Market conditions appear to have hit all mobile retailers hard, but Phones 4u’s Tim Whiting sees it differently: ‘These turbulent times ensure you are efficient.’
Those who know Whiting believe he will embrace the current conditions.
One senior trading partner says: ‘Tim is very well suited to a market about boxing clever and finding a path around lots of challenges rather than just riding growth. I think he is relishing the challenge of the market and pitting his wits against the competition.’ The economic climate is certainly regarded as unforgiving in punishing any companies not on their mettle.
For Phones 4u, the downturn in consumer spending is just one factor that made many observers raise concerns about the health of the number two mobile retail chain.
High street difficulty
The first reports of misery on the high street coincided with the announcement from Ofcom in May of an investigation into mis-selling in mobile retail and, specifically, at Phones 4u. Whiting’s business faced considerable embarrassment and a potentially fatal prospect of a temporary ban on selling contracts if the investigation found serious breaches.
Whiting, now more removed from the day-to-day aspects of Phones 4u’s operations, became personally involved in addressing the issue, reassuring networks and directly talking to the regulator.
Ofcom and Trading Standards
received over 2,000 complaints about Phones 4u between December 2007 and February 2008.
The timing was awful. It came amid the storm of unpaid cashbacks and mis-selling in the mobile industry that tipped mobile retail into the mainstream.
Pressure had built up from a high-profile TV documentary on Channel 4 about mis-selling and bad practice in the mobile industry, newspaper coverage and lobbying in the house of commons.
Complaints and the public furore had risen so high that it became too big for local trading standards offices to manage and was moved into Ofcom’s territory. The investigation’s focus on Phones 4u resurfaced stereotypes of the scheming and aggressive Phones 4u salesman that Whiting and his team had worked hard to banish over the previous three years.
Whiting maintains that 80% of those complaints were linked to ‘failures in the company’s repairs process’, rather than an institutionalised culture of mis-selling in the company. ‘The business had a real issue with its process around repairs,’ says Whiting. Phones 4u was using MPRC (former sister company under the Caudwell group) as its repair partner.
Consumers’ faulty phones weren’t being fixed quickly enough and were often still inadequately repaired.
MPRC was dispensed with in September 2008 by Phones 4u as the problems around repairs came to light. MPRC has since been shut down by its parent company 20:20 Mobile, and Phones 4u has switched its operations to A Novo.
Whiting prefers not to blame MPRC, but concedes that the responsibility lies within Phones 4u. ‘It took too long for us to identify the failures of our partner, and then several months with finding a new partner.’
Ofcom insists there were other breaches of consumer protection laws that it discovered at Phones 4u after its six-month investigation, and published at the time. These included unfair terms in Phones 4u’s returns and cashback policies as well ‘misleading, false or deceptive representations or omissions’ on matters of coverage and tariffs.
Whiting doesn’t want to get into discussing confidential aspects of the investigation and only says: ‘Ofcom were very professional in the way they handled the investigation.’ But several sources at Phones 4u say Ofcom left no stone unturned as it went through the retailer’s business over the six months.
There is also a perception from Phones 4u sources as well as trading partners that the regulator wanted a big name scalp to underline its power as a regulatory body.
One analyst says: ‘They’ve done it before with things like Big Brother on Channel 4, where they jump on an issue and make an example of someone.’
Ofcom says: ‘We took action against Phones 4u as a result of a significant number of complaints to both Ofcom and Consumer Direct about all four of the issues raised in our undertakings. Ofcom takes the issue of mis-selling very seriously and developed a series of undertakings that the company must adhere to in order to prevent further consumer harm.’
Whiting says managing the problem was critically important, but his involvement was as much about managing perception. ‘It was important to recognise how the business is being perceived, and I was very conscious that we’ve never had a relationship with the regulator.’
Nowhere was Phones 4u’s caricatured image of hard-selling more evident than outside its stores in the notorious practice of ‘street-fighting’ – where staff approach passers by and attempt to lure them into the store. This was quickly banned, and commissions were radically overhauled to have a much bigger emphasis on service.
The ‘Net Promoter Score’ (NPS) measured how likely a customer was to recommend the service. Whiting says: ‘It’s the number one factor we use to pay our staff, and we’ve seen it embraced month to month. It’s part of a massive culture change for us.’
Also part of the accusations is the potential conflict between Phones 4u’s independence to offer the best deal to the consumer and its perceived agreements with certain networks to deliver volumes.
Whiting says: ‘I have no commitments to any networks to sell products unless they’re competitive in the market.
‘My market share [for networks] oscillates but it goes up and down depending on the quality of their proposition. Our customers are fairly ambivalent about network, and more interested in the handset.’
He concedes that there are some differences on his store staff’s commissions between networks but adds: ‘The biggest driver for their commission is NPS. There really isn’t a huge gap between commission of one network over the other.’ As far as network coverage goes, he argues that it is near impossible to anticipate the specific network experience of every customer. ‘We offer a no quibble 14-day return to all of our customers so if there is a coverage issue they can bring it back and choose another network.’
The other challenge faced by Phones 4u is the overall declining market with fewer customers buying phones, and operators being more successful at retaining their own customers.
Whiting is philosophical on the impact from operators direct retention strategies: ‘We have to offer customers choice. Some customers are very happy being rung up by their network. If I was a network, I’d be doing the same. For a lot of customers though, and there are plenty, they are more driven by the handset, and they want choice.’
Phones 4u sources claimed contract sales had fallen sharply in stores. The company had 47,000 contract sales from stores in October – a major drop from two years ago. But some of that shortfall was made up by the burgeoning direct business.
Direct chief Nick Fisher has been at the helm of the star performing division within Phones 4u. The £9m Dial-A-Phone acquisition in February 2008 has been successfully integrated, with collective telesales and direct mail now taking non-store contract connections to 25,000 per month.
Whiting says: ‘The number of contracts we sell as a group is flat. But there is more of a mix. We have a bigger balance of channels (stores, telesales and online).
‘We’re delighted with the Dial-A-Phone deal. We were always going to grow our direct business. It was either organic or by acquisition. We really under-index