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Published 20 February 2013 11:33, Updated 26 November 2013 18:35
Crazy John’s may have seemed a good fit with Vodafone, but brands that are not performing need to go. Photo: Craig Abraham
The closure of the Crazy John’s brand by Vodafone is an about-turn by the beleaguered mobile phone giant. Only five years ago, Vodafone chief executive Russell Hewitt delighted in his $200 million acquisition, declaring Crazy John’s a “significant part of Vodafone’s ongoing business strategy”.
At the time the acquisition made sense on three different levels. First, it brought in much-needed new subscribers on long-term contracts. In total 76,000 customers and $180 million in annual revenues were added to Vodafone’s books. Second, Crazy John’s 120 stores represented a substantial and already successful retail network. Third, Crazy John’s had built significant brand equity as a value-based, accessible and customer-focused operator and its lower-tier position offered significant synergies with Vodafone’s more premium, international positioning. After the global financial crisis took hold, that value positioning became even more important with Hewitt saying in 2009 that the Crazy John’s deal had been “the right buy at the right price for Vodafone”.
So what went wrong? The mobile industry has certainly changed dramatically since the Crazy John’s acquisition. In 2008 Vodafone needed new customers looking to set up mobile phone accounts and Crazy John’s stores were in the right places and at the right price points to help them with that mission. Five years later, savvy customers are looking for data services and are much more likely to deal with mobile networks such as Telstra than use a third-party reseller like Crazy John’s.
But the real reason for the decision to shut down the brand stems from the changing nature of brand management. Until recently, it made sense to own and operate many brands aimed at different segments of the market, using shared back-of-house synergies. Big organisations such as Fosters, Pacific Brands, Lion Nathan, Goodman Fielder and the like continued to extend and expand their portfolios with gusto.
But in recent years most well-run companies have realised that too many brands are actually bad for business. While more brands certainly equate to more revenues, a bigger portfolio is also correlated with lower profitability, loss of focus and a gradual decline in competitiveness. Learning to kill brands, rather than to create or acquire them has become the central challenge of brand management in recent years.
When I was a young marketing undergraduate 25 years ago, the two consumer goods giants P&G and Unilever had more than 2000 brands between them. Today these two behemoths earn most of their profits from little more than a dozen brands each.
It has been a similar story at Ford. When CEO Alan Mulally arrived in 2007 he took the helm of a stunning portfolio of automotive marques, which included Volvo, Aston Martin, Mercury, Lincoln, Land Rover and a long partnership with Mazda. Within three years Mulally had sold off or closed down almost every brand except Ford.
The reason? Profitability and focus. In 2006, a year before Mulally arrived, Ford lost almost $13 billion. By 2009 the company was back in the black with a profit of $3 billion and has not looked back since. Thanks to the renewed organisational focus back on Ford, the company also began to produce world-beating cars again.
Like Ford in 2006, Vodafone Australia is now in an uncomfortable place. The company has lost more than a million subscribers in the past three years, many of these losses due to a “weakness in brand perception”. Operating two brands is difficult. Vodafone must kill its own brands to survive.
The grisly analogy I use with my MBA students is the brown rat, rattus norvegicus. One of the secrets of the rat’s success is infanticide. A typical brown rat’s litter consists of between six and 12 pups but it is common for the mother rat to kill, and eat, several pups in their first hours. Research suggests that the mother identifies the smallest and weakest for slaughter.
This abhorrent act (in human terms) is actually central to the species’ ubiquity. If the mother rat tries to wean too many pups, she risks underfeeding all of them, thus leaving herself and the brood vulnerable to predators. By reducing the number she has to feed, she also rebuilds her reserves to ensure that her remaining bigger pups get the maximum possible support and the best chance of making it.
Vodafone has a huge challenge ahead, but closing down Crazy John’s and hopefully retaining many of its subscribers allows it to refocus. The only crazy move would have been to keep the brand alive any longer.
Mark Ritson is an associate professor at Melbourne Business School and a consultant to big global brands.