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Brand Strategy

Underdog Brands Can Change The Game

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Every product or service category is governed by a set of assumptions that define the space in which the established brands compete. Every now and again, however, one brand asks the question, “Does it have to be this way?” This is exactly what T-Mobile is doing to cell phone carriers in the USA. As the underdog brand to Verizon, AT&T, and Sprint, T-Mobile has decided to find competitive advantage by changing the game.

As David Pogue notes in a recent post, T-Mobile has burned every bridge between itself and other providers by ignoring some long-established and highly profitable business practices as far as the U.S. cell phone category is concerned.

First to go was the two year contract. Then, what Pogue calls the Great Cellphone Subsidy Con (that’s when the monthly fee does not drop once you have paid off the cost of your handset subsidy). And now T-Mobile is abandoning the gouging international roaming fees that cell phone companies have traditionally charged U.S. customers traveling overseas.

As Pogue notes:

T-Mobile (is) basically prancing around, demonstrating that Emperors Verizon, Sprint and AT&T have no clothes.

As a result, in the second quarter of 2013, T-Mobile reports it signed up 685,000 new customers — more than Verizon, AT&T and Sprint combined.

Essentially what T-Mobile has done is to tap into the longstanding resentment that most U.S. consumers feel toward cell phone carriers. They believe that the game is rigged in favor of the company maximizing its profits and that they are trapped since the alternatives all play by the same rules. By abandoning practices that are no doubt profit generators in favor of a more transparent business model, T-Mobile obviously expects to benefit from a significant increase in new customers.

That seems like a pretty good bet to me. I suspect many U.S. customers see the traditional cell phone carrier pricing practices as unfair. If so, then Verizon, AT&T and Sprint might expect to lose customers because as N.Taylor Thompson states in this Harvard Business Review (HBR) post, most people will punish unfairness, given the chance. He reports:

In interpersonal experiments, around 85 percent of people tend to punish unfairness, given the chance, even when it is costly and has no immediate payoff to them.

In this case, however, there is an advantage to switching to T-Mobile. The change is likely to save the customer money as well as indicate their dissatisfaction.

So what do you think of T-Mobile’s actions? Will enough people switch to make their strategy pay off? And how will the big brands react? Please share your thoughts.

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5 Comments

Hilton Barbour
Twitter: ZimHilton
on October 23rd, 2013 said

There are a lot of eyes on T-Mobile from here in Canada. In the summer of 2013, Verizon threatened to move back into the country setting off a flurry of activity from the largest 3 Telcos. This was exacerbated by several moves by the Canadian government to level the playing field with new regulations. The volume and velocity of consumer response was unheralded. In social and mainstream media there was a deluge of vitriol directed at the key large Telcos. Ultimately Verizon chose to buy back their Vodafone shares and NOT enter this market. Of the 3 large Telcos here, TELUS is probably the one who moved quickly to address areas of customer concern. The effects of those changes are starting to be felt. Rogers, the 2nd largest, has also made a high-profile CEO hire of Guy Laurence (from Voda UK) who has a reputation of being customer obsessed. To quote Dylan perhaps, just perhaps “the times they are a changin”

Sandra Pickering
Twitter: opento
on October 23rd, 2013 said

Nice example, Nigel.
Many brands forget that the ‘set of assumptions’ (or ‘rules of the game’) that govern markets can be changed – sometimes gradually, often precipitously.
It is important to distinguish between market rules of the game and customer rules of the game. For example,at The Body Shop we had an ‘anti-establshment’ approach to most market rules (claims, design elements and product language) but we needed to be careful not to make it diffcult for the customer – e.g., product names needed to include some helpful functional description -‘for men'(!)etc.
At a brand level, the brand meaning needs to tap into fundamental human emotions too – which is why your ‘unfairness’ example is so good.

It seems to me that T-Mobile’s approach will work – even in the face of natural resistance to bahaviour change.
In fact, I have long had a hypothesis that avoiding negative emotions (in this case, feelings of injustice)is a more powerful way for brands to disrupt habitual behaviour than offering positive emotions.
I’d be interested in whether you agree, Nigel, or have any evidence for or against my hypothesis.

Hilton Barbour
Twitter: ZimHilton
on October 23rd, 2013 said

Isn’t this inherently the premise of all Challenger Brands (of which Sandra’s wonderful The Body Shop is a poster child). Adam Morgan has done some wonderful work is creating several sets of Challenger Brand attitudes and ways to approach the market. T-Mobile seems to be manifesting that in a category sorely in need of upheaval.

Sandra Pickering
Twitter: opento
on October 23rd, 2013 said

Good point, Hilton.
Adam is THE expert on challenger branding. (I had the pleasure of meeting him via a friend not too long ago and he is also a very nice person.)

An important contribution from Adam’s work is that a challenger need not be ‘aggressively anti’ – there are different types of challenger.
In brand positioning work, we always include an understanding of the dominant (centre of gravity) motivations and drivers in the market, then use a ‘war games’ approach to look at different challenger strategies and the implications of those strategies. For example,a market that is currently segmented based on complexity and mystery (mobile tariffs? management consulting?) can be disrupted with an oppositional ‘simplicity and transparency’ positioning.
(That’s also one of the reasons I have thought it wrong for market research / insights agencies to move toward a management consulting model – it is better to challenge based on transparency, objectivity and depth of technical expertise.)

Stefan
Twitter: thebrandview
on October 26th, 2013 said

It’s nice to see T-moble hacking their offers in the mobile provider segment, but I must say I am divided when reading such a story. While the American people are enjoying T-mobile’s “fairness”, in some regions in the world the company has a monopoly position or takes the place as the largest carrier in a certain country. It is not surprising to say that T-mobile in these countries has the highest prices on the market and in my country they practically introduced the 24 month contract. So, while people are glorifying this move, perceiving it as fair and transparent we should not forget that this is a purely a business decision based on market logic (challenger company) that instrumentalizies well known and easily accessible psychological findings. I have no doubt that this song would be very differently sung if the company were to be in the top 3 carriers in the US.

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