Thinking customer, lifetime, value

VENKAT MALLIK | Updated on May 11, 2011 Published on May 11, 2011

cell   -  Business Line


Number portability, dropping ARPUs and a market approaching saturation present a challenging opportunity for cellular service providers.

I met one among millions of mobile users in India — a salaried employee who bills around Rs 3,000 per month on his post-paid connection. He has been with his service provider for over five years now, but applied to port out of the network (via mobile number portability/MNP) early this month. He was infuriated by some ‘moments of truth' at the customer care centres, and livid with a ‘Relationship Manager' calling him (despite requests not to) to ask if he was facing any problems with his connection.

The era of growth by acquisitions is fast coming to an end. There is no better time than now to focus on Customer Lifetime Value (CLV). A number of categories are beginning to experience the pressures born of not focusing on CLV, the most obvious being telecom. Market saturation is imminent, and the common joke is: ‘ Teen saal ka dhandha hai' (It's a three-year business).

If it costs Rs 2,000 to acquire a subscriber, and you lose him to competition in six months, chances are you have lost money on him. Context: the ARPU (per month) of the largest Indian operator for the quarter ended March 2011 was down to Rs 194. Service providers simply cannot afford to lose high-value subscribers. This is even more accentuated in a 3G scenario, where data is expected to help boost revenues, and the attempt is to get more voice users to access data or other revenue-generating apps on their phones.

Acquisition, Targeting, RFM, Brand Preference

The first phase of CLV thinking was obviously shaped by acquisition goals and more refined targeting. The entire thinking here is structured around groups of people, representing high-value prospects.

In categories where data on individual customer transactions is readily accessible — such as banks, insurance companies and retail — one looks at records to study customers' ‘recency', ‘frequency' and ‘monetary' (RFM) relationship with the company. 

At a broad level, we then bucket customers based on their RFM track record over a period into Platinum, Gold, Silver, and such. The hypothesis here is that customers who have been spending well and frequently with us are ‘good' customers, and worth paying attention to, for maximising their lifetime value to the company. Perfectly logical and works — but could work better.

A customer may have been ‘good' for the company over the last six months, but that does not mean he or she will continue to be ‘good'. There could be ‘good' customers who are ‘hostages' because of the lack of choice or because of the pain associated with exercising that choice.

It also does not assess the customer's relationship with competitive brands — whether those are stronger than the relationship with the incumbent brand, or for that matter whether customers hate or love the incumbent brand.

Multiple studies establish that customer satisfaction levels with a brand do impact future sales. And importantly, today's relationship is a key predictor of future sales, and probably a stronger predictor than past sales.

New-age marketing requires that we marry RFM analysis with information acquired on the customer's disposition towards the brand and its competition. This is more likely to give us an accurate assessment of what the future lifetime potential of each customer is.

Incubating, Retaining the Valuable

The quality of the customer relationship impacts not just that customer's future purchases but also that of their strong and weak link friends in the connected, digital age. Therefore, the role of customer relationships within customer lifetime value thinking becomes even more important.

It is also essential to distinguish between good customers and good relationships. We need a continuous system to get relationship feedback, one customer at a time, and to craft our strategy around individual customers rather than groups.

In cellular services, till a few months ago, the only thing that mattered was how many subscribers were added. Marketers' desire to treat valuable subscribers as valuable, from a strategic perspective, has certainly grown. But for this to translate into customer experience is going to take some time.

Companies also need to start valuing subscribers at the lower and middle rungs, encouraging them to stay longer on the network, and milk them as they evolve and move up the chain.

Companies will have to make significant changes, of which some are, in fact, commercially unviable today. With more demanding customers, intelligent last mile touch points are needed to register customer preferences. There's a lot of work to be done, and it's getting done in bits and pieces right now.

The Rigour of Ops

Historically, while we're seen as very hospitable, Indians haven't had the rigour of an ops-oriented culture. We're beginning to realise that ops and last mile delivery are the only real truths.

One thing about telecom is that the subscriber is not going to get in touch with the service provider unless he or she absolutely has to. This is especially true for the richer, busier subscribers. And as long as the phone works, you don't want the company to call you either.

So the most important thing about a telecom relationship is the network. And then, the two times in the year that the subscriber calls the customer care numbers or the relationship manager, you need to ensure a pleasant experience.

I am not looking at my service provider to send me a birthday card. I start thinking of MNP only when the service provider starts messing with me. If providers get their hygiene factors right, they will retain subscribers. Value additions come later. Right now, in India, I don't think we have got even the basics right on most services. I believe we don't have the right service infrastructure. Holistic and substantial changes are necessary. These companies have grown, very quickly, and now they don't know what their little finger is doing. The little finger is just way too far away.

(The writer is President of RAPP India – Worldwide, Omnicom’s multichannel marketing agency network which is part of DDB Mudra in India.)

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Published on May 11, 2011
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