Defending Revenue With Customer Centric Pricing

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Solutions for Enabling Lifetime Customer Relationships.
Defending Revenue through
Customer Centric Pricing
Leveraging Customer Behavior Modeling to Optimize Bundled Offers
W H I T E PA P E R :
TELECOMMUNICATIONS
Johann Ginger, Strategic Industry Director - Telecommunications
Dr. Patrick Surry, Global Solution Owner for Customer Analytics
WHITE PAPER: TELECOMMUNICATIONS
Defending Revenue through Customer Centric Pricing
Leveraging Customer Behavior Modeling to Optimize Bundled Offers
ABSTRACT
2
IN TODAY’S MARKET, MANY COMMUNICATIONS SERVICE PROVIDERS VIEW PROACTIVE DELIVERY OF RELEVANT, VALUABLE CONSUMER
SERVICE BUNDLES AS THE KEY TO SUCCESS IN IMPROVING CUSTOMER EXPERIENCE, INCREASING REVENUE, AND STREAMLINING
OPERATIONS. HOWEVER, MOST PROVIDERS STRUGGLE TO MATCH THE OPTIMAL BUNDLE WITH EACH CUSTOMER, AND MANY LEAVE THEIR
CUSTOMERS TO CHOOSE FOR THEMSELVES.
WITH A COMPLEX MAZE OF PRODUCT AND PRICING OPTIONS AND HUNDREDS OF DIFFERENT PRICE PLANS, CUSTOMERS ARE OFTEN
FRUSTRATED AND CONFUSED. AND, WHEN CUSTOMERS EXPERIENCE EITHER STEEP PENALTIES FOR EXCEEDING PLAN-SPECIFIED LIMITS
OR CHARGES FOR SERVICES THEY DON’T USE, THEY OFTEN TAKE THEIR BUSINESS ELSEWHERE.
TELECOMMUNICATIONS IS MOVING FROM ACCESS-LAYER TO SUBSCRIBER SERVICES, A SHIFT DRIVEN BY A HOST OF FACTORS INCLUDING
CHANNEL PROLIFERATION; AN INCREASE IN SOLUTIONS OFFERED; AND NEW PLAYERS IN THE SPACE. THIS WHITEPAPER DISCUSSES THE
CHALLENGES FACED BY COMMUNICATIONS SERVICE PROVIDERS TODAY. IT EXPLORES HOW ANALYTICALLY TAILORED OFFERS CAN IMPROVE
CUSTOMER RELATIONSHIPS AND ENSURE COMPETITIVE DIFFERENTIATION, AS WELL AS WHERE AND HOW SUCH OPTIMIZATION CAN BE
EFFECTIVELY APPLIED TO REDUCE CHURN AND IMPROVE CUSTOMER LIFETIME VALUE WHILE DEFENDING REVENUE.
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OPTIMIZING CUSTOMER-CENTRIC PRICING AND HELPING TO
PROTECT CUSTOMERS AGAINST BILL SHOCK OFFERS SUBSTANTIAL
OPPORTUNITIES TO DEFEND REVENUE, REDUCE CHURN AND
INCREASE CUSTOMER SATISFACTION.
Challenges Facing Telecommunications
Companies Today
This study reports that the key drivers of customer
Projections through 2016 indicate that worldwide, the
• The lack of clear and comparable information
telecommunications industry will outstrip the growth rate
•Bill shock that comes from “receiving unexpectedly high
of the U.S. economy. Much of that industry growth, however,
will come from exploding data usage: according to Informa
Telecoms and Media estimates, data traffic will experience
61% year-over-year growth. The greatest growth in wireless
will come from developing countries.
In mature markets like the U.S., Europe, Australia and Japan,
the meteoric industry expansion is leveling off courtesy of a
number of factors:
complaints are
bills”
It also reports that while some of the CSPs are working
to address these customer-service concerns, across the
industry most are not. Similar studies carried out by
relevant regulators in other regions including the European
Union (EU) and the Federal Communications Commission
(FCC) show similar results.
•Increasing commoditization of services due to improving
coverage and reliability across all networks (the shift
from 3G to 4G wireless services is the exception here).
•Saturation of the cell-phone market with penetration
levels exceeding 100% in most mature markets.
•Fixed-Mobile Substitution (FMS) leading to a significant
decline in landlines.
•An increase in competition due to new market entrants
(cable MSO and Virtual Network Operators) and Over
The Top (OTT) players that are expanding into the
telecoms space.
Plateauing revenue growth coupled with exponential data
SERVICE-PLAN SYSTEMS INNOVATIONS
NEEDED
The language of CSP marketing is changing.
Pressure to effectively woo and retain
customers is increasing; and, promotions,
bundling, cross-sell and upsell are all
becoming a part of the mix as customer
demands and the selection of CSP services
continue to grow.
consumption is forcing the telecommunications industry to
However, most CSP billing and rating engines
actively move away from flat-rate usage plans. For the largest
were built to meet the needs of a relatively
communications service providers (CSPs), the bundling of
static services environment. They are not
customer offers now plays a key role in building customized
equipped to meet marketing demands and
solutions to meet the subscriber’s specific needs and
cannot generate custom customer-centric
enhance Customer Lifetime Value (CLV).
solutions built around individual customer
needs.
A Global Phenomenon
Today’s market calls for a flexible, open,
Consumers are increasingly frustrated with the complexity
configurable bundle optimization system that
of pricing plans, the pain of penalties for overages, and a
can support marketing innovations and enable
perceived lack of customer care. A study by the Australian
CSPs to maximize efforts to reduce churn and
Communications and Media Authority (ACMA) poses this
frustration particularly well:
“Why is the quality of customer care being provided by
telecommunications companies failing to meet consumers’
expectations when the services they provide generally do?”
build loyalty through targeted promotions and
flexible pricing.
3
WHITE PAPER: TELECOMMUNICATIONS
Defending Revenue through Customer Centric Pricing
Leveraging Customer Behavior Modeling to Optimize Bundled Offers
4
At a time when markets are maturing, service differentiation
Other CSPs, when confronted by a customer about over-
is increasingly important. Clarifying pricing bundles and
usage charges, will do a more rudimentary analysis and
helping to protect customers against bill shock offers
move the customer into a more expensive plan based on
substantial opportunities to reduce churn and increase
one dimension of historical usage without considering
customer satisfaction while defending long-term revenue
all aspects of the relationship. This may enable the CSPs
streams.
to placate and retain the customer temporarily, and do so
very profitably in the short-term; however, in the longer
Why Customer Bundle Optimization is
Important
Customer buying trends are driving the increased
importance of bundled and packaged service offerings.
Bundles are attractive because of the convenience,
perceived price/value combination, and peace of mind
they offer. Consumers are willing to pay, on average, a bit
more for a bundle that fits their specific needs—and, they
will often forgo a limited-time offer that provides shortterm savings when they feel it will result in longer-term
term that customer continues to be a prime target for a
competitor that better aligns bundles with needs.
Still other providers forgive over-usage charges once with
a warning to their customers to watch the limits more
carefully. This is simply not a customer-friendly approach.
While it may stave off immediate attrition, it hasn’t
addressed any underlying alignment problems that may
exist; and, again, customers continue to be a good target for
those that can better align bundles with needs.
inconvenience.
How Customer Bundle Optimization Works
Beyond bill shock and lack of clarity, there are two other key
Most CSPs have hundreds of pricing and service options
reasons that customers consider switching providers:
from which to form bundled service plans. Selecting the
•When they believe that they aren’t getting full value for
the money they spend on a bundle of services because of
a mismatch between their bundle quotas and their actual
usage.
•When they receive what they perceive is a significantly
more attractive competitive offering.
best match for each customer starts from a comprehensive
automated analysis of the customer’s zone, usage, and
roaming behavior based on detailed simulation of all
potential pricing scenarios. It incorporates change-ofcircumstance information supplied by the customer (new
business needs, children with their first cellphone, etc.). It
considers any and all special offers for which the customer
From a CSP perspective, optimized pricing delivers both
may be eligible as well as key business goals. It ultimately
a high-value offer and a driver of revenue. It can address
recommends a “best fit” that can be clearly articulated to
customer concerns, be used to proactively address
the customer based on their needs and maximizes long-
competitive offerings, and provide a proactive, cost-
term relationship value to the CSP.
effective option for reducing customer churn.
Automation makes this process very fast even with huge
volumes of behavior data, so Customer Service Reps (CSRs)
Shortcomings of Other Attrition-Averting Practices
Some CSPs will take a “we’ll match any price” approach.
This keeps the focus strictly on price—and it doesn’t
address either of the typical underlying issues—price
confusion or bill shock. As a result, in the short-term this
is costly; in the longer term, with issues unresolved, the
customer may continue to be frustrated and will often,
ultimately, still change providers.
can deliver real-time recommendations incorporating
real-time customer context. Such up-to-the-minute insight
provides a clarity that has hitherto been lacking across the
industry. Customer Bundle Optimization solutions also
enable CSPs to assess the impact of their recommendations
on new or competitive price plans. These can be reviewed
at the individual customer level and in aggregate for their
impact on key business intelligence metrics such as churn
rate, ARPU (Average Revenue per User), APPU (Average
Profitability per User), and segment migration rates.
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OPTIMIZING CUSTOMER OFFERS DELIVERS A TRUE “BEST FIT” PLAN
FOR EACH CUSTOMER.
Optimizing bundled offers enables a CSP to:
5
•Offer loyalty plans that are meaningful to the customer,
increase the stickiness of the relationship, and don’t incur
additional costs for the CSP.
20
m
e
b s r- a p
tit
p
u t i ro p r i a t e
ons
efi
pl ne
an
s
Ena
ble
up s e
s
to
us s u
es c d l e
n
bu
•Proactively retaliate against competitive offers by
offering appropriate service plans and features to
at-risk customers
Customer
Bundle
Optimization
Identifi
•Stop down-selling when low usage has been detected,
instead encouraging better usage or substitution of
more appropriate services to meet customer needs
ve
cti
ffe ll
e
Offer
s pr
o
to fitab
do
s
ative
ern
alt
le sell
n
w
• Up-sell effectively to appropriate customers based on
recent historical usage patterns, customer experience,
churn risk and customer segmentation
d
lps y
H e yalt
o
l
Bundling Customer Offers to Stem Attrition
19%
16%
15
One of the key differentiators of a true customer bundling
15%
solution is its ability to proactively deliver “best-fit”
15%
recommendations in real-time. Rather than panic down-
10%
10
selling to retain the customer (but sacrifice customer
revenue and lifetime value), the CSR can address individual
customer pain points and recommend an appropriate offer
based on their actual usage and needs.
5
4%
Through this approach, customers gain peace of mind that
their new plans match up with their usage history and offer
0
Last
plan
finished
Wanted
phone
with
more
features
Upgrade Wanted
from
phone
previous with
plan
latest
tech
Had
Last
prepaid
phone
but it
was
was too broken/
expensive damaged
Reasons 3G Phone Owners Provided for
Why They Wanted a New Phone
As illustrated, different users have different
reasons for acquiring new phones. These
reasons, combined with whether or not they have
been taking advantage of the 3G features on their
current phone or not, provide valuable inputs
that can prompt further customer dialogue and
help to define the best next bundle solution for
each customer.*
* Australian Communications and Media Authority, “3G mobile
bill-payers’ understanding of billing and charging arrangements
Quantitative research report” Commonwealth of Australia,
June 2011
some room to spare. They see that the CSP is listening,
understands them and is acting on their needs—and
this strengthens loyalty and customer value. At the same
time, the CSP is often able to retain the customer without
competing strictly on price: the bundle optimization
process may actually result in increased long-term revenue
that accurately reflects customer requirements.
WHITE PAPER: TELECOMMUNICATIONS
Defending Revenue through Customer Centric Pricing
Leveraging Customer Behavior Modeling to Optimize Bundled Offers
Pre-emptive Optimization Holds More Power
6
Once a customer has called to complain or attrite, the
provider has to fight to bring them back from the edge —
in an industry where customer acquisition is leveling off
and commoditization is becoming a risk, bundling is a key
differentiator for telecommunications companies today.
and many customers may not listen long enough to gain
The old saying that “it takes much more to get a customer
from an optimization proposal. Increasingly, therefore,
than to keep one” truly needs to be considered here.
telecoms are taking action earlier.
Proactive pricing changes can boost customer satisfaction
and loyalty.
Tracking Usage
When certain customer-usage activities or patterns emerge,
Maximizing Revenue at the Point-of-Sale
changes to bundles and pricing can often make sense.
Offering a well-conceived bundle that is specifically
Overages are one obvious trigger, but other changes in the
selected to meet customer needs is far more beneficial to
pattern of service usage can also present opportunities.
the long-term customer relationship than a teaser rate—
In these situations, CSPs can contact customers to offer
and, this “right fit” approach is often an effective counter
improved plans even before the customer takes action. This
to the low-ball competition that otherwise threatens to
proactive approach is even more potent for strengthening
commoditize the sales conversation.
customer relationships—it shows a level of attention to
Running through a quick series of usage questions, with
customer needs that stands out in the industry.
an agent or in a self-service scenario, provides a ready-
At first blush, optimized migration may seem to be a risky
made opportunity to gather customer insight that can be
proposition from an ROI perspective. Customers pay as
used later for effective cross- and upsell—and a strong
much as three to ten times as much per minute for marginal
foundation for future conversations about aligning pricing
minutes over their talk and text limits. And, if they are not
bundles to actual usage.
calling to complain, the over-usage charges are pure profit.
Using a customer bundle optimization solution at point-
However, what a company may lose in short-term over-usage
of-sale can also help the customer understand—and take
charges when they provide a proactive recommendation,
more responsibility for—the levels of usage s/he expects to
they often gain in goodwill and long-term customer value.
undertake and agrees to pay for. This starts the relationship
The optimization process offers opportunities for CSPs
with greater clarity and understanding about future billing
to engage their customers, to provide pricing clarity, and
expectations.
to explore other customer needs. It keeps the focus on
bundles of services. It helps to reduce customer churn. And,
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IN ASSESSING BUNDLE OPTIONS, IT’S IMPORTANT TO KEEP IN MIND
THAT IT IS NOT JUST ABOUT PRICING—IT’S ABOUT STRONGER AND
MORE VALUABLE LONG-TERM CUSTOMER RELATIONSHIPS.
Choosing a Bundling Solution
Solutions from Pitney Bowes
The largest CSPs have already made the move to bundling
Pitney Bowes Software provides industry-leading customer
customer offers, and this challenges smaller providers to
bundle optimization solutions for the telecommunications
follow suit.
industry.
In assessing options, it’s important to keep in mind that it is
not just about pricing—it’s about strengthening customer
relationships. Therefore, CSPs should seek solutions that
incorporate a strong customer-information and granular
network-usage data-quality component. Calculations based
on aggregate, incomplete or erroneous data will produce
sub-optimal “optimizations”. On the other hand, solutions
with a strong data-quality component, based on detailed
behavior data, will deliver more accurate recommendations
and support more effective upsell, cross-sell and accountmaintenance efforts.
To support true customer-centric activity across the
organization, CSPs should seek bundling solutions that
support connectivity and work effectively with other
pricing, tax-jurisdiction and communications platforms.
Solutions flexible enough to work across different systems,
platforms and databases often require a smaller investment
in IT time and resources to maintain and adapt to future
systems and data infrastructure changes.
Overall, the objective of bundling is to deliver mutual
benefits for both customers and providers, to build stronger
customer relationships—and ultimately greater customer
loyalty and trust.
TO LEARN MORE ABOUT HOW YOU CAN REDUCE
CHURN AND INCREASE REVENUE WITH OPTIMIZED
OFFERS, CONTACT PITNEY BOWES SOFTWARE AT
800.327.8672 OR VISIT WWW.PB.COM/SOFTWARE
7
Every connection is a new opportunity ™
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©2012 Pitney Bowes Software Inc. All rights reserved.
Pitney Bowes Software is the software division of Pitney Bowes Inc. Pitney Bowes and the Pitney Bowes logo are trademarks of Pitney Bowes Inc. and/or its
subsidiaries. All other marks and trademarks are the property of their respective holders.
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