Are sub brands the way to go as operators grapple with changes to consumer behaviour?

A few weeks ago, Vodafone became the latest and last brand to launch a sub brand in Ireland. I’ve since received a few calls about the launch from people trying to read the market, and essentially work out why Vodafone would bother now.

The answer is reasonably clear cut in my mind – quite simply, mature mobile markets are a problem for operators, especially when the economy has been battered and this strategy helps to overcome the associated problems.

There is always going to be a limit to the number of customers you can attract from segments outside of the core customer profile if you haven’t got the right brand appeal. And right now, though consumers value telecoms and app, they are still keen to save money making for tougher competitive dynamics than normal.

Getting back to the question then, ‘why bother launching a sub brand now?’, you have to look at what’s going on irrespective of the current pressures. Rewind a couple of years and Vodafone launched Voxi in the UK to appeal to a market that its own brand couldn’t reach.

Indeed, Voxi is designed to solve a very specific problem – how to get your arms around a youth segment that usually considers the Vodafone brand as irrelevant. Voxi is the answer providing a vehicle to address the audience without diluting the value of its master brand.

Remember that in the UK, Voxi is not the only sub brand that Vodafone has access to. Vodafone also has Talk Mobile, a former MVNO that it acquired from Carphone Warehouse, which allows it to access additional market segments.

But in Ireland, where the overall market subscription size is 5milllion and there are fewer MVNOs compared to other markets, Vodafone’s had to take a very different approach and launch Clear Mobile.

Clear Mobile offers calls, texts and unlimited data for €12.99 per month without a contract. This deal works out at less than half the price of Vodafone’s own similar monthly tariffs and is bound to spark what the press refers to as a ‘price war’ on the lower end of the market.

But as is so often the case, you need to lift the bonnet on the headlines. While Clear Mobile offers unlimited data, it’s been able to discount it to the rate it has because the data speeds are much reduced.

It’s therefore built on a calculated premise – Voxi won’t work in Ireland. Clear Mobile is clearly not one for the kids – as Voxi is – and much more likely to appeal to value conscious “settled seniors”. Vodafone has identified a segment it can compete in, and address the discounting war at the same time. The overall brand strategy is a good example of applying multiple sub brands to deliver the same gains – Voxi aimed at the youth segment, while Clear is aimed at the opposite end.

And at the moment I’d say it’s more important than ever to adopt the right model. You need to read the market and ensure the money you invest pays dividends.

Why? Well, let’s get back to basics: economics drive the mobile market. The more customers you have using your network the better the revenues and profits. With a sub brand there are no wholesale costs and every penny of the margin is banked.

What’s more, the parent network can trade on the credibility of it’s brand, control the segments that the sub brand targets and most importantly influence its pricing and offers to ensure it’s not competing head to head.

That’s why the approach Vodafone is taking makes sense. It gives Vodafone more control over the offers it puts into the market and the segments it pursues with those offers.

Of course, parent brands have to put a lot of faith in the power of it’s brand to drive the success of the sub brand. And to be blunt, that’s not enough to attract customers, in fact it could actually detract from its appeal.

Brand awareness is therefore vital to ensure sub brands feature on the list of operators people consider. But that doesn’t come cheap. Millions are spent every month by operators persuading us to switch, stick and/or buy more. Releasing funds to do it for another brand isn’t going to be easy for a CFO and many will be looking to other distribution channels to ease the financial burden.

But even they cost money to set up and maintain. It’s a fine balance and so entering the market with a sub brand is a massive strategic decision.

The outlook for sub brands and MVNOs

There are still brands out there that would make very appealing MVNO partners that would fit a multi-brand strategy. With the right model, there’s much to gain and I expect we will see some high street brands seriously consider mobile as a way to generate a recurring revenue.

That said, I do expect some MVNOs to find it tough in the next few years as Brexit and the long term economic consequences of the pandemic exert real pressure on business models and people’s pockets. Some MVNOs will survive, some will merge, some will fold.

Operators will feel this, and those that have MVNO brands that are grossly affected will have to ensure the hole in their finances is plugged. Sub brands are likely to be the answer but they have to be built on a proposition that will appeal to a specific target segment. It’s too big a gamble not to, plus if they fail to do their homework then they ultimately fail their customers and their shareholders.

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James Gray

Managing Director at Graystone Strategy

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.