Can a successful UK company advertise by word-of-mouth only and thrive? If the Utility Warehouse is anything to go by of this then the answer is YES.

Back in the 1980s a new business model was pioneered in the UK, at times by less-than-ethical entrepreneurs. It involved an interested party promoting a product through a tiered structure of affiliates, and became known as the pyramid scheme. Initially it usually involved new people in the “downline” purchasing a quantity of product and retailing this whilst at the same time building their own “downline”. Many unscrupulous types quickly cottoned on and used this method to retail cheap low quality products through their downlines with themselves at the top of the pyramid, raking in a fortune in exchange for very little work in return. The first sign of trouble, such as a trading standards officer sniffing around, or an investigation of any kind, and our shady character at the top would vanish into oblivion with their fortune and leave their downlines to carry the can. As people became wise to the recruiters offering unlimited income from this method, having either known others who had been stung as a customer or a downliner, so this type of business system developed a nasty reputation and went largely out of vogue. Eventually the British Government restricted and regulated this practice with legal constraints and enforcement to such an extent that it became impossible for unscrupulous traders to earn a fast buck from it, added to which the words “Pyramid Scheme” had virtually become a swearword. Certain more-ethical, sometimes reputable, entrepreneurs and businesspeople did try to continue to attempt to use the system, this time fully legally and ethically, under statutory regulation, even renaming it to Network Marketing; but it appeared that due to the bad reputation it had gained initially there was no future for it, and most of the schemes collapsed.

There was one man, though, who saw a massive potential in the regulated network marketplace; now “multi-level marketing”, and decided to take those ideas further despite the residual prejudice. This person was The Hon. Charles Wigoder:

The following quotations are taken from Wikipedia (http://en.wikipedia.org/wiki/Peoples_Phone)

Biography

“The son of The Right Honourable Lord Wigoder, QC PC^[1] (his children are entitled to use The Honourable title), Charles studied Accountancy and Law at University of Kent^[2].”

“Wigoder qualified as a Chartered Accountant with KPMG in 1984 and was subsequently employed by Kleinwort Securities as an investment analyst in the media and communication sectors – where he met Michael Green. Green later hired Wigoder in 1985 as head of corporate finance and development at television services company Carlton Communications, to accelerate growth of the organisation; whilst he was there, turnover grew from under £5m to over £200m. He subsequently moved to Sangers Photographic, a USM listed wholesaler of photographic equipment, where he spent a frenetic 9 months taking the business to a full stock market listing and expanding the group’s activities to include a wide range of photographic, video and communications services.”

Peoples Phone

“Wigoder left Quadrant to set up Cellular Communications in March 1988, initially providing a mobile phone service to business customers through both a direct sales team and third party distributors. Demonstrating great vision and foresight, he was the first entrepreneur in the industry to recognise how consumers would transform the market, successfully positioning his company to take advantage of this opportunity by creating the “Peoples Phone” brand and establishing his own national High Street retail presence (a model subsequently imitated by all the Network Operators). By opening over 180 showrooms in just 12 months, Wigoder helped drive the expansion in mobile phone usage within the United Kingdom, gaining around 10% of the UK market – the biggest non-network owned business in the industry and the UK’s first true Virtual Network Operator. Within 4 years he had a built a market leading position, having overtaken all the other independent resellers who had started several years prior to his entry into the market, including substantial multi-national companies such as Thorn-EMI, Granada, Nokia, Marconi, Phillips, and Motorola. The business was highly cash generative, however a decision to write off all customer acquisition costs directly against profits meant that the company reported a loss after taxation of £10.6m on turnover of £175m for the financial year ended 31 October 1995. Following a disagreement between the major shareholders on the future strategy for the Company, it was acquired by Vodafone in November 1996 for £77m; however Wigoder only collected £6.5M from the deal, as most of the company was owned by Venture Capital investors. Vodafone followed this deal with further acquisitions within the sector (namely Astec and Talkland in December 1996) giving it greater control over the customers using its network. According to Vodafone’s 1997 annual report and accounts, Peoples Phone made £4.1M in the period to end 1996. “

With a good and successful previous record under his belt; Charles Wigoder was certainly not lacking in either resources or experience in business. For the purpose of employing his new concepts in multi-level marketing he bought a recently-formed company called Telecom Plus in 1988; which has been going from strength to strength thereafter. Taking up the commentary from Wikipedia again:

Telecom Plus/Utility Warehouse

“Wigoder joined Telecom Plus in 1998, investing heavily and listing it as a Plc on the London Stock Exchange (ticker = TEP). Its initial flagship product was the Smart Box, a free gadget that plugged into a phone socket and hunted out the best telephone call rates^.”

“Wigoder believed that a low-cost route to market would prove to be a critical element in successfully promoting services to the residential market, and established a multi-level marketing system of agents across the United Kingdom. In just over 7 years, the business amassed over 200,000 domestic and small-business customers, 15,000 of whom were also Distributors, signing up new customers in return for a residual income and cheaper utilities themselves. Trading as the The Utility Warehouse, Telecom plus is a “virtual” retailer, with no shops and no advertising – just a highly effective Head Office with 200+ staff, most of whom are dedicated to providing award-winning customer service. Wigoder says: “The secret of our success has been our unique business model. We also have the ability to move quickly to take advantage of opportunities.””

“Low costs allow Telecom Plus to offer competitive tariffs to their customers, which has driven sales growth by an average of more than 20% pa over the years to 2007. Since 2003, the Company has been highly profitable and cash generative, although in November 2005, Telecom Plus warned that high energy prices had resulted in significant losses in its gas business. In February 2006, the Company entered into an agreement with npower under which they took responsibility for purchasing the energy used by UW customers although UW remain responsible for all customer management activities, such as billing, customer service, metering, debt collection and administration. As part of the arrangements, npower have an option to acquire the 29.9% of the equity held by the Board during 2009.”

“On 6 June 2006 the group said losses experienced in its gas business during the first two months of 2006 reached almost £8m, off-setting the profits of £5.5m achieved during the first half-year. As a result of the losses, the group posted an overall pre-tax loss for the year of £1.6m, compared with a £10.5m profit the previous year. Turnover rose 33% to £136.3m. For the following year to 31 March 2007, Telecom Plus reported turnover had increased to £175m, with record pre-tax profits of £11.5m, and cash balances of over £25m with no debt. The latest year to 31 March 2008 saw a further increase in pre-tax profits to over £16.5m with cash balances of over £30m.”

Telecom Plus/The Utility Warehouse has continued to go from strength to strength since Charles Wigoder’s takeover at the helm in 1988, despite a hiccup in 1996. (See above.) Although growth could at times be described as slow compared to some other PLC’s, the level of such growth has by no means been sporadic but rather a steady gain over time, despite prevailing national and world economic trends and recessions, indicating good leadership on the part of Charles Wigoder – who appears to have an ability to weather and rise above any economic turmoil whilst driving on towards the target of continued growth. According to Mr Wigoder in an internal communication “This strong performance is being fuelled by increasing numbers of consumers looking for better value on their utilities, as they see their energy bills from other suppliers increasing on a regular basis.”

As household utility prices in the UK continue to rise, the quality of a lot of suppliers’ customer service continues to fall due to their decision to use badly-trained cheap labour; staff based in call-centres on different continents. the Utility Warehouse understand that their customers have a choice and realise the importance of good customer service. Their excellent standard in customer service was recognised in the UK’s Consumer Association’s Which? magazine, in which they were runners-up for the award of “Best Broadband Supplier” in their 2008 consumer awards. This was quite an achievement on the whole, considering the number of such suppliers available in the UK market as a whole.

The Utility Warehouse still maintain the networking structure, with a continued growth in downliners, known as “Distributors” on a weekly basis according to an internal company source. These recruits are attracted by the company’s opportunity to build a secure residual income, paid on a monthly basis, in what amounts to a profit-sharing scheme between the company and its multi-level Distributors, in which these Distributors are rewarded with a percentage of the nett spend of any customer that they introduce to the company for as long as that person continues to remain as a customer. – That’s how the company advertises: No advertising budget required, no glossy magazine ads, no in-store demonstrations, nothing – Saving the company a fortune – Any such promotional work that a Distributor decides to do has to be approved by the company and funded by the distributor themselves – But it’s not really necessary to do that as it seems personal recommendation and word-of-mouth are much more effective tools in this company’s case. It really is a rather good system from the point of view of a Distributor as once a customer is introduced to and begins to do business with the company by purchasing their household utilities through the company, the introducing Distributor gets paid a percentage from that client’s spend for a considerable time thereafter, even maybe into infinity if they recruit a particularly loyal customer.

Distributor opportunities are available in the UK only, as is the same with the customer base. The great thing about it all is that unlike the case with the earlier networking structures of the Twentieth Century, there is no need to buy a supply of product to sell on: Rather than Distributors supplying the finished product to their customers, the central company themselves cater for that on the individual Distributor’s behalf, meaning that any necessary initial financial outlay is minimal. Basically the role of Distributors is as customer gatherers, although “Distributor” sounds somewhat more professional than “Customer Gatherer”, besides being a component in an automobile engine. There are at this time and for the foreseeable future no plans to extend this business on an international level as far as I am aware.

UK investors are also beginning to realise and appreciate the strength of the company’s business model, driving the share price on the UK FTSE generally upwards despite market analyst’s fears of a recession. Since the company allows its Distributors to purchase its shares, many such Distributors have seen their total financial value increase as a result. This is also good news for the long-term future of the business as a whole.

In addition to the above, which is what I refer to in a kindly manner as “sharemongering”, the company also rewards successful Distributors with holidays at company expense, share packages, and gift vouchers, among other awards. They hold training seminars at various venues throughout the UK and have regular company meetings to which Distributors are invited.

Overall this is a growing company with a successful business-model which is proven to be working. In light of the vision and foresight of its Chairman in turning a dying concept with a stinking reputation into a glowing business model that exudes success from the very pores of its being; it is my opinion that this company has proved its worth to all concerned; consumers, Distributors, and investors – The marketplace as a whole.

If you’re resident in the UK and would like to discover more about this company; from the angle of just looking at becoming a customer and saving money on your household utilities, or from the desire to become involved in the business end and make yourself extra income by recruiting customers and other Distributors as a Distributor yourself, then the following links will direct you to the company’s sponsored affiliate sites which will provide you with all the information you need.

I may as well state at this point that I am involved with this company, and I will benefit in a small way from any business which you decide to transact with them through the links which I have provided. I will also state that whichever alternate way in which you choose to go about transacting with the company, should you choose not to use the links provided, the same tiny percentage commission of any financial transaction you choose to undertake will go to somebody - Therefore since you heard about it all here first; it’s only fair that any such percentage goes to me, and you may as well use the links provided to save yourself time and effort anyway.

Oh yes I almost forgot – You also get your own online store if you sign up as a Distributor – No word of a lie – Selling everything from books  to electricals: I’m going to post quite a few banners below leading to many individual aspects of the business, so please do enjoy clicking on as many as you can if not all of them:

My apologies to anybody who has clicked all of them; I’ve just discovered myself that the amount of destination pages has “shrunk” and some of them go to exactly the same place. I wasn’t aware of the revised system that the company has instituted with regard to this.

(I really do apologise to my US and international readers that none of this is available outside of the UK. ‘Sorry; nevertheless I hope it inspires new ideas for you if nothing else.)

I had been intending to get in touch with The Utility Warehouse for their additional comments; but after thinking about it having completed this article I decided that it would just hold up publication as no  additional comment is really necessary in my opinion.

©KKomp 2008