The Hindu Business Line : How to keep clients from testing competitive waters

One of the greatest values an organisation can ever create is the value that comes from customers — the ones it has at a given time, and the ones it hopes to have in the future. Since attrition is contagious, a targeted, personalised response to customer needs becomes more important than ever.

To remain competitive, organisations must figure out how to keep their customers longer, grow them into bigger customers, make them more profitable and serve them more efficiently. In fact, becoming a customer-centric organisation is not surprising and rightly has become key organisational priority. In the past the pivot was that the customer is always right. It meant learning customer preferences and behaviour patterns and committing them to memory.

Today, exponential growth has made these things impossible. Many companies have millions of customers. But the question is can all of them be right? With hundreds or thousands of products; how can you know which ones each customer prefers?

The highly competitive telecommunications industry is faced with a major issue today — that of customer retention. Worst, it is an expensive key concern to have! The customer churn ratio varies for various telecom operators; without getting into specifics, it is a known fact that the cost of customer acquisition is far higher than retaining him/her. The proposed number portability will take competition to a new high. It is not surprising that there has been a considerable interest from telecom service providers in understanding various means of arresting churn. The first step towards the same is to understand which customers are likely to leave and which ones you would like to keep — so that you can take the necessary steps to change their minds.

No an easy task

Predicting which customers are likely to leave (termed as “vulnerables” or “fence-sitters”) and then designing cost-effective strategies to persuade them to stay aren’t easy tasks, requiring the organisation to analyse a huge amount of data that is often difficult to access and consolidate. At times it is ironical to note that organisations have invested in various technologies or processes to collect customer feedback either through Web sites, call centres, blogs, etc., but there is a lack of appropriate infrastructure that can help them analyse the feedback and provide them meaningful insights to act on.

Despite the inherent difficulties, today’s competitive marketplace demands that corporates get to know customers on a more personal level in order to gain a real understanding of customer behaviour and preferences. Only then can they put in place successful retention measures.

A successful customer retention strategy should help with:

Accurate reporting on which customers are leaving the company;

Insights into the major factors influencing the decision to leave;

Industry-leading accuracy to predict which customers are most likely to churn in the near future, so that appropriate strategies are designed to retain them; and

Pre-built analytic data and processes models that speed up implementation and return on investment.

With focus on churn prediction, it is equally important for telecommunications companies to have a complete picture of their customer profitability and cost. It’s a simple truth: all customers are not of equal value. Some may be more or less profitable due to their acquisition costs, choice of services, cost to serve and value of retention offers made. In fact, 80-90 per cent of the profit for an organisation potentially comes from 20-40 per cent of their customers.

Unfortunately, traditional accounting methods may not reveal this type of information. Costs are generally tracked in ways that satisfy external reporting requirements rather than ways that reveal the true profitability of specific products, customers and channels.

Most organisations allocate indirect expenses to products or service lines using volume-based averages. This generic method can’t deliver a true picture of what it costs to attract service and retain at an individual customer level. A successful customer profitability strategy will always improve the organisation’s overall financial position and help you with the following benefits:

Recognise which profitability bands have the best cross-sell and up-sell propensity.

Understand the combinations of behaviour, cost and revenue that are actually driving profitability.

Assess the cost to acquire, retain and deliver services to subscribers.

Develop demographic profiles of profitable and non-profitable subscribers.

Analyse the movement of subscribers across the profitability bands.

There are a lot of customers, both existing and new. And then there are as many competitors! Retaining customers and growing market share involves more than offering sweet marketing deals… because, when the buzz dies down, you want to retain loyal and profitable relationships.

Competition will do whatever it can to have the customers walk their way. To minimise churn and maximise profitability, customer-centric organisations need to use more intelligent segmentation and targeting methods to focus their marketing strategies. It means that organisations today need to have a solid customer intelligence strategy in place, which helps them with that required competitive advantage.

(The author is CEO & Managing Director of SAS Institute (India) Pvt. Ltd, a leader in Advanced Analytics and Business Intelligence.)

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