Preventing telecom brand commoditization in

the digital age

Key Highlights

Telecom operator brands are becoming increasingly commoditized in their core

business, making it difficult to sustain differentiated positioning

Digital brands are emerging as direct competitors to telecom operators in more and
more segments as a consequence of shifts in the digital value chain

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

Delta Partners propose a roadmap that starts with strategic reflection on the
operators long-term business model and its intended role in the value chain,
cascading down to customer experience definition and brand strategy

The problem: Telecom brand commoditization

in the digital age
Are 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).

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:

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?

Delta Partners five-step approach to prevent

brand commoditization
Define your playing field

The 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-points

The business model will ultimately influence the value proposition to customers and hence
the branding strategy.

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 operator As 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 touchpoints 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 overthe-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 between market 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 space
Those 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-points The 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 product

Nomenclature 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 touchpoints. 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

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)

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 touchpoints 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 longerterm potential. Operators will need to factor in the opportunity ahead and the
business plan in order to optimize the model for each opportunity

Conclusion
The 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 launches

It 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.