Cutting Room: O2 could benefit from week of hell

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Michael Garwood thinks the operator’s decision to deliver its compensation to customers through Priority Moments will prove to be a very clever move

July has been a month to forget for O2, with the operator on the receiving end of arguably the most damning headlines in its 10-year (solo) history.

Unfortunately for the company the network outages have come at a time when reliance on mobile services, whether for data use or calling, has become of paramount importance to many.

Perhaps even more unfortunate for O2 is the ease with which people can now vent their anger through social networking sites such as Facebook and Twitter, exposing and aggravating problems on a much greater scale than before.

There is simply nowhere to hide any more when something goes wrong – and O2 was punished heavily in the national media.

The last time the mobile industry saw similar headlines was when RIM’s BlackBerry service outages hit 35 million of its customers globally – including millions in the UK – although in that instance calling remained intact.

Customer exodus?
RIM’s reputation took a severe battering to the point that some say it may never recover. The firm’s sales and financial performance show it is continuing to struggle. Is this a knock-on effect from the outages? Almost certainly.

Will O2 experience similar problems? It’s unlikely, providing outages like this don’t become regular occurrences.

Although O2 might lose out on a few customers who were preparing to upgrade before the problems began or were considering switching to O2 from a rival, it is difficult to imagine it will experience a customer exodus.

Comments posted on O2’s Facebook site, which has more than half a million followers, provide some insight into the way customers felt at the time.

At one end of the scale, the majority of customers accepted faults can occur and that it was, after all, only for 24 hours.

O2 is not the first operator to suffer from signal issues and it won’t be the last. Masts can break down like any technology or they can be vandalised, which takes time to fix.

Just last year thousands of Vodafone customers were left without service following a break-in at the operator’s exchange centre in Basingstoke – although the outage was on a much smaller scale to O2’s.

But not everyone is as forgiving. Knee-jerk reactions posted on O2’s Facebook page included some quite ludicrous abuse and allegations, as well as the inevitable threats to leave the network for a rival.

One visitor to the page even complained that the emergency services which use O2 were unaffected by the fault, which they deemed unfair.

Magic Moments
However, most of the messages posted on the site were calls for some form of compensation – a fair ask and one O2 had to address to combat any potential bad feeling.

This, of course, costs money. A lot of money.

O2’s decision to give contract customers a 10 per cent discount on their September bill and prepay customers an additional 10 per cent top-up was a good move.

Based on O2’s last financial figures, the ARPU on contract is around £28.74, so if half of the eight million customers affected received the discount, O2 would stand to lose around £10.96 million. A sizeable hit for a 24-hour glitch.

On top of that, O2 opted to offer its entire base a £10 voucher to spend in its store.

The cynic in me sees this as a very clever move, and one which may help O2 turn a bad situation into a positive one.

While O2 could simply have slipped a £10 voucher in with its customers’ bills, it has instead opted to deliver the sweetener through its location-based loyalty and reward scheme, Priority Moments.

Priority Moments is a big play for O2. While providing its customers with everyday savings on some of the biggest high street brands, it also provides O2 with a lucrative revenue stream.

Silver lining
Now, O2 will not reveal how many customers use the service at present, only ever stating that “millions” have downloaded the app.

It did recently reveal, though, that one million customers have saved more than
£8 million through 3,400 offers on 300 high street brands.

For these revenues to grow, O2 needs more customers to use the service. It has spent millions trying to increase the number of subscribers, including a £4 million campaign at launch last November. It also recently added sports brand Nike to help extend its appeal further.

If all 23 million O2 customers accepted the offer, it would mean all 23 million of them signing up to Priority Moments.

It would also mean 23 million customers entering O2’s retail stores and being exposed to its products and services.

It’s hard to imagine any amount of investment achieving that kind of brand exposure.

It’s also worth noting, after a quick look round our local O2 store, that there aren’t too many products available for a tenner – except maybe for an O2-branded case that no doubt provides considerable margin opportunities.

O2 is set to lose a considerable sum, but the eventual returns may go some way to healing those wounds.

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