The Press, March 2010

Is Telecom New Zealand bankrupt?

Not in the financial sense of course, but in terms of their ‘brand bank account.’ The ongoing XT debacle and last week’s 111 failure in Auckland are hugely damaging, but what impact will it have on Telecom’s performance?

Telecom CEO Paul Reynolds must want to return to Scotland at the moment. The $650 million XT network built by global company Alcatel-Lucent has had several long outages and it appears the cause isn’t even clear. Telecommunications networks focus on “5 9s” availability i.e. being available 99.999% of the time.

Adding petrol to the Telecom fire was last week’s problems with 111 calls in the Auckland area, with some residents complaining of difficulty getting through to emergency services.

The interesting marketing aspect is the effect all this will have on the Telecom brand.

Brands are often talked about in terms of logos, advertising, jingles, brochures and signs on cars etc. A brand is all those things, but a lot more. A brand is the picture each of us holds in our heads about certain products, services and companies – a picture we use when it comes to buying. It is a much more complex and deep thing than a few adverts and a nice logo.

If it wasn’t, Telecom would be able to simply paper over their current disasters with more of their clever TV advertising campaigns and pasting their new asterix logo everywhere.

A useful way to think about the Telecom situation is look at the concept of a brand bank account, which has been written about lately by the likes of online marketing guru David Meerman-Scott.

The concept holds that each of us has a sort of virtual bank account in our minds for each entity we deal with. Every day we have hundreds of “transactions” with those brands – seeing an advert, buying a product, reading a review. The value of those experiences either adds or takes away from the balance of our ‘bank account’ for that brand.

Telecom deposits into my brand bank account when I receive good service at one of their stores, my broadband stays online, I see a clever advert or a call centre operator can help me with a request. They make withdrawals when they send me long and confusing invoices, annoy me with customer survey after customer survey, my broadband falls over or I have to battle with automated telephone answering systems. Or in the case of some recent customers in the south whose mobile service failed, and those in Auckland last week who couldn’t reach emergency services.

Nice theory, but what’s the relevance to day-to-day marketing?

The strength of a brand bank account balance is important when it comes to a customer’s competitive choice. If I am renewing a cellphone contract, or thinking about reviewing my broadband supplier, the relative strength of my bank account balances for each telco makes a real difference.

This makes the current controversies damaging to Telecom and threatens the solvency of their brand bank accounts, a weakness the competitors are exploiting.

“Jump from the XT Notwork” says Slingshot in their online promotions. “Switch to New Zealand’s reliable network,” says Vodafone.

Telecom have tried to get their brand bank account balances back in black, committing $10 million in compensation, profusely apologising, even donating some sizeable sums to charity. Several senior executives have even paid for the problems with their jobs.

Will the Telecom brand recover? To take the bank account analogy a little further, they probably will because of the nature of their ‘account’. Everyday brands such as milk or soft drink are like cheque accounts, fast and flexible and likely to change quite often.

Telecom’s brand bank account is more of term deposit or mortgage – you have a long term relationship that is slowly built up or diminished. Telecom is a huge company with many years of proven service behind it.

An issue for the company is that it has slowly eroded its brand bank account for many customers before these latest crises. They have showed a lack of respect for customers (e.g. a former CEO said confusion was a marketing tool for the company), and acted like a monopolist in several areas.

Having a weak balance when they are hit with things like the XT failures means they are in a weak position to begin with, and the customers and the media react accordingly. They become the brand we love to hate.

Contrast that with a loved brand like Trade Me or Kiwibank, either of which could withstand a crisis of similar magnitude more easily because their brand bank account balance is a lot healthier.

It is something Telecom needs to think about after they emerge from this crisis, really focussing on customer value rather than paying lip service to it. That will leave their brand bank balance more like a National Bank and less like a Provincial Finance.

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