Building Brand Awareness: AO World's Key to Explosive Growth
AO World invests £15m in brand-building to capitalize on growth potential through heightened awareness
AO World, an electrical retailer, is redirecting its marketing efforts towards brand-building, recognizing the potential for growth lies in increasing awareness of its brand value. CEO and founder John Roberts addressed investors on November 21, highlighting the company's focus on scaling up and enhancing operational excellence.
“There is immense value in combining size and brilliance, and these benefits grow exponentially over time,” remarked Roberts. “Expanding brand awareness of this value is one of our greatest untapped potentials.”
With this objective in mind, AO will allocate £15m towards brand development marketing throughout the current fiscal year. The emphasis will shift from direct acquisition efforts to more brand-centric investments. This will involve increased investments in mediums like television while reducing spending in channels such as pay-per-click and affiliate marketing.
As a percentage of sales, spending on these high-performance channels has decreased, according to the company. However, there has been a significant increase in brand investment. In AO's first half of the financial year, which ended on September 30, advertising and marketing spending accounted for 3.6% of revenue, compared to 3.2% during the same period last year.
In terms of actual monetary value, marketing spend did decline from £17.7m in the first half of the previous financial year to £17.4m this year.
AO experienced a 12% decline in revenues during the first half of the year. However, in contrast to the previous year, the company successfully generated a profit of £13m, contrasting with a loss of £12m in the same period. Consequently, AO has adjusted its profit forecast for the year ahead, raising it from £28m to a range of £28-33m. Although the company is optimistic about the potential for growth through increased brand-building investment, Roberts, the company's spokesperson, cautioned investors that the tangible outcomes of this strategy will require a certain amount of time to become apparent.
The speaker acknowledged the company's previous experience of organic brand recognition. He mentioned that it currently stands at a 10% increase compared to last year and a 20% increase compared to three years ago.
Additionally, he expressed his belief in AO's ability to stimulate repeat purchases. He stated that approximately 11.6 million customers have now made transactions with the brand, which is a rise of 3.5 million from three years ago.
He emphasized the significance of this by stating, "Our distinction lies not in our actions, but in the manner in which we carry them out." In support of his statement, he highlighted the Trustpilot reviews of our brand. AO boasts an impressive count of nearly 450,000 reviews on Trustpilot, with an outstanding 93% receiving four or five-star ratings. Comparatively, competitors such as Argos, John Lewis, and Currys have considerably fewer reviews and a lower percentage of highly-rated feedback.
"People may forget your words, but they will always remember the impact you had on their emotions," he stated, emphasizing, "Although our product's purchase cycle is not the fastest, the efforts we put in today will eventually bear fruitful results, just like planting saplings that grow into sturdy oak trees."
Although AO asserts that its quality distinguishes it from competitors, GlobalData's analysis shows a decline in its market share in the UK and underperformance in the electricals market.
According to Oliver Maddison, a retail analyst at GlobalData, AO's decrease in market share reflects its challenging position in the UK electricals market. This is due to competition from omnichannel retailers such as Currys, as well as price competition from emerging online retailers like Marks Electrical.
Maddison suggests that AO should focus on improving its channel proposition in order to compete with Currys. This could be achieved by expanding its product range to attract a wider customer base. Additionally, while AO may be unwilling to engage in price competition with other online retailers, it can enhance and simplify its interest-free credit offering to make its products more affordable for consumers who are financially constrained.
AO’s Roberts did cite its 500,000 finance account customers as another key driver of its “flywheel”. Revenue from these customers makes up around 10% of AO’s retail turnover, he said.
