more segments of the market. The company then seek to attend to the special needs of the segment and seize the opportunity to differentiate its product offering from that of its competitors.

Differentiation Focus of

O2 has been able to effectively segment its target markets for its range of products and services. This is based on the success that came out of its differentiation strategy. O2 has different offerings for different class of earners and spenders in the UK and reward scheme are designed to encourage these segments of the market. For example, premium customers who are under contract terms of £35 or more per month are eligible for the O2 priority club. Also, there are other categories like the Platinum and Silver segments of its market. Also, “Simplicity SIM” is a tariff designed for consumers who are in between being averse to a long term contact or by continuously topping up via pay as you go. This tariff offers low call rates and according to 02 terms and condition, the contract can be terminated with just 30 days notice. In general irrespective of tariff choice 02 encourages individuals, friends and the family to be part of the 02 lifestyle, in other words, the 02 – 02 customer links. To be competitive is not just about acquiring new customers, but it’s also about retaining existing customers.

Cost Focus.

With this strategy, a firm is expected to aspire to gain cost advantage with one or a limited number of target market. This, it will achieve by dedicating itself to the group and then seek economies that may not be of substantial interest in the broader market. The company O2 is not conspicuously using this strategy as most of the products and services of O2 are targeted at the broader market. Though there are some markets segmentation, however, this is not intended to focus on cost or seek economies of scale but for the purpose of differentiation focus.

Cost Leadership

Some companies seek to achieve the lowest cost position in an industry by serving many segments of the market and attaching great value to reducing cost on all levels. As far as the prices that it attaches to its products are below the industry average, cost leadership should result in superior performance.

Cost Leadership of

O2 has a highly competitive price regime for its products and services as a result of its attainment of cost leadership in the industry. It is able to release highly valuable products to the different segments of the market at industry’s competitive market and also able to roll out different tariff plans and incentives to customers because it is able to gain the competitive edge in production cost. Though it is likely that 02 must have incurred some addition cost in creating this competitive advantage. Evidently, as 02 experienced business growth, the supporting cost increased and in turn the company struggled with the complexities of business. As part of 02’s strategies, a transformation team was set up to improve operation success to become market leader in customer service. With Synergy a unified customer service desktop, operations became integrated, automated, enhanced data handling and equipped for real-time service. The improved system reduced the “average call handling time by 12%” and also “eliminated backlog of call backs by 30% “(www.jacada.com). The efficient system saved 02 money and increased customer satisfaction. If internal transformation was not up to standard then 02 reward schemes would be pointless and they could have expected to loss customer to rivals.

Value Chain and Competitive Advantage

Porter (1985) sets out the concept of the value chain, stating that every business is a collection of various activities that are put together to perform the design, produce, market, deliver and support its products. Support activities may include firm infrastructure, human capital management, technology development and procurement. A business firm may then develop competitive advantage in these processes or production activities.

In it productive enterprise, O2 is gain core competencies in its technological innovations and product values which has helped the company to gain valuable patronage from consumers. For example, at the end of 2007, Apple signed an exclusive two-year deal with 02 (with the original contract extending for up to five years). This meant that anyone who wanted to purchase the much talked about iphone, must also subscribe to 02, thus naturally, rival competitor’s customer switched to 02. Within the period of 16 months of launch, 02 reached a milestone of selling over “one million iphones” through its network (www.iphonebuzz.com). Thanks to these high-end products like iphone and Blackberry Curve, irrespective of economic conditions, 02 has “outperformed in the UK telecom market with +10% growth in revenues” (www.02.co.uk). Blackberry mobile which was originally marketing for business users, now see growth in individual home-user sector.

POSITIVE AND NEGATIVE MARKETING MIX OF

Marketing oriented companies are constantly involved in the plans to manage and surpass customers’ expectation against their competitors. The use the 4P’S (product, price, place and promotion) makes these plans feasible. This is achievable by developing an understanding of these key areas with which positive marketing mix can be initiated, however, this can also lead to a negative impact on the marketing mix. The following section takes an in-depth assessment of both sides of the marketing mix.

Figure 5: Marketing Mix of O2

PRODUCTS

DSL Broadband Service

Voice/Video Calls

Web browser

iPhones

PRICE

Premium Price

Economy Pricing

Slow penetration for O2 broadband.

Product bundle for O2 A Bolt.

PLACE

PROMOTION

Products (Positive Mix)

Products can be grouped into two; tangible or intangible, which are required to be capable of satisfying customer needs. Satisfying customers may be in terms of practicality, security, style and function. Depending on the nature of the market, quality and suitable packaging play a factor in attractiveness. Jobber (2007:326) describes tangible products as those products that can be held. In relation to 02, the mobile phones are tangible products while the intangible product is the phone service. 02 provide service to make calls (voice/video), text, web browser and downloads/streaming on their network. Occasionally, the company promotes its network through the distribution of free SIM (Subscriber Identification Module) cards. Their product range is highly diversified from DSL broadband service (wireless/fixed) to mobile networking. They utilise HSDPA technology (high speed downlink packet access), to ensure strong population network coverage. Potential customers can visit the o2 UK website and satisfy their inquiries about the current future network coverage in their area (www.service.02.co.uk).

Many companies may produce virtually similar products, in order to distinguish themselves, product lines are stamped with branding with comprises of the company’s name, slogan, colour or logo. O2 has a strong brand which makes them market leader and accords them some respect in terms of trust and quality. When a respectful position is successfully attained in the market, market share and profitability is likely to grow as evident from the 02’s case. The iphone is an example of mutually beneficial brand image with the association with Apple. Currently, Apple is widely known for imagination, design and innovation (www.wired.com). At times, brand association can help rejuvenate sales in the matured market of telecommunications.

O2 mainly targets two different market segments, the general home user market and the business professional market. Each segment is likely to have slight variance in product-line strategy. Product lines are referred to as the number of related product targeted at similar market (Adcock, Halborg, Ross 2001:379). For 02 this means having many different mobile phones/ broadband speed/downloads at structured tariff rates. General home user 02 product line: pay as you go, monthly contracts, SIMs, broadband, laptop deal. In the business, it is similar to the general home user except that there’s an emphasis business mobile and landline services. For the blackberry phone currently offered by 02 is marketed as “business as usual” and another slogan is “mix business and pleasure” (www. shop.02.co.uk).

Product Life Cycle

The product life cycle is aimed at exhibiting the various stages a product may pass through before it is finally withdrawn from the market. In the telecommunication sector, mobile phone life cycle is never intended for long life, usually designed to last for 3 years. Technology is rapidly changing along with customer needs and desires. In the year 2008/2009, 02 sales and profitability witnessed remarkable growth as result of promotion, distribution and acceptance. Some products attained maturity stage, stabilising growth while reducing gross margin. Where the market is saturated or there’s introduction of new products, the previous model is usually flogged at slightly lower priced to generate more revenues as growth can be limited.

During the decline stage, 02 will strategically weigh up options of whether to rejuvenate the product, or withdraw it from the market as it is unlikely to make substantial return on investment. 02’s I-mode had a short product life cycle, the product suffered weak consumption just after a year that it was launched.

Products and the BCG Share/Growth Matrix

The BCG (Boston Consulting Group 1970) matrix can be used to develop product strategy and an outlook for repositioning. In this matrix, the product/services offered by companies are categorised into four thus; star, cash, cow, question mark and dog in relation to market growth rate and relative market share.

Figure 6: The BCG Growth-Share Matrix of O2

STARS

Products and services in growth stage; 3G with Apple, iPhone.

PROBLEM CHILDREN

O2 Simplicity SIM

CASH COWS

2G (Approaching maturity)

DOGS

I-Mode

Stars: These are products that have the tendencies to become market leaders but presently require substantial investment in order to finance growth and meet competitive challenges. For O2, the core products and services that are in the growth stage includes the 3G for advanced savvy features which has exclusive two years deal with Apple has enhanced the profitability of the company even despite the deduction of return share from Apple.

Cash Cows: These are market leaders in the mature market. With high market share, there is bound to be high profitability and low market growth means that investment in new production facilities is limited. This amounts to a high positive cash flow. The 2G of O2 is presently in its maturity stage and churning out high cash volume in the market as a large number of customers are yet to switch to the 3G, however, its future growth in very limited. At present, the 2G is still generating cash for the company therefore, it is still being maintained in the market.

Problem Children: These are products in high growth markets which are draining the company’s cash flow, however they are low share products, as a result they are unlikely to be profitable. Therefore, they are huge cash users in the business. The 02 “simplicity” SIM that was launched about two years ago though had sales growth but also had a lower market share in relation to main competitors. In case of the adoption of re-image or alternation plans to the products or services, this can translate to the introduction stage in the product life cycle.

Dogs: The dogs also operate in the low growth area of the markets but have low market share. In the exception of some products that are near the dividing line between cash cows and dogs, most dogs produce low cash flows (Jobber, 2007). The dog stage represents a declining stage. On 31st July 2009, The Company 02 withdrew its “I-mode” product to avoid further losses. This failure was partly due to a rather limited range of phones which was compatible with it and this restricted customers’ choice and needs. However, if I-mode could be revived, then the dog stage is ideal to harvest, and carefully manages cash flow as fewer resources will be re-allocated.

Products (Negative Mix)

About the time that Ofcom announced the need for new mobile broadband spectrum 2.6 GHz, 02 Company realised the negative impact this would have on its product, therefore it launched litigation in May 2008. The reason for this action was premised on the timing. The UK economy was still stable, which implies that there could have been a lot potential new entrants into UK mobile broadband market, such as Google and BT whom would have bid for 2.6 GHz spectrum (Mintel, 2008). 02 operate its 2G service on 900MHz band while companies like Orange and T-mobile use 1800 MHz. For 02 to operate 3G in UK, it requires to run on band 2.1GHz, which has shorter range therefore needs more base station. One of 02 competitors, Vodafone is presently trailing behind to enhance its 3G with the use of HSPA+, which would boost its speed but wouldn’t need new base stations.

The proposal of the government of UK is planned to set an initiative to provide internet access for all by the year by 2012. The Prime Minister, Gordon Brown stated “digital technology was as important as roads, trains and bridges were in the 20 century” (http://news.bbc.co.uk). By 02’s standpoint in which it sets itself against the Government, the company will be viewed as being insensitive to the needs of the UK society and this could have negative impacts on the 02 image. In any case, the government has indicated that it may provide some compensation for 02’s valued bandwidth to put a rest to the non-agreement (Crawford, 2008).

Apparently, the misdemeanour investment on 3G licenses is now worth just £2bn, mobile industry originally raked out just over £4bn in the 2000 auction. There haven’t been appreciable profits for 3G network providers (Keynote 2007:26). In 2003, the 02 Chief Executive Peter Erkshine blamed technical problems with third generation handsets, which were hard to launch (http://networks.silicon.com).

PRICE

Figure 7: New product launch strategies of O2.

Promotion

High Low

Rapid

Skimming

Slow

Skimming

Rapid

Penetration

Slow

Penetration

Out of the elements of marketing mix, Price is considered as the only one that does not deal with cost. Indeed, it is the revenue earner of the lot and indicates what the company gets back for its efforts at producing the goods and services. The economic recession has brought most economies in the world to its lowest ebb, therefore pricing strategy has become very sensitive in respect of valuing customers. Customers need to see the perceived benefits from valued goods purchased. Not only does 02 look at how it structures prices, but it looks into how competitors does so too. O2 has different tariffs system for mobiles and broadband in order to influence customers’ choice. The company makes classification of people according to their disposable income, sex and age groups. Establishing a new product pricing strategy can assist to determine the value of the product. For example, when the 3G was introduced, it was marketed as a high-speed function product which instantly becomes appealing to business groups and young technology-friendly users, that is, the younger generation.

Premium Price: Part of the integral pricing policies of O2 is the premium prices attached to its differentiated products. At times, a high price can be warranted due to lack of product availability. For example, at the time Iphone was launched, 02’s website posted a warning that the average stores will only have a few dozen of the product and it will sell out very quickly. This strategic option is particularly useful when substantial competitive advantage exists like in the case of O2. Indeed, 02 have heavily invested in 3G in order to satisfy customer desires, and by so doing needs to recoup the return on investment.

Economy Pricing Strategy: There are products pricing strategy that intends to reach out to the low income earners in the society. In this case, O2 employs the economy pricing strategy to win the patronage of this category of people. Also, the position of a product in the life cycle is another determinant about the price that it would go for. If the product is no longer churning out good sales, economy pricing strategy can be employed in order to force out sales. For example, O2 penetrated the market with products like the “simplicity SIM” in order to reach out to more customer at low price.

Rapid Skimming Strategy for O2’s 3G Service: Rapid skimming is considered as a combination of a high price and high promotion. When 02 first introduced the Iphone product, it combined high price with high promotion to effectively attract and alert customers of new the product that can satisfy high speed service in addition to additional features like streaming. In turn rapid skimming is about acquiring high margin.

Slow penetration for O2’s Mobile broadband: This strategy combine a low price with low promotional expenditure. By setting a low promotion against a relatively low price, 02 should be able to quickly gain market share where the market size is small or large and consumers are not very sensitive to promotion.

Product bundle for O2: This strategy sets a price for more than one product or service and on the same package. For example, “message 50 free for 3” provides 50 text-messaging facilities each month at no additional charge for a period of three months. Another example is “landline 100” which offers 100 voice minutes at anytime to anyone on the UK landline each month for only £5.00 a month.

Price (Negative Mix)

In a comparative look at the price plan with other network, although 02 appears to offer a good price plan this is not always the case, this may have a negative impact on consumer choice. 02’s “100 price plan” is not as competitive as Three. For the very same price, Three offers 100 minutes extra. 02’s “200” is at par with that Vodafone “anytime 2