An Enlightened Approach to CRM: Savvy Companies Improve the Bottom Line by Focusing on Retention
August 12, 2008
Within the telecommunications industry, it sometimes seems as if market share has replaced profitability as the most popular key performance indicator (KPI). Within the mobile space, this standard is even more evident.
Yet, as the global economy softens, and phone technology advances become less exclusive, operators who have declared “market share” to be a top KPI are starting to understand the economic challenges related to acquisition strategies.
In an industry where brand differentiation is increasingly difficult to manage, profit margins continue to narrow, support systems have become more complex and costly, and markets are at or near saturation—or, as in the case of many Western European markets, over-saturated. Thus, operators are now examining the logic of devoting a majority of resources to acquiring new customers. This is a welcome trend, indeed.
An acquisition strategy without a plan to keep new customers satisfied is like raking in the money, and immediately setting it on fire. In addition to being less expensive than acquisition, a solid retention program built upon customer analytics, which operators already have in their possession, gives operators a number of revenue and profit growing opportunities, such as a greater likelihood to up- and cross-sell new services, which manifests itself as increased Average Revenue Per User (ARPU). The average operator, who may not realize the value of the pile of information collected from its customers each month, can leverage its volume of customer data to help improve a number of operational issues:
--Declining Average Revenue Per User (ARPU)
--Thin profit margins
--Growing customer demands
--Poor customer service
--Declining customer loyalty
In fact, among the complaints we hear most frequently from operators are 1) that their churn rates are too high; 2) their high-value customers are fleeing for the competition; and 3) their biggest competitor just introduced new rates and/or promotions, resulting in numbers 1 and 2.
Real World, Real Results
Proper analysis of customer usage and account data produces a better understanding of customer propensities. After evaluating these, operators now have an opportunity to make compelling and useful offers to customers, and as a result, can be seen as a reliable and trusted provider, as opposed to the prevailing perceptions of operators as not understanding — or worse, not caring — how customers use its services.
A retention-centric approach has the ability to serve both customer and operator needs simultaneously. For example, one mobile provider in Europe was struggling with providing advice to customers on bundles and services that might be of value to them. The operator was looking to become more effective at advising customers in an effort to reduce churn while minimizing revenue dilution.
By using analytics to manage its customer information, the operator was able to improve CRM strategies, including administering insightful plan advice, capitalizing on customers’ propensity to purchase newly-introduced services based upon usage patterns of similar or related services, proactively making plan and service suggestions, and offering a real-time consistency of message whether a client was using a call center, a Web portal, or accessing SMS messages.
The bottom-line result: a significant decrease in overall churn rates, a gain in operational efficiencies as marketing monies were more effectively applied through cheaper and more cost effective channels of communication, and an improvement in sales agent efficiency, as agents had necessary information available in real time and could contact more customers per hour. Most importantly, customers began to feel that they were being listened to, and even appreciated.
Good Reaction Time, Wrong Reaction
Understandably, mobile companies often react to falling market share by increasing already significant investments in CRM systems, racing to implement new practices, procedures and segmentation strategies, or by engaging in yet another set of price reductions and increased bundle discounts. Some of this might be good.
But without taking actual customer behaviors into account, is any of this working to achieve long-term ROI goals? Probably not. Every mobile phone company is looking for differentiators, but since many engage in the same sales strategies, few are finding them. And while front-loaded promotions such as handset subsidies or additional free minutes may attract new customers, in the long-run they often only aggravate the factors working against an improved bottom line, since, without a reason to stay, these customers will probably skip out again when a new promotion is dangled by the competition.
Customers continue to be skeptical of mobile phone companies’ pricing strategies, practices and execution. Is that their fault? No. By concentrating efforts on acquisition — offering the best deals to the newest customers — operators have encouraged end users to think that way. But there’s the rub: it costs more to bring on new customers than to retain current ones. And operators know this, but many still revert back to their old ways. So how to encourage a new way of thinking? The same way we turn any shallow relationship into a more committed one. Show the customer you care. Court them by demonstrating that you not only know them, but that you understand them as no one else does and are invested in the relationship.
Market Dynamics and Qualitative Research
Not surprisingly, price (or at least perceived price) continues to be a key driver of both acquisition and churn. But it’s not the only important factor in a customer’s decision to stay or leave.
A good way to begin is to pay attention to what the customer has already told you. In addition to understanding how, when, and to whom customers communicate, and what applications they like to use to do it, we can look at other factors, such as churn data for actual customers, and also measure trends in customer perceptions. For example, we may examine aspects of customer (dis)satisfaction that include:
--Stated Primary Reason For Disconnect
--Right Price Index—Do customers feel that they are paying the right price for their phone service?
--Perception Handset Costs—Do phone companies make money on the handset price?
--Best Deal – Prospects vs. current customers
Now bring out the big guns: properly analyzing what’s already on hand — daily and monthly customer usage data — enables an operator to learn enough about its customers to recognize whether existing packages are attractive to them or need to be reworked. An operator who recognizes the power behind this “customization” will not only be able to present better, timely and more relevant offers based on individual customer behaviors, but will also see positive changes in:
--The impact such customer retention programs have on profitability
--How “optimal” pricing impacts customer service usage
--How proactive pricing actions impact customer loyalty
--When customers are likely to buy and use new service offers
And word gets out. When retention strategies are properly implemented and customer service actually becomes more customer-focused, we’ve also seen gains in customer acquisition from as little as 15 percent to as much as 450 percent, while the costs to acquire those customers decreased. In addition, churn rates decrease dramatically, delivery and support costs are often significantly reduced, and — best of all — ARPU increases.
We know quantifiably that attracting, courting and signing new customers expends more resources than getting the most out of the ones already with you, so be bold. Set your brand apart by being the company that creates long-term relationships with its customers. Woo them court them, cross-sell and up-sell to them. The beauty of retention is that if it’s done properly, your customers will be happy to stay.
William “Duffy’ Mich is Chairman & CEO at Aperio CI.
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