Brand Health Check: Carphone Warehouse

The retailer's profits are on the rise, but it is failing to satisfy customers, and must act now to stave off the threat of the mobile operators' high-street charge. Daniel Rogers reports.

From a standing start in 1989, and thanks largely to the entrepreneurial zeal of founder Charles Dunstone, Carphone Warehouse has become the biggest independent retailer of mobile phones in Europe. At the start of last month, it reported that pre-tax profits for the half year to 25 September had jumped to £28.1m, from £20.3m last year. Indeed, Carphone has shown a steadily increasing profits curve.

Yet, on the day of its interims, the company's stock closed down 7p at 160p. This may have been due, in part, to Dunstone's prediction that the Christmas market would be 'bedlam'. As he said, there have never been more mobile phone products on sale and the price war has never been so fierce. There is evidence that operators - most notably 3 - are squeezing profit margins.

This is by no means Carphone's only challenge. More worryingly, the retailer came bottom for customer satisfaction in one of the UK's most authoritative consumer surveys, by research firm JD Power (Marketing, 10 November).

Furthermore, faced with falling margins and excessive churn in a virtually saturated market, the mobile operators are muscling in on the high street, once the preserve of Carphone. And they're doing it well: T-Mobile and O2 were named the best mobile phone retailers for customer satisfaction in the JD Power survey.

The operators are not the only ones Carphone needs to watch. Phones4u is focusing on customer service in its latest ads - though it has signalled it may soon move away from this strategy - and was ranked third in the survey.

We asked Richard Hartell, business director at Starcom Mediavest, who has previously worked on Orange, and Olly Raeburn, managing partner at Liquid Communications, how Carphone Warehouse can avoid a downturn in its fortunes.

DIAGNOSIS 1 - RICHARD HARTELL BUSINESS DIRECTOR, STARCOM MEDIAVEST

Carphone Warehouse's first rule as a business is if we don't look after the customer, someone else will.

Its advertising promises us 'A better mobile life'.

It sounds good and, until now, has clearly worked. But what next? Carphone Warehouse came last in JD Power's recent mobile retailer customer satisfaction survey, and, in a way, I am not really surprised. The name just says out of touch (carphone) and cheap (warehouse), and as I have never been a customer, there is nothing to make me think otherwise.

Carphone operates in a market that is saturated, commoditised and increasingly competitive, with consumers who are better informed than ever.

So where is the opportunity?

These days I expect to get a good deal and basic service delivery, but I still need someone to help me with what will become a more complex relationship with my mobile. I am not sure that 'A better mobile life' is enough, simply because I am uncertain what it means. The opportunity is there for a retailer with vision to reinvent its meaning.

REMEDY

- The name Carphone Warehouse is like an old coat that has become too small to allow freedom of movement. Rebrand - and quickly.

- Create partnerships in areas such as music, fashion and film to give the brand a relevant positioning for the latest generation of mobiles.

- Reinvent the stores. Move away from racks of phones to an environment that emphasises why I should want a deeper relationship with my mobile.

DIAGNOSIS 2 - OLLY RAEBURN MANAGING PARTNER, LIQUID COMMUNICATIONS

A high street without the familiar presence of at least three or four mobile phone retailers feels a little strange these days, but this was not always the case.

As the mobile industry enjoyed its boom, there was a sense that certain businesses had got it right and were riding the crest of the telecoms wave - Carphone Warehouse was one of those.

At a time when retail's approach to the sector tended to be based on glass cabinets and misinformed shop assistants, Carphone was a place where you could browse, touch the products, and, most importantly, ask and be told. It was a mobile Mecca.

Not surprisingly, the landscape has changed dramatically over the past five years, and Carphone Warehouse is no longer unique.

The business has, quite rightly, diversified - most notably with the launch of TalkTalk - to continue enjoying success. But its focus on customer acquisition through education has been superseded by the need to retain them through exceptional service.

REMEDY

- Remain focused on the things that drove Carphone's initial success: expertise and outstanding service.

- Ensure that customers have a reason to keep coming back. Build relationships with them that extend beyond the initial transaction.

- Make sure customers accompany Carphone on its journey. Diversify-ing is good, but the customers must be reassured that the brand they initially bought into still exists.

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