While Vodafone's announcement that they will stop providing broadband services through the ihug brand, is consistent with their vision to be known as an international full service communications company, the move provides an interesting case study for budding marketers. So why would Vodafone stop using a brand that cost them $41 millon less than two years ago?
Vodafone's purchase of broadband provider ihug in October 2006 was an easy way for the telco to expand into broadband internet. Rather than spend their time and money trying to start their own broadband service, it was far easier for Vodafone to simply acquire one of the existing leaders in the broadband market - and then squish it into the Vodafone name later on. For their $41 million they got ihug's infrastructure and technology, client base, revenue stream and management. But most importantly, a good part of the purchase price will have been for the goodwill and reputation attached to the ihug name through 14 odd years of hard graft.
Now mergers and acquisitions (or in this case, acquistion and merger) are a sound and accepted strategy for business growth, but they don't necessarily make sense when it comes to enhancing a business like Vodafone's biggest asset - it's "Number One" position in the customers mind.
You see, what made Vodafone so fresh and exciting when they emerged on the NZ scene a decade or so ago, was the fact that they only did mobile phones. Consequently they led the charge in mobile phone uptake and in no time "021" was the preferred prefix for NZ's mobile phone users. Telecom's 025 and 027 were arguably just as good, and the prices were much the same, but Vodafone had the key advantage of being seen as the specialist mobile phone company - the experts, the leaders. On the face of it, Vodafone should never have had a chance against New Zealand's largest company in it's own back yard. But compared to Vodafone, Telecom was seen as a generalist - monopolistic land-line provider, directory giant, internet provider, and last but not least, a cumbersome and unsexy mobile phone co. Vodafone provided a text book example of how a newcomer can upstage the market leader simply by narrowing it's brands focus.
However, in recent times Vodafone has since become a provider of mobile internet access, an online music store, a fixed line phone services company, and then broadband internet company through their acquisition of ihug. So the question is what exactly does Vodafone specialise in now? You cannot be a specialist in everything. Indeed in the minds of the market, their offerings are now no different to those of the other mobile phone company Telecom. Who are the trendy, disenchanted or anti-establishment, mobile phone users to turn to now?
There are really two interesting things to note here. First, the further dilution and confusion of Vodafone's brand as it deviates from mobile phones (the market in which it made it's name), and second, the strategic destruction of a successful brand in an already crowded internet market.
While Vodafone's hunger for growth and expansion is understandable, there is a danger that by extending a it's brand name into categories already owned by other competitors, a name that used to stand for "mobile phones" will ultimately stand for nothing.
"Vodafone" is fast becoming a "Vodawhat?"
Richard Liew started his first business at the age of 23 and founded the Rev Sales Network, a personal and professional development network for salespeople when he was 27. Along the way he has helped develop sales strategies for several startup’s, helped extreme sport ‘le parkour’ (freerunning) find it’s feet in NZ, and is a regular newspaper and magazine contributor on the topics of sales and marketing. He is currently working on a recruitment related internet business. Email Richard here.