Jan 18, 2013

The Crazy calls that saw Vodafone trash its brand

How did Vodafone manage to kill a once-thriving brand in Crazy John's? Bad management, probably, but the death and ultimate distance from its founder didn't help.

John Ilhan's widow Patricia sold his Crazy John's mobile reseller empire in 2008 to Vodafone for a reported $200 million. Five years later, Vodafone has destroyed the entire value of its acquisition. As management follies go, that is significant. Admittedly, Patricia Ilhan's timing was perfect -- just before the global financial crisis unfolded. And the writing was on the wall for resellers, even before the GFC, says independent telecommunications expert Paul Budde. "Go back 10 or 15 years, and resellers made a profit of 20% to 30%. Now they make 5% and a lot of telecom operators says let’s not give them the 5%, let’s use it ourselves. It is no longer cost-effective," he said. A decade ago, there were about 200 resellers, Budde says, and today there are about 10. But Crazy John’s is no longer one of the survivors. Vodafone has suffered from bad management for years, according to Budde. It started with its debut in Australia, where it moved straight to the 2G network and didn't resell 1G. "They relied on new customers and were never able to catch up," Budde said. "The other providers just moved their customers from 1G to 2G. You can point back to that as taking the wrong strategy." The company carries a lot of debt, a situation compounded by its attempt to recoup market share by buying Hutchison Telecoms in February 2009. "Hutchison went into three different technologies, spending billions and then abandoning it all. When they merged, they had all this baggage, and no capability to invest," Budde said. And, like other carriers, Vodafone missed the smartphone revolution. All providers had expensive "portals" offering products, services and applications until the iPhone blitzed their entire business model with apps on the phone. "They were all hanging onto monopolist portal idea and trying to get all this money for 10 years, and were caught off guard by Apple. Optus and Telstra reacted quicker than Vodafone, which was in the midst of the merger, and had lots of problems internally," Budde said. The business model for reselling was already on the rocks when Vodafone bought the company in 2008. "It is the reality of the reseller market more than anything else," said Budde. "The situation is that we are seeing the telecommunications companies having to invest increasingly in new infrastructure -- 3G, then 4G -- but consumers like you and I not paying more. That has to be arranged, and the only way for companies to organise it is to cut costs. "You see that mobile is commoditised -- it doesn't really matter which plan. In a commoditised market with low margins, you need to be big. Players with a few thousand less customers can't survive, and you get market concentrated. People merge and merge and we end up with handful of players," Budde said.
"When you gut a house you still have the shell, but it is not somewhere you want to live."
A multi-brand strategy is a difficult one to pull off and an idea that is widely misunderstood, according to independent brand advocate Michel Hogan. "If you have separate and distinct operations, identity, deliverables and promises, that is multi-brand. If not, it is nothing more than a bunch of labels," he said. Following the merger with Hutchison, Vodafone removed the Crazy John mascot that was emblematic of the company's promises. "Love it or hate it, it was unique and identifiable," said Hogan. "Those 'brand markers', as I call them, are a way for people to access and recognise the company. When you remove them, you are monkeying with people's ability to access and recognise the company. "Think about if Qantas got rid of the flying kangaroo. These iconic elements have recognition and people have emotional attachment to them. In an acquisition, you are buying that affection. It always seems suicidal to me to systematically dismantle that." Companies may decide they have built relationships of sufficient strength with the acquired company's customers to relinquish the brand. "I guess the hope is to move them over to Vodafone -- [the thinking being] we have got enough connection to those customers and we will be able to move them. I don't think that is true; I don't think the people who sign up for Vodafone are the same as those who sign up for Crazy John. There is a very different underlying promise," said Hogan. The death of Ilhan was a blow for a brand built so closely on his personality. But the impact of Vodafone's ownership on the culture was probably greater. Once the company was sold and links to its entrepreneurial beginnings cut, Crazy John's essential nature as an innovative entrepreneurial company was on shaky ground. Its ownership by a large international company contributed to its end. Garrow said: "It is very difficult for a relatively sophisticated international company like Vodafone to acquire an entrepreneurial innovative company like Crazy John's. It is very different from such a highly structured organisation, and that leads to challenges of cultural assimilation." Hogan says the company changed so much in essence that the brand was no longer representative. "When you remove the foundation of people’s attachment, their experiences that creates that attachment, you are left with an empty shell, and it is no wonder it struggled. The removing of the picture was a symptom of a deeper malaise that led to what Vodafone is doing. When you gut a house you still have the shell, but it is not somewhere you want to live." *This article was originally published at LeadingCompany

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9 thoughts on “The Crazy calls that saw Vodafone trash its brand

  1. Xoanon

    Slightly off topic, but the removal of any brand beginning with the word “Crazy” will at least help improve the aesthetics of Australia’s shopping strips.

  2. Ronson Dalby

    I guess we won’t ever see the number of resellers again like it once was, however, it does seem to be on the increase with even Telstra wholesale now in the picture via Kogan Mobile and it’s rumoured that Boost Mobile will also go to Telstra next month.

    For some strange reason Vodafone is also increasing prices and, at the same time, decreasing the included value of them. For example, from Feb 13, prepaid mobile data rates will be calculated in megabytes.

    I can’t help feeling that Vodafone is on a suicide mission. It would be a blow for consumers if our telco market was reduced to only two players – Telstra and Optus.

  3. luke russell

    Bravo to Xoanon’s comment! And actually very relevant to the content of the article. People that buy from brands named “Crazy XXXX” are quite different than the mainstream and one would expect them to be more loyal than the commodity brands such as Voda, Optus and boring old Telstra.

  4. sickofitall

    Vodafone are shocking. their bills are random numbers, rather than any ordered, predictable sense of what you’ve used and hence what you own. I suspect it will leave Australia in the next 6 months. (I have a contract with them: as soon as it is up, I’m gone.)

    acttually, I still struggle to see why the old government monopoly didn’t work – prices haven’t gone down, and the competiion has just pushed the money off-shore.

  5. Simon

    Bingo!!! Great article. Pretty much nailed it.

  6. green-orange

    Well, the Optus buyout of Virgin didn’t work out all that well.

    I think the insane retail rents charged in shopping malls may have had something to do with it as well.

  7. Daly

    What another bad management tale. Two so far today and both in industries where it takes real stupidity to loose money!

  8. floorer

    sickofitall, I think you’re wrong. Vodafail bills are okay pretty similiar to everybody elses. They have a website you can go to which shows what they’re building now and what they’re going to build so I doubt they’re going anywhere soon. Re the govt. monopoly being better you’ve got to kidding. Telstras had to dragged kicking and screaming by the likes of 3 to present anything like a competitive monthly plan. Only thing I find dodgy is something you didn’t mention their coverage, which can surprise by working in some out of the way place and then fail somewhere in the metro area (Adelaide).

  9. Simon

    I wouldn’t call any plan provided by a major in the telco industry competitive. You couldn’t find an industry more full of signalling and price fixing.

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