Killing the Goose: How AT&T Frittered Away Its iPhone Advantage

Everyone knows the key to a successful brand is differentiation. Two years ago this month, when Steve Jobs introduced the iPhone, he made AT&T the exclusive service provider for the iPhone. Since then 8.5 million iPhones have been activated. Today some 12% of AT&T’s total subscriber base uses the iPhone—a revenue generator worth $799 million a month. Not only is it a differentiator, it’s a new business engine. Roughly 40% of AT&T’s new customers come via the iPhone.

By every measure—revenue per customer, cancellation rate, etc.—AT&T’s iPhone customers are worth well above the average wireless subscriber. Today thanks to the continuing excitement over the iPhone and its exploding world of 50,000 downloadable apps, AT&T enjoys twice the smartphone usage as all other carriers combined.

But while Apple has refreshed and improved the iPhone twice in the last two years, AT&T has not used this window to improve its service. Though AT&T claims to have the fastest 3G network—users know how slow downloading can be. And, though AT&T’s advertising touts “more bars in more places” its users live with the frustration of dropped calls.

As a result, if Apple doesn’t agree to extend its contract for service exclusivity with AT&T in 2010, it’s hard to calculate how many iPhone users will escape to a competing service—but the loss, in most cases to Verizon, will be substantial.

But this is crazy. AT&T will never have this kind of opportunity again. A subscriber, after all, isn’t a one-time charge, but a cash cow that keeps on earning revenue and profit, month-after-month, year-after-year.

Here’s what AT&T needs to do in a hurry:
• Come up with a higher service standard. [Example: “If we drop your call, the next call is on us.”]
• Come up with a better response mechanism that indicates you’re serious about service. [“We have real live operators standing by to answer your complaints.”] Ten years ago the cable companies had a service/ image problem. Today, you have an outage and call your cable company. Someone not only takes your call but either fixes the problem over the phone or makes an appointment to send out a technician the next day – and then doubles back to be sure the technician appeared and you’re satisfied.
• Meet expectations on the value proposition. You can be sure that AT&T will not be alone with 3G for very long. Either raise the speed of downloads or give customers a break on subscription fees. If AT&T’s service is not demonstrably faster and better than the competition, it better be cheaper.

Just saying you are the best doesn’t work anymore. Customers know to discount braggadocio. And eventually state attorneys general will begin filing lawsuits if a carrier doesn’t live up to its promises.

Certainly someone at AT&T senses the problem and is working on a fix. The question is whether improvements will be strong enough and appear soon enough to give the AT&T brand some luster before the clock runs out. It’s going to be an exciting race to watch. Meanwhile, though AT&T reportedly isn’t happy about paying Apple $10 a month for every subscriber, it’s hard to believe they wouldn’t extend that fee or even raise it to get Apple to give them another three year contract.

David v. Goliath; Little Southern Agency Cocks a Snoot at the Big Guys on Mad Ave

This blog is about brands and how we can learn from the way they do a few things right and a lot of things wrong. But I can’t resist today celebrating a brilliant piece of self-promotion by a small, highly creative agency down in Charlotte, North Carolina.

John Boone and David Oakley are not some backwoods good ole boys, but two very smart creatives with big city credentials. John has put in some 20 plus years as an art director including stints at Team One where he helped launch Lexus and at Chiat Day where he worked on Nissan. Dave has worked in New York as a writer and creative director at Y&R and TBWA/Chiat Day. Both have a collection of statues from Cannes, the Clios and The One Show—the world’s leading creative competitions. In 2000, they decided to hang out their own shingle and see what kind of big brands would fight their way to Charlotte, a city known for banking but not advertising.

In the last nine years they’ve done some memorable work for clients like Ruby Tuesday restaurants and CarMax, but somehow those big tasty accounts—even the few that when they got fed up with the big agencies in New York and were ready to look “out of town”—haven’t made the turn to Charlotte.

Recently I met them at a digital conference in New York and it was apparent that they were hungry to make it into the big leagues. I do some consulting in this area and we were preparing to do a phone session, when I discovered that….they didn’t need me at all.

Instead they had come up with a story on their website about “Billy,” the fictional marketing director whose boss wanted an ad agency. “So Billy went to where all the agencies were (Madison Avenue). Each agency he found claimed to be different even though all were owned by the same four companies,” the narrator tells us. “So Billy picked one.”

Then the work was produced, but “no one noticed it. Because it was like the work of all the other agencies that were owned by same four companies. So Billy got fired. So Billy didn’t have a job. So Billy’s wife killed him.” [Sound of shots being fired.]

Now that’s a nice little story that has some elemental truth to it given that today 90% of the big agencies are owned by the same four holding companies and do often produce work, that for various reasons—often because big clients and their legal departments nibble good ideas to death—doesn’t get noticed. But as charming as this tale may be, just putting it on their website wouldn’t necessarily win John and David any business. First they had to figure how to get this message out to the world and they’re dirt poor.

So instead of buying ads in the Wall Street Journal, Adweek and Ad Age, they came up with a way of distributing their homily….for free. They just loaded the whole thing up on YouTube. It’s been about five days since their story went up, and, by my count, it’s already won 328,760 views on YouTube and probably 100,000 from other reference points. http://www.youtube.com/watch?v=Elo7WeIydh8

The bloggers loved it: “BooneOakley’s new website made us grin wryly and raise a glass,” said AdRants. “The work is joyful, the animation crappy and the humor shameless.”

“Points to BooneOakley for self promotion and experimentation and risk taking….,” says Adhack.

Of course bloggers don’t pay the bills. But the work now has caused enough of a buzz that the media is starting to pick up on it, and, yes, says John Boone, they have started to get queries from actual clients.

Will they go on to win $20 million pieces of business and be able to buy Jay Leno’s collection of vintage 1940 Chevys? Not yet, but maybe. For my money, they win the prize in just knowing how to use their craft and wit to build their brand utilizing the challenging new frontier called social media, where brands have to be so interesting and entertaining, people are drawn to them instead of the other way round. It’s a “pull world” and Boone Oakley has broken the code on how to get it done.

Preparing for Your Master Class Final: Saving Old Brands

Q. Pick a sagging, 144-year-old brand and make it vibrant and relevant to a broad market segment today.

John B. Stetson started making hats in 1865 with $10 worth of fur, some tools and a rented workroom. Go to www.stetsonhat.com and you’ll learn that when he founded the John B. Stetson Hat Company, hatters were considered a lazy, unreliable lot. John B. changed all that establishing a reputation as a premium hat maker. Family members built the company right into the 20th Century, where at its peak it was known as the American leader in brimmed and straw chapeaux, selling 2 million hats a year.

But demand started to fall off in the ‘50s and ‘60s and in 1970 the Stetson trademark was sold to a Brooklyn jewelry shop owner, Ira Guilden. Guilden wanted to bring back Stetson as a hat maker, so he set up a licensing agreement with a southern manufacturer and gradually nursed the company back to health. But, as we all know, it isn’t enough for a great brand to be limited to a core product. The question is what can you do to extend the brand to other products and categories?

If Breitling is a superior luxury watch—can it lend cache to a Bentley motorcar? Can fashion brands like Nautica and Ralph Lauren not only be leaders in apparel but in eyeglasses, bed linens and, in the case of Ralph Lauren, paints and home furnishings? Manufacturers may own the trademark to a brand—but brands live in our imaginations. Honda sells motorcycles and cars of high quality. Would you trust Honda to sell you an annuity or let it insure your home? The answer is maybe you would.

In 1981 Guilden provided Coty with a license to start a fragrance line that did well at the low end of the market. After Ira’s death in 1983, the company was passed to his sons Richard and Paul. Richard managed it until his death in 2006 when Paul took it over. But anyone visiting www.stetsonhat.com will see that the hat side of the company isn’t in tip-top shape. The site has year old descriptions of "new products" like the “RealTree Camouflage” a straw hat for would-be commandos interested in a little shade on patrol.

Over at www.stetson.com however the brand is more vibrant and having a lot more fun. Here Stetson CEO Pamela Fields is building a whole eyewear and apparel line, doing all kinds of promotions and through careful licensing pulling in $200 million a year. Jeans, shirts and boots build on the brand’s Western wear heritage. Fields has adopted a “Made of America" theme, targeting members of the U.S. military and trying to leverage overseas interest in cowboy related American gear.

In other words, here is a treasured American brand that probably should have died long ago. But thanks to the careful nurturing of an Eastern family and the vision and imagination of Pamela Fields, the brand has won new currency for the enjoyment of a new generation, more interested in Facebook than rodeos. I for one salute them. Turning around a brand twice is hard enough; three times is the trifecta.

Saving one of the world's biggest brands

GM. General Motors. Other than perhaps McDonald's and Coca-Cola, there probably isn't a better known brand in the world. But for the last 20 to 30 years GM has been making cars and trucks the people don't want. In the U.S., its marketshare has fallen from 49% to 19% and now it has filed for bankruptcy. Can this great iconic car brand be saved?

The answer is yes. Other car brands have suffered in the U.S. Audi, for instance, was almost destroyed 20 some years ago by evidence that it had chronic transmission problems causing the car to suddenly accelerate. The investigative TV show, "60 Minutes,"did a segment on it that was devastating.

But Audi took certain deliberate steps to rescue its good name. First it investigated the charges and, though the difficulty occurred in only a few cars, it up-engineered its transmissions and engines to insure that the problem wouldn't re-occur. Second, it conducted a careful, well-orchestrated PR and advertising campaign to re-assure Audi drivers that Audi was one of the best-engineered cars on the road. And finally it didn't give up.

It took years for Audito recover but today most car buyers don't even recall the kerfuffle. Audi receives one of the highest ratings by J.D. Power for car owner satisfaction. And Audi has continued to refine its engineering and develop new models that can give others in the luxury class, brands like BMW, Mercedes and Lexus,a run for their money.

GM must follow a similar route at the brand level. Cadillac, Chevrolet and GMC must protect their good names and dealer networks by building on the equities they already own. GM has to invest in R&D to assure that these marques will have access to the best new low-mileage, post-fossil fuel technologies. It must bring out new models that excite the marketplace. And at the holding company level, it must continue to re-assure the marketplace that it is capable of managing costs and tracking demand, so that it can become profitable again and repay the U.S. and Canadian government investments.

Damaged brands can be turned around and regain lost equity. IBM did it. Hewlett Packard and Xerox did it. Johnson & Johnson did it with Tylenol. But it is a tortuous process. Unless the new GM board and its management are committed to the long haul, they'd be better off collapsing the company. It will take anywhere from five to ten years for consumers to decide whether GM can be trusted again to make great cars. This will be one of the most exciting corporate brand rescues ever and it will be closely followed by the business school and consultant communities who teach and preach good governance. It all starts with remaking the GM culture that created the slide in the first place. Lou Gerstner called his best selling account of his turnaround of IBM, "Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change."

Can GM CEO Fritz Henderson make his elephant dance? Time will tell.