UK Operators Turn to Sub-Brands for Growth

Launches from Three and Vodafone Put Virtual Providers in Firing Line

The recent launch of sub-brands by Three and Vodafone marks a new direction for the UK mobile market. Network operators have been making moves to expand their reach by targeting cost-conscious customers. This strategy aims to more specifically tailor offers to the entry segment, and simultaneously protect the premium positioning of the parent brand.

It’s an approach that takes Three and Vodafone firmly into the heartland of many UK mobile virtual network operators (MVNOs). This could put serious strain on an already highly competitive market for virtual providers and it wouldn’t surprise me to see one or two high-profile casualties as a result.

But a multibrand strategy isn’t without risk, mostly because it needs duplicate investment in areas such as marketing and distribution. Three’s new Smarty service and Vodafone’s Voxi offering appear to address some of these challenges by selling and positioning almost entirely online and not including handsets. However, their margins could still turn out to be wafer-thin.

Three says that its Smarty sub-brand pursues customers that wouldn’t otherwise have considered signing up to the provider. Although Three has impressively become known for creating tariffs offering large volumes of data, such deals aren’t necessarily right for everyone. For example, Smarty’s entry tariff providing 2GB of data per month, priced at a punchy £7.50 per month, should still grant more than enough data for many subscribers. The average UK user gets through about 1.8GB of data per month, so there’s a huge potential market for the operator to go after.

Smarty’s most novel element is its offer to refund unused data. This is a new concept in the UK, going a step further than the data roll-over deals now available from the likes of Vodafone, iD and Virgin. The idea behind it is simple; unused data is converted into cash each month, calculated to the nearest penny based on the number of megabytes used.

For Vodafone, the most intriguing aspect of its Voxi sub-brand is that it’s exclusively available to customers aged 25 and under. This is a challenging demographic with unpredictable attitudes and behaviours, so choosing to address it in a different way sounds logical.

On one hand, it seems like Vodafone is restricting the opportunity for Voxi by enforcing an age limit on the tariff. But this initiative isn’t unprecedented, and the operator has experience and success in deploying a youth brand – Yorn – in Portugal. In a similar move, at IFA 2017, T-Mobile announced a combined mobile and fixed-line plan for customers aged under 27.

Despite this, Vodafone’s effort could be seen as a tacit admission of failure to appeal to younger customers in the UK in recent years. In contrast to rivals, the brand has struggled to create an identity and a new wave of mobile users may now perceive it as bland and unexciting. The operator appears to have concluded that starting from scratch with its new Voxi service is a better option to attract this consumer segment than attempting to re-energise the existing Vodafone brand.

Voxi seems to be well thought-out brand, created with the help of its target audience, so it should resonate with customers. In particular, partnering with high-profile celebrities such as heavyweight boxer Anthony Joshua is a shrewd move, and we expect this will help generate early momentum.

However, Voxi delivers little that’s truly innovative. The service’s most attractive feature is the zero-rating of select social and chat apps, including Facebook, WhatsApp and Snapchat. But this is hardly a new concept as Virgin, EE and Three already have similar offers in place. More interesting could be the launch of Vodafone Pass in the future – a concept already introduced elsewhere in Europe – that enables customers to access music, social or video apps without limits, for a set fee. Voxi has hinted at a move in this direction.

Sub-branding hasn’t been a traditional strategy for network operators in the UK, perhaps because of the vibrant MVNO market that has well served a diverse range of segments and niches. Only O2’s giffgaff has been a notable and successful exception. But the approach is more commonplace in other European countries, notably France, Germany and the Netherlands.

BT is facing some tricky decisions as it juggles its three consumer mobile brands of BT Mobile, EE and Plusnet. I’ve long held the view that the company will ultimately jettison the EE brand, but its continued momentum on the back of strong investment is making this increasingly difficult. Only recently, it announced a major retail expansion with Sainsbury’s, for example. BT Mobile seems like a more value-led proposition, and this is somewhat at odds with the traditional high-end positioning of BT broadband and TV services.

As mobile brands jostle for position in the fast-moving UK market, expect plenty more activity over the coming months and years.