The Traditional Model:
The traditional telco model was built around selling fixed and mobile services to mass market customers and businesses (Krishnan, 2019). In the past, customer demands were simple and Telcos simply focused on selling the most services to customers, while ensuring their infrastructure was robust enough to avoid customer complaints and churn (Krishnan, 2019).
Most Telecommunications providers put products at the center of their organisation, rather than customers, and this is reflected in their metrics. Organisational metrics across various areas of Telcos, such as sales, marketing, finance, operations and service are all based on product-orientated metrics. According to a report by Pitney Bowes Software:
“Some telecommunication providers certainly have detailed reports on product performance and revenue such as ARPU, but lack the line of sight into customer segment performance and profitability, and lack the strategy, collaboration, and execution capability across the functions and channels to optimise investment and treatment” (McShane, 2011).
Customers who have become increasingly demanding now treat Telco products and services as commodities and price has become the only differentiator (McShane, 2011). The Telco industry is now faced with challenges such as profit pressure and diminishing pricing power which has resulted in a higher customer churn rate.
The digital age and new players within the Telecoms industry have developed telco retailers who thrive on online entities and digital self-service models allowing customers ease of access to information regarding a product or service (Krishnan, 2019). The traditional Telco model of placing the focus on their product marketability, rather than their customer experience and lifetime value, is no longer viable in our current digital age and a focus on customer centricity is becoming essential for companies within this industry to thrive (Krishnan, 2019).
Strategies to transform from product-centric to customer-centric:
Strategy 1: Use a customer lifetime value model
Customer Lifetime Value (CLV) is a metric that shows the potential revenue that a customer can bring into a company over time (Flordal and Friberg, 2013). CLV measures customer profitability and performance and through this, companies can predict churn rate and customer inclinations to buy new product offerings (McShane, 2011).
Strategy 2: Customer segment management
Customers should be seen as assets that require investments and these investments should be assessed to determine the potential return (McShane, 2011). Certain customer segments will show high profitability, whereas others will not. Therefore, investments in customers should be based on their potential profitability.
Telcos often are unable to differentiate between their low and high potential customers, resulting in over-investment in low potential customers and low investment in high-value customers. According to a study by Pitney Bowes Software (McShane, 2011), customer profitability is determined by 3 factors:
1. Customer acquisition
This refers to the cost to acquire a new customer. Many Telcos take a mass marketing approach, with little understanding of their true cost of customer acquisition.
2. Customer margin
Customer margin focuses on growing the profits per existing customer. Telcos generally utilise basic up-sell and cross-sell systems, instead of creating targeted offers based on advanced consumer analytics.
3. Customer retention
Telcos should focus on retaining customers, as the cost of acquisition is often higher than the cost to retain a customer. Due to a lack of insight into customer segmentation, Telcos are often slow in predicting and preventing their churn rate(McShane, 2011).
Strategy 3: Deliver competitive value propositions through customer centricity
Customer centricity needs to be a company-wide mandate (McShane, 2011). Information across a business’s functions needs to be integrated in order to create a holistic view of customer insights and analytics (McShane, 2011). These analytics and insights can then lead to action which can be delivered across relevant company departments, such as finance, sales, and marketing so that each sector can work together to develop a customer-centric approach.
Example: Instead of incentivising managers to execute strategies to reach their yearly quota based on product revenue generation, Telcos should rather incentivise leaders to focus on mutual value creation between customers and the company itself (McShane, 2011). Performance metrics need to change from traditional product-centric metrics to customer-centric metrics.
Product-centricity has become a part of the Telecoms industry’s culture. Since the digital age and increasing competition within the industry, Telcos should re-evaluate their strategies by taking their customer into consideration. Putting your customers at the center of your company will result in strategies and operations that will maximise your CLV and in turn elevate your competitiveness in the market.
References:
Flordal, P. and Friberg, J., 2013. Modeling Customer Lifetime Value in the Telecom Industry. [ebook] Stockholm: Ericsson, p.15. Available at: <https://www.pm.lth.se/fileadmin/pm/Exjobb/Filer_fram_till_foerra_aaret/Exjobb_2013/Flordahl___Friberg/CLV_ERICSSON_Flordal_Friberg.pdf>
Krishnan, V., 2019. How Customer Centric Strategies Are Changing The Face Of The Telco Industry. [online] Expert360. Available at: <https://expert360.com/articles/customer-centricity-telecommunications-industry>
McShane, K., 2011. Customer Centricity in the Telecommunications Industry. [ebook] United States: Pitney Bowes Software, pp.5-9. Available at: <https://www.pb.com/docs/US/pdf/SIS/ccmsoftware/wp_custcentrictelecom.pdf>
