AT&T'S TRULY REWARDING RESULTS

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AT&T came back from the brink of disaster to reconquer the long-distance world with a single word: true.

Only 15 months ago AT&T was in deep trouble, in danger of losing once near-total dominance in the $70 billion industry.

At the 11th hour, the company pulled off a dramatic turnaround, culminating in record 1994 earnings of $4.71 billion posted last week.

By hitching one $200 million campaign to the word, AT&T netted 17 million new customers and temporarily crippled rivals MCI Communications Corp. and Sprint, and the campaign is still hot.

But during AT&T's darkest hours in 1993, top executives feared the whole thing could backfire and permanently set AT&T back in what has become one of advertising's bloodiest-and costliest-megabrand wars.

And although it's on top now, AT&T has no time to rest on its laurels. In the next 18 months the top three long-distance marketers will face a possible breakup of their cozy, and incredibly profitable, oligarchy.

Just last week, Sprint moved closer to cutting a deal with cable TV operator Tele-Communications Inc. to jointly provide wireless communications services; Baby Bell Nynex Corp. let in regional telephone competition with an eye toward entering the long-distance market as barriers slowly erode. A flurry of lawsuits and regulatory actions are pending in various states to open telephone markets to competition.

"The long-distance brands will come into play in massive territory struggles in the near future with new players diving in," said Jeffrey Kagan, president of Atlanta-based Telecom Associates, which analyzes telecommunications companies.

AT&T's crisis came halfway through 1993. Internal research showed AT&T's once-monolithic share was sliding sharply, while MCI had climbed to 20%. Sprint's share was 11%.

AT&T's $70 million "i plan" advertising campaign was a dud, despite the help of five powerful agencies and a media budget double that of any rival.

Meanwhile, the seemingly unstoppable MCI was figuratively running circles around AT&T with its cleverly packaged long-distance programs and wittily hip TV spots created by a single agency, Messner Vetere Berger McNamee Schmetterer/Euro RSCG, New York.

In the war room at its Basking Ridge, N.J., operating headquarters, AT&T finally took action in August 1993, moving Joseph P. Nacchio to the post of president of consumer communications services from the company's business long-distance unit, with the mission of turning things around at all costs.

Mr. Nacchio immediately booked lunch dates with top marketing executives at consumer product companies, offering jobs to several on the spot.

"When I joined the company, AT&T was perceived as a follower in the market, and our mission was to go from the defensive to the offensive," said George Burnett, AT&T's general manager of marketing communications, who joined AT&T in January 1994 from D'Arcy Masius Benton & Bowles, New York, where he was a managing director.

From Revlon, RJR Nabisco and American Express Co. came other new marketing gurus.

FCB/Leber Katz Partners, New York, was given No. 1 status over N.W. Ayer & Partners, also working with Young & Rubicam and McCann-Erickson Worldwide. ( Ogilvy & Mather split with AT&T over a conflict with client IBM Corp.)

The True plan-an amalgam of Sprint's Priority rewards program and its own "i plan" discount concept-was born in December 1993; AT&T was left to sweat out the results. Three months after unleashing True USA Savings, True Rewards, True Voice and True World, AT&T knew it hit pay dirt.

True Rewards-offering customers gifts, long-distance credits and frequent flier points-doubled AT&T's expectations by recruiting more than 14 million by yearend. As a result, market share seems to have steadied, with AT&T claiming 60%, MCI with 20% and Sprint at 10%.

"The word True was the only one that would have worked this well," said Daniel L. Clark, AT&T's VP-domestic consumer communications services. "True clarifies what we're selling, exploiting and drawing attention to our rivals' vulnerabilities and weaknesses while serving as the perfect anthem for advertising."

The new blood also lifted advertising out of a rut, giving birth to classy spoofs. One in particular pokes fun at MCI by using the actors who play the parents of George on NBC's "Seinfeld," striking a chord with younger and older consumers.

But AT&T also got a big boost from rivals' mistakes, particularly those of MCI, which began to seriously falter last year after three years of hard-driving marketing successes.

After MCI's breakthrough Friends & Family discount calling program in 1991, the company dazzled the market with 1-800-COLLECT, Best Friend and last year's 1-800-CALL-INFO. Sprint achieved moderate success with its charismatic spokeswoman, actress Candice Bergen, in ads from J. Walter Thompson USA, San Francisco.

But the novelty of Friends & Family has faded, and midway through last year MCI introduced Friends & Family II. The program was advertised as a new, improved version of its original master savings plan.

Instantly a marketing dilemma was created: By suggesting deeper discounts were available, MCI got its own customers thinking about shopping around.

"MCI has so much equity tied up in Friends & Family by now that it can't afford to walk away from the brand, even though new versions of what was supposed to be the best deal on the market raised questions," said Mr. Kagan.

Still, MCI continues to hammer away on the brand; it introduced a third incarnation of the program this month, called New Friends & Family. Results are not yet available.

Another recent MCI mistake: attacking AT&T with a nasty "True or False" ad campaign undermining everything from prices to AT&T's True Voice clarity claims. AT&T says MCI's confusing campaign has only brought AT&T more customers.

MCI also failed to rev up its database marketing programs to maximum power last year. At the same time, AT&T spent more than $600 million on such marketing, including cash awards as high as $75 each for customers who switched to AT&T.

MCI and Sprint this month unveiled new calling programs, with MCI offering 25% to 50% discounts for Friends & Family members and Sprint offering flat-rate discounts via the Sprint Sense program.

"They're outspending us but we're still outperforming them," said John Donoghue, MCI's new VP-consumer markets. "Customers who care about getting better rates will eventually come back to us."

"The bottom line is that AT&T's rates are higher than anyone's, and customers are going to figure that out when they get their bills," said Wally Meyer, Sprint's VP-marketing and sales.

One thing that's clear about last year's advertising war: agencies made a killing.

Ad spending by the big three long-distance companies surged 26.3% to $400.2 million in the first three quarters of 1994, according to Competitive Media Reporting. Yearend figures are not yet available.

A question AT&T has yet to answer is whether True will lose its appeal with customers as it moves into its second year, as Friends & Family eventually lost its sparkle.

"We can keep True alive as long as we want by keeping the value of the program alive. Meanwhile, we're moving away from a pricing and transaction paradigm to a relationship paradigm in our marketing where branding will be more important than ever," said AT&T's Mr. Clark.

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