Finding and Retaining Profitable Customers: Insights from the Telecommunications Industry

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Telecom service providers are poised to deliver a positive Customer Experience (CE) if they mobilize their resources to enhance their Customer Understanding (CU) and act on this enhanced understanding to transform their key business processes (such as trouble to resolve, time to market, and lead to cash). Innovation needs to be institutionalised in the telecom service provider's DNA, and has to be centered on the customer, taking into account the importance of social media. An important piece of the puzzle of retaining profitable customers lies in the implementation of social customer service.


In order for today's telecommunications operators to survive in increasingly competitive mature and emerging markets, it will be imperative to find and retain profitable customers. The days of spending - months in the development of a single telco product to attract those customers are numbered, as revenue declines have changed the focus from ARPU (average revenue per user) to AMPU (average margin per user). But finding and retaining profitable customers is not easy. Perhaps the obvious starting point is to develop an intimate understanding of the telco customer base.

Finding Profitable Customers

In order to identify profitable customers, telcos must develop an understanding of how much customers spend on different services, as well as the costs associated with serving those customers. Analyzing cost-to-serve is tricky, as there are several factors influencing that cost, including the following:
-Orders of customized product or standard product
-Order quantities
-Predictability of order arrivals
-Timeliness of payments
-Requirements for customized or standard delivery
-Requirements for frequent changes in delivery
-Requirements for large amounts of presales support (marketing, technical, and sales resources) or little to no presales support (standard pricing and ordering)
-Requirements for large amounts of post-sales support (installation, training, warranty, field service) or no post-sales support
-Requirements for holding inventory (e.g. for customer premise equipments). In addition, to develop an intimate and up-do-date understanding of customer spend and cost-to-serve, it is critical to collect and analyze customer data in a disciplined manner. Every fresh customer action generates new data points, and telcos act on that customer and transaction data in three main ways – collecting, storing, and accessing.

For Frost & Sullivan, the three pressing questions in the context of data collection are:
-What data to collect (e.g. transaction, customer, process)
-How to collect the data at the point of action (e.g. customer call, discount offers, account cancellation)
-How often to collect the data.

The question of how often to collect data is critical as telcos are keen to act in "real-time."
If a telco collects the data as it happens (for example, a customer calls to the telco to voice some displeasure) is there a way the telco could get some suggestive action from a system, which might prevent that particular customer from defecting to a competitor? If the telco in this example considers that particular customer worth retaining depending on whether this customer is profitable or contributing to a loss, then operatives may be prompted to offer incentives such as giving discounts or free services.

All of this involves understanding historical behavior and predicting the future behavior of a particular customer or group of customers. Telcos are understandably keen to know how their customers are going to behave in the future and predictive analytics claims to offer a solution.

Predictive analytics allows decision makers to anticipate future states based largely on advanced statistical modeling, giving them a chance to act (e.g. offer a discount to retain a profitable customer) or to change an anticipated future state (e.g. prevent a customer from defecting to the competitor). Most of the predictive analytics offerings available in the market today are largely based on advanced statistical modeling and alerting technologies. Conventional telco wisdom often relates loyalty with profitability – but loyal customers are not necessarily the most profitable ones. Some loyal customers may choose to buy only the basic services and the cost of acquiring and retaining some of these loyal customers may be too high to contribute toward any telco profits. Moreover, decisions by telcos about customer acquisition and customer retention are often prioritized on short-term profits over long term profitability.

Telco customers could be split into the following four segments:
-Easy to acquire and easy to retain
-Hard to acquire but easy to retain
-Easy to acquire but hard to retain
-Hard to acquire and hard to retain.

Most telcos focus on the "easy to acquire and easy to retain" customer segment, though "hard to acquire and hard to retain" is often more profitable as this category of customers demand more and spend more on value added services.

Retaining Profitable Customers

Proactive intervention strategy seems to work to prevent customer attrition. There are two components of predicting churn: knowing the customers most likely to quit, and knowing when those customers are likely to quit. Most models that predict churn aim to answer both these questions by building a propensity-to-quit model. These models provide the probability of a customer defecting at a particular point in time. Once the telco decides which customers need intervention, the telco needs to identify when to intervene. To prevent customer churn, telcos should intervene when customers show a strong tendency to defect. Another key aspect of any effective intervention strategy depends on the amount of resources being spent on each customer, which should be directly linked to the worth of the customers or their lifetime value. For example, if the telco has decided to spend £ per customer then there is no business sense in offering this promotion to a customer with a lifetime value of £ . Instead, the telco may choose to spend £ on that particular customer.
2.Finding Profitable Customers
3.Retaining Profitable Customers
4.Delivering Positive Customer Experience through Analytics
5.Social Customer Service Emerging as a Customer Requirement
6.Understanding Peculiarities of Social Media Engagement Times
7.Social Customer Service Processes

Read the full report:

Finding and Retaining Profitable Customers: Insights from the Telecommunications Industry

For more information:
Sarah Smith
Research Advisor at
Tel: +44 208 816 85 48

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