Forrester Case Study: Giffgaff uses co-creation to build a differentiated mobile service business

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February 9, 2011

Case Study: Giffgaff Uses Co-Creation To Build A Differentiated Mobile Service Businessby Douglas S. Williamsfor Consumer Product Strategy Professionals

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For Consumer Product Strategy Professionals

ExECUTivE SUMMAryJust a few years ago, mobile virtual network operators (MVNOs) were a dime a dozen. Big companies like Disney and ESPN tried — yet failed — to create a mobile experience differentiated from the main operators in their markets. How have consumer product strategy (CPS) professionals at giffgaff, a small offshoot of UK mobile operator O2, succeeded where other prominent companies repeatedly failed? The early success of giffgaff hinges on its ability to deliver a radically differentiated service in an extremely mature market. By eschewing traditional service provider business models in favor of co-created products and services, CPS professionals at giffgaff have created a distinct product experience that is continuously evolving via co-creation with public community members. Other CPS pros can take a page out of giffgaff ’s playbook and look for ways to leverage co-creation to launch new entrepreneurial lines of business either within or outside of their core markets.

TABlE oF ConTEnTSCo-Creation Is The Foundation Of The Giffgaff Business Model

Giffgaff Built The Community First And The Business Second

The Community Shapes ongoing Development of The Product

Co-Creation Allows Giffgaff To Deliver On Its Four Key Business Tenets

rECoMMEnDATionS

Unleash The Startup Within Your Own Company

AlTErnATE viEW

Supplement Or Supplant Innovation Labs With Radical Co-Creation

noTES & rESoUrCESForrester interviewed robbie Hearn, head of member experience at giffgaff, and Katy Kiem, chief marketing officer and Dan Ziman, vice president — marketing at lithium Technologies.

Related Research Documents“Market overview: Co-Creation vendors 2011”January 24, 2011

“How To Turn Social Media Assets into Social Co-Creation Assets”December 1, 2010

“identify Participants And Engagements To Drive Co-Creation Efforts”october 5, 2010

February 9, 2011

Case Study: Giffgaff Uses Co-Creation To Build A Differentiated Mobile Service BusinessAn Empowered reportby Douglas S. Williamswith J. P. Gownder and laura Wiramihardja

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Case Study: Giffgaff Uses Co-Creation To Build A Differentiated Mobile Service Business For Consumer Product Strategy Professionals

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CO-CReATIOn IS The FOUnDATIOn OF The GIFFGAFF BUSIneSS MODeL

Giffgaff is a wireless mobile virtual network operator (MVNO) in the UK and is a wholly owned subsidiary of mobile operator O2.1 Consumer product strategists at giffgaff believe that customers often perceive traditional mobile operators as coming up short with regard to cost, billing, transparency, and customer service. To combat these shortcomings, product strategists at giffgaff designed a radical business model based on deep customer co-creation, which they believe promotes the core values of their company: honesty, simplicity, transparency, and mutuality.2

How radical is giffgaff ’s co-created business model? Product strategists designed the service with a simple tagline: “The mobile network run by you.” And they mean it: They’ve designed giffgaff to have:

· No call centers. All customer-service-oriented questions are posed to the community, and giffgaff relies upon the community to provide most answers.

· No formal marketing. External marketing efforts are minimal. The community serves as the main customer acquisition channel, as members are incentivized to sign up new members.

· Very few employees. As of December 2010, giffgaff employed just 14 people; this is a testament to its ability to extract input and value from the co-creation community, thereby delivering operational savings to the bottom line.

Giffgaff Built The Community First And The Business Second

Core to giffgaff ’s success is the member community it has developed. Many companies recognize the value of public and private communities for (among other things) developing new products that satisfy unmet customer needs.3 In this situation, product strategists at giffgaff built the community first, then co-created the service offering with the community’s help — all in a public forum. The reason giffgaff ’s radical approach to co-creation works is because giffgaff is operating as an entrepreneurial business within a relatively mature market — and one the development team knows is rife with consumer discontent. Product strategists developed the service by:

· Creating and developing the plan for the business. The idea for launching a wireless service that was defined and largely run by its users came from Gav Thompson, head of brand strategy at O2, in the summer of 2008. O2 knows the UK wireless market inside out, so product strategy professionals had little difficulty building a feasible business plan within the MVNO (i.e., wholesale) model. Over the next year, O2 developed and approved the business plan and registered the company.

· Selecting a vendor to host the public community. Product strategists at giffgaff began their vendor selection process in the second quarter of 2009; they selected Lithium Technologies as the community platform provider in August of that year. They chose Lithium based on its

© 2011, Forrester research, inc. reproduction Prohibited February 9, 2011


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reputation in the market and its experience working with other prominent companies like Verizon, as well as the flexibility of its technical architecture and its ability to integrate into giffgaff ’s knowledge base and eCommerce systems.

· Developing and launching the site — with community engagement at the center. Lithium completed development of the site within eight weeks. The community launched in October 2009; upon launch, the company’s focus was not on growing the business but instead on growing the community, both in terms of numbers as well as level of engagement. The community began as a very “expert” group comprised largely of knowledgeable, tech-savvy men, yet over the past six months, giffgaff has seen its membership become more ethnically diverse and gain a greater number of women as well.

· Launching the service and letting the community go to work. The MVNO service went live on November 25, 2009, roughly two months after the launch of the community. To achieve operational cost savings, giffgaff did not create a call center for customer service. Instead, it simply hosted a “Help” section on the community, where members could post and reply to questions. This was the biggest “unknown” in the business model, but the results have been strong, with response times averaging less than 3 minutes (and that’s 24 hours a day).4 In this sense, the members are co-creating not just the product but also the overall product experience, which is one of the key selling points of the giffgaff service.5

The Community Shapes Ongoing Development Of The Product

It would be an understatement to say that the giffgaff community is active (see Figure 1). Membership currently numbers in the tens of thousands, yet about 220,000 posts have been submitted across all of the community forums. Members have been involved in: defining the contents and prices for “goodybags” (bundles of text, voice, and data); choosing a new voicemail dial-in number (they selected 443, or GIF); independently developing giffgaff iPhone apps (which have been revised based on member feedback); and creating and distributing a micro SIM template, allowing members to physically alter a giffgaff SIM so that it works in an iPhone 4. Prominent giffgaff community forums where co-creation takes place include:

· Contribute. Here, giffgaff asks for ideas relating to small tweaks in service or new promotions or other ways to generate interest in the company. Posts in this forum come from both giffgaff and members. More than 30,000 posts have been made in this part of the community.

· Submit. This is the formal ideation site, with more than 13,000 posts to date. This is where giffgaff empowers members to share “fully fledged” ideas, as well as to vote for and comment on other members’ ideas (see Figure 2).6 A total of 134 member ideas have been implemented in less than a year.7 Robbie Hearn, head of member experience, considers the sheer volume of ideas (more than 200 per month) to be the biggest surprise in terms of how giffgaff has evolved.8



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· Help. The Help forum serves as the customer service department for giffgaff. With more than 145,000 posts, this is where members ask questions and receive responses from one another, awarding kudos to members that provide helpful answers. While not thought of as a direct forum for ideation, customer service centers can reveal shortcomings within a business that savvy product strategists can uncover and fix. Best Buy and Bosch Group have leveraged customer service channels in this way.9

To validate these community-generated ideas, product strategists at giffgaff use a scorecard that evaluates key factors such as implementation time, project cost, complexity, integration into existing systems, commercial viability, strategic fit, and the impact of the idea on the product planning road map already in place.10

Figure 1 Most Community Participation lies in Helping, Contributing, And Submitting ideas

Source: Forrester Research, Inc.58657

Source: gi�ga� website



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Figure 2 A Distinct ideation Site Exists Within The Giffgaff Community

Source: Forrester Research, Inc.58657

Source: gi�ga� website

CO-CReATIOn ALLOWS GIFFGAFF TO DeLIveR On ITS FOUR KeY BUSIneSS TeneTS

Remember those four key tenets to which product strategists at giffgaff wanted to adhere when developing this new mobile service? It turns out that co-creation actually helps product strategists at giffgaff deliver on those tenets in the following ways:

· Honesty. Giffgaff creates a stronger bond between customer and provider by being honest with the community and treating members with respect. For example, giffgaff tags submitted ideas so that the originator and the community know the status of the suggestion.11 When ideas simply do not work or are too difficult to implement, giffgaff provides that honest feedback as well. A further example: When explaining data rates to members in the community, giffgaff asks for feedback but also clearly states that if a lower price is demanded at one place in the model, another price point must rise.12 With giffgaff being honest about the tradeoffs in its



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pricing structure, the community can make informed and rational decisions, rather than simply demanding something for nothing.

· Simplicity. Giffgaff is a “bring your own phone” business, which keeps thing simple because the only physical product it distributes is SIM cards.13 On launch, the only service plan available was a simple pay-as-you-go model, but engagement with the community quickly revealed preferences for bundles of voice minutes, text usage, and data. These “goodybags” were co-created with the community and are purchased on a month-to-month basis. By keeping things simple, product strategists at giffgaff have devised a service with easier marketing and administration — and its members have a clear sense of what they are purchasing and the flexibility to change services as needed.

· Transparency. The co-creation community has informed product strategists at giffgaff about just how transparent it needs to be. The first time a network outage occurred, the community lambasted giffgaff for taking 45 minutes to respond. The next time, giffgaff ’s response was well-received, as it took just 15 minutes and accompanied it with detailed technical information explaining the cause. On another occasion, the community expressed its displeasure at giffgaff for removing one of several service offers that had been co-created with the community six months earlier.14 Product strategists at giffgaff have learned to share as much as possible with the community, but they are also challenged to set expectations with the community around unreasonable levels of participation.

· Mutuality. In the spirit of mutual giving, product strategists at giffgaff give members the opportunity to co-create the mobile service that best suits them. In return, members give product ideas, customer service support, marketing services, and sales channels to giffgaff. Members earn points for participating in the community, providing accurate responses to customer service questions, encouraging friends to become members via activating giffgaff SIM cards, and generating new product ideas.15 This sense of mutuality provides members with an incentive to participate.16

r E C o M M E n D A T i o n S

UnLeASh The STARTUP WIThIn YOUR OWn COMPAnY

CPS professionals tasked with innovation or new product planning should be on the lookout for entrepreneurial startup opportunities within their own organizations. But be mindful that these new — sometimes radical — products or services need not emerge from entirely new markets. in building giffgaff, product strategists at o2 engaged in radical experimentation using co-creation to develop a new line of business within their own familiar product space: the UK wireless market. With this new investment, product strategists at o2 struck the right balance between risk and safety — lessons from which other product strategists can learn.



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· Stay within your knowledge base and comfort zone . . . o2 is in the wireless business, so its product strategists knew a ton about the wireless market to begin with, including the terms and conditions, rates, and policies that would apply to giffgaff as an Mvno. This allowed product strategists designing giffgaff to leverage internal expertise to build a business plan that made sense.

· . . . while pushing against conventional wisdom to create differentiation. Product strategists at o2 also recognized the need to deliver a highly differentiated product experience into the market. in this case, that meant ignoring the handset angle preferred by many operators in favor of giving consumers what they found lacking in other operators in the UK market. it was through co-creation via a public community that product strategists at giffgaff were able to identify those unmet needs in the market and deliver a differentiated product, while also holding true to the four key tenets of their business.

A l T E r n A T E v i E W

SUPPLeMenT OR SUPPLAnT InnOvATIOn LABS WITh RADICAL CO-CReATIOn

Some companies like Google and HP provide opportunities to employees across the organization to build out their own ideas for new products and services through a type of internal “innovation lab” process.17 While these efforts can be successful for large multinational organizations, internal-driven innovation also has limitations because it focuses on what the company’s employees know and believe. instead, product strategy professionals at companies large and small should step outside the boundaries of internal conventions to explore robust new opportunities. in order to use radical co-creation engagements to involve consumers early in the process of exploring complementary or substitute products, product strategists should:

· have some target areas mapped out. We aren’t suggesting that you blindly hand the office keys to consumers. Conduct an internal brainstorming session to identify some targeted markets that could be explored, even at just a high level — such as mobility, outerwear, or automotive accessories. no experience is necessary: This is an opportunity to move outside your comfort zone.

· engage a community. outside-the-box thinkers or specialized experts can help you identify what opportunities or unmet needs may exist in those markets.18 Co-creation vendors can help you identify and engage with those people in markets around the world by creating a custom-built community or leveraging a vendor-cultivated community.19 Community members will help you find new business ideas — or provide quick feedback that the pastures you are beginning to explore are not fertile.

· Worry about monetizing the idea later. Management will want to know what the roi is before you even get started. Product strategists should be ready to demonstrate how radical co-creation can help unveil new opportunities, shorten the exploration/ideation process, and reduce risk of failure moving forward. once you are armed with a good idea, the business case will fall into line.



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enDnOTeS1 O2 itself is wholly owned by Telefónica.

2 If you know your Scottish Gaelic, you’ll recognize that it’s all in the name: Giffgaff is an old term that means “mutual giving,” which is precisely how the company operates with its customers, or “members.” If you don’t know your Scottish Gaelic, visit http://www.gaelic.com/ to bone up on it.

3 Forrester has published two case studies exploring social co-creation via private online communities. See the December 17, 2010, “Case Study: IHG, Chase, And Consumers Co-Create A New Rewards Credit Card” report and see the January 21, 2011, “Case Study: Philips Achieves Consumer Proximity Using Private Online Communities” report.

4 Giffgaff recognizes that it can’t source 100% of customer service to the community, as the company has to address issues relating to account or credit.

5 The Era of Experience is a new era of economics, where breakthrough product experiences will become common, everyday events. Forrester prepares people to lead — rather than follow — in this era by adopting a “total product experience approach” to product strategy, thus opening a Pandora’s box of compelling and consistent digital experiences that extend the value of physical products into the realm of digital experience. See the October 18, 2010, “How To Prepare For The Era Of Experience” report.

6 This site operates like other well-known ideation sites, such as Ford’s Your Ideas and Starbuck’s My Starbucks Idea. See the September 24, 2010, “Case Study: Ford Pursues Co-Creation With An Ideation Site” report and see the September 22, 2010, “Case Study: Starbucks Uses Social Co-Creation To Drive Green Product Strategy” report.

7 Source: vincent, “Giffgaff ideas are overwhelming,” giffgaff community, January 25, 2011 (http://community.giffgaff.com/t5/Blog/Giffgaff-ideas-are-overwhelming/ba-p/354413).

8 The increase in volume has caused giffgaff to alter its policy of replying individually to every member who submits an idea in favor of replying only to those members whose ideas generate 10 “kudos” from other members. Giffgaff publicly announced this policy change on its blog in order to maintain transparency and welcome any feedback. Source: vincent, “Giffgaff ideas are overwhelming,” giffgaff community, January 25, 2011 (http://community.giffgaff.com/t5/Blog/Giffgaff-ideas-are-overwhelming/ba-p/354413).

9 Source: Janelle Noble, “Video Case Study: Bosch,” Brightidea, January 26, 2011 (http://blog.brightidea.com/innovation_work/2011/01/video-case-study-bosch.html#tp) and see the June 30, 2010, “Case Study: Best Buy’s Retailer-Led Product Strategy” report.

10 Source: vincent, “Giffgaff ideas are overwhelming,” giffgaff community, January 25, 2011 (http://community.giffgaff.com/t5/Blog/Giffgaff-ideas-are-overwhelming/ba-p/354413).

11 Ideas are tagged into one of the following categories: Implemented, Accepted, Under Consideration, Future Review, Need More Feedback, New Ideas, Duplicate (duplicates are marked, and a link to the original idea is provided), or Not Suitable (giffgaff posts a response to inform the user why it decided that it was not suitable).












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12 Source: “An update on data pricing,” giffgaff community, January 25, 2011 (http://community.giffgaff.com/t5/Welcome-and-News/An-update-on-data-pricing/td-p/355085).

13 The lack of subsidized phones also eliminates the need for long-term service contracts.

14 Source: gaffer, “£30 goodybag, a closer look,” giffgaff community, November 16, 2010 (http://community.giffgaff.com/t5/Blog/30-goodybag-a-closer-look/ba-p/157451).

15 Giffgaff also has the ability to award additional points at its discretion, which it may do for a particularly inspiring new idea. In addition, “paybacks” occur every six months, whereby active members are rewarded for their participation in the community and for getting new members to join. In December 2010, a total of £128,000 was awarded back to nearly 15,000 members of the community. Source: robbie28, “Christmas comes early for giffgaff community, with £128,000 bonus,” giffgaff community, December 17, 2010 (http://community.giffgaff.com/t5/Blog/Christmas-comes-early-for-giffgaff-community-with-128-000-bonus/ba-p/249535#comments); clairekav, “Spreading holiday cheer,” giffgaff community, December 3, 2010 (http://community.giffgaff.com/t5/Blog/Spreading-holiday-cheer/ba-p/208265).

16 Not all participating members are involved just to earn billing credits for preloaded SIMs. In fact, at the bequest of the community, giffgaff now enables members to donate their earned credits to a charity that was — you guessed it — chosen by the community.

17 In HP’s 70-year history, it has innovated in many new and established technology fields. But how does the firm cope with the inevitable slide — faced by most dominant global firms — into driving established products rather than innovative ones? Whether in personal computers (PCs), printers, or other consumer products, HP has shown a capacity for driving product innovation over a long period of time. HP has established a strong core organization to drive rapid, near-term innovation via strong management, a series of documented processes — and a willingness to openly talk about these. See the September 21, 2009, “Case Study: How HP Drives World-Class Product Innovation” report.

18 In order to pursue co-creation, CPS pros need to have a firm grasp of the participants they can engage and the types of co-creation engagements they can leverage. To that end, Forrester has constructed taxonomies of co-creation participants and engagements. See the October 5, 2010, “Identify Participants And Engagements To Drive Co-Creation Efforts” report.

19 Are you interested in implementing social co-creation engagements that move beyond Facebook, Twitter, and the occasional outreach to consumers via the corporate blog? If the answer is yes, a near-endless string of questions will soon follow, all centered on a single word: how? Here, we offer CPS pros guidance around what social co-creation engagements require assistance from outside partners and the relative benefits of each type of engagement. See the January 24, 2011, “Market Overview: Co-Creation Vendors 2011” report.






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