2degrees loses a loyal servant as CMO Malcolm Phillipps heads to the regions

Malcolm Phillipps joined 2degrees just a few months after it launched in late 2009 and he’s been a key figure in its evolution from a cheap and cheerful challenger brand to a grown-up, full-spectrum telco. Now he’s set to chuck it in and head to the Waikato. 

“My wife and I have decided to relocate to the Waikato so we’re closer to family and spend more time with the kids as they do their schooling. In terms of work, we have no set plans, but we’ll be looking at business opportunities down there over the coming months.”

He won’t finish up at 2degrees until mid-November and then will likely stay involved on a consulting basis for a few months post that, helping out in some different areas while the search for a new chief marketing officer happens.

Phillipps started off as head of acquisition/marcomms in 2010 and took over the CMO role after Larrie Moore departed in 2012. And in that time the brand has continued to evolve, its reach into other sectors has been extended and its mobile customer numbers have continued to grow quickly, with the latest announcement claiming 1.3 million. 

One of his big moves was putting the creative account up for pitch in 2013. WhybinTBWA had been there from the start, its work to launch the brand won a number of awards and its use of Rhys Darby as the frontman gave the brand a heap of traction. But in the end Special Group won, something Phillipps put down to its strategic nous, and embarked on the “subtle transition”. 

“We knew we were a strong consumer brand, but our remit was about moving it across and expanding into all sectors.” 

Of course, growing companies regularly lose money as they re-invest and 2degrees has accumulated losses of around $360 million. It did narrow its losses to $33.6 million on revenue of $400 million in 2014 and Phillipps says the simple but insightful ‘Smartest Business People‘ campaign, which featured Dion Nash, Al Brown, Kate Sylvester and Geoff Ross, was one of its most successful campaigns last year. And its recent focus on the companies that had switched to 2degrees, such as Whittaker’s, Jucy, Ecostore and Lewis Road, is in a similar vein. 

The recent move into the broadband market after the acquisition of Snap in March was a watershed moment for the company that changed the mind of some previously anti-2degrees analysts.

“You don’t get opportunities like that all the time. To go into a new market again. It’s exciting. We’ve got 780 staff ready to go into the fixed market. And 120 staff at Snap who are excited to be part of it, and then our agency partners. This is the reason they wanted to be involved with 2degrees.”

“We expect to grow rapidly, but it will take longer to grow than mobile as the market conditions are quite different,” he said a few weeks back. “The broadband market is quite different to mobile – there are more operators and with ultra-fast broadband, we all have access to the same network at the same cost … While we won’t be providing you with any specific numbers, what I can say is that a lot of 2degrees mobile customers were waiting for our broadband offer and have already signed up in the last two weeks. Overall, growth is exceeding our targets and is well ahead of the numbers Snap was getting as a stand-alone fixed operator, so clearly the 2degrees brand is resonating with customers beyond mobile.”

​Phillipps says 2degrees has a comparatively small budget when compared to some of its larger foes. And so it needs things to be done in the most economical way possible.

“I do think it’s about laying the strategy and building the ideas on top of that. It doesn’t need to be an expensive idea, or a 60 second TVC. We are moving away from that. No matter what people say, there’s a migration. When we started 2degrees, we ran a 60 second TVCs and everyone in the country had seen it. That was your message and everyone got your brand. Now we’re five years on, you run a TVC and wander round the office and say, did you see that? And the answer is likely to be no.” 

He says TV is still a very cost effective option for the large proportion of the market. And 2degrees still uses it a lot. But he says it’s about looking at how the media mix builds up around an idea, rather than starting with the creative idea of the 60 second TV and then activating around that. 

He says Special Group showed an aptitude for this type of thinking and that was driven by the planners providing really good insights. And, as an example of that philosophy in action, he points to the Play the Bridge campaign

While the company has grown quickly in terms of customer numbers, he says it’s been fairly static as far as marketing budgets go. There are still good budgets available, he says, but he abides by the philosophy that “you should use creativity and ideas vs weight,”

“Our ideas need to work. And we put a pretty tight filter on working together to say do we think this will really work. The quality has been really high. And it has worked. You think about the flow of things. We had the play the bridge campaign draw attention to our new plans, to being able to pay for Google Play through your account, then into the S6 launch, and the fact that it could act as a catalyst for all that stuff was really tight. But the reaction from people around the country was great too. They thought the bridge was a great idea.” 

And, as someone summed up, “finally someone lit up the old grey coathanger”.

Branding is always important, but in a hugely competitive market like this, so is price. And Phillipps says it also needs to offer appealing deals. Its so-called $6 million banner aimed to show punters they were still getting ripped off by the big players. And it also decided to play on the pang of phone-based FOMO (and fully embrace stylistic obsolescence) with its Trade Up product, which allows customers to pay $10 a month in exchange for a new phone every year. 

“Sometimes the deal can be the creativity.”

Phillipps has also been heavily involved in the growing retail aspects of the business and the streamlining of the marketing department.

“Our first store was at the start of 2011 about a year and a half after launch. Now we’ve got 50 stores all around the country. We’ve got an inhouse design team that do a lot of point of sale work. But they take creative assets from broader campaigns from Special and we’ve got Catch Design who do a lot of our digital work. Sometimes you see landgrabbing. But I don’t see that. There’s a willingness to work in with that flexible model, which can work better for a company than having an agency doing everything and charging you $200 to get a price card changed.” 

One of the broader telco marketing trends is using marketing budgets to secure partnerships and offer customers something of value, rather than simply making an ad and buying media. 

Recently, Spark has done a good job of that with Spotify, its own Lightbox service and The Boroughs project. Vodafone has its with Sky and Netflix. And 2degrees shacked up with Google Play and, for the launch of its broadband service, offered a deal on Sky’s Neon.

“Whether it’s sports or music, it’s about asking who do you partner with and what story comes along with that? It’s not just awareness, it’s not just the traditional thing of having the logo on the chest of some players. It needs to provide a business benefit and I think people are more focused on that now.”

He points to things like the partnership with NZME and iHeartRadio, where it put on a number of free concerts for customers. 

“We respect what the guys at Spark do. They’ve done some great stuff. We look at them as a key competitor. For us, it’s good to line yourself up against the companies you want to compete against. But you spend between $35-40 million on that stuff [like giving away Lightbox to its 600,000 customers], that’s quite a lot. Not many companies have the scale to do that and full credit to them for being in a position to do that. But we’re forced to be in a position to say how can we be more creative.”

Phillipps thinks the online content arms race, which many of the telcos are now invested in heavily, is the most fascinating part of the media landscape at the moment. 

“How all that is going to play out with content rights and global mode, is really interesting.”

Just as online providers are making life difficult for ‘traditional’ broadcasters, tech companies have basically made the landline obsolete. And as Facebook tests drones and Google tests balloons in an effort to offer internet access, telcos selling connections and data (or, as Spark says, ‘digital services’) could be next on the list because those big tech companies have a desire to see more people connected. But by providing consumers with the ability to skirt legacy operators, this calls the economics of building infrastructure into question.

As Denis O’Brien, chairman of Digicel Group told the Wall St Journal: “Mark Zuckerberg is like the guy who comes to your party and drinks your champagne, and kisses your girls, and doesn’t bring anything.” Google, he says, earns “billions of dollars on advertising, and they don’t pay a penny. I think it’s the most extraordinary business model in modern history.”

That hasn’t stopped the telcos from investing heavily in new technology, of course—and then engaging in a tit-for-tat over who’s got the best 4G network—and 2degrees has also invested heavily in infrastructure.

“When we launched back in 2009, we covered about 50 percent of the population. Now it’s over 90 percent of our own. All the 4G we put in is our build. And that’s half a billion spent.”

As challenger brands grow, they tend to lose their edge or slowly become the thing they initially fought against. 2degrees’ comms have matured a lot since 2009, in part so that it didn’t alienate the more lucrative business and post-pay customers it needed to target if it was to succeed. But Phillipps says 2degrees is still a “challenger to the core”.

“When did Apple stop being a challenger? When they launched the iPad, were they still a challenger? That was a game changer.”

And while it might not be a game changer on the scale of Apple, he’s proud of what the company have achieved in the almost six years he’s been there.

“You tell the story and people engage with it. They see the difference. You tell them New Zealand was 29th out of 32 countries in the OECD in terms of mobile phone affordability in 2009 and all that’s been changed in the five years following that. It’s quite cool to see that it still brings a reaction out in people.”

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