multichannel connect
careers
all access

News

Knowing Angels from Demons

3/11/2010 10:02 AM Eastern

Used as terms to describe
proftable and unprofitable
customers, “Angels” and
“Demons” are very much alive
in telecommunications today.
Knowing one from another is
crucial to marketing success,
but all too often, the Angels
aren’t getting the attention they
deserve, while the Demons
tear a destructive path through
companies’ profitability. Success
relies on telling them
apart, and that demands a
change in telecommunications
marketing practices.

Executive leaders across all industries
continue to face the most
disruptive market conditions
in decades. Increased competition
has only accelerated: Large
rivals continue to compete, aggressively
buying market share;
new entrants are more nimble;
and substitute products seem
to pop up almost at every turn.
These forces particularly apply to
the telecommunications industry,
where competitors continue
to slug it out for increasingly
demanding customers who treat
products and services as commodities;
price, unfortunately,
becomes the only differentiator.
Faced with eroding pricing power,
telecommunication executives
find themselves in a downward
spiral of price deflation and profit
pressure.

The blurring of traditional lines,
with operators offering new products
and crossover into new categories,
has created a highly
competitive industry. A result of
this change is signifi cantly higher
customer churn as providers and
operators “exchange” subscribers
on a monthly basis. As one executive
said, “My customer today is
your acquisition target tomorrow
and vice versa.” The CEO and senior
executives are left wondering
how they can break out of flat-to-moderate
growth and begin to
once again deliver shareholder
value despite this trend.

Most telecommunication providers
are organizationally designed
as “inside out” structures that put products, not customers,
at the center of the organization.
Sales, marketing, service, operations
and finance rarely align
on how to measure true value
and select the most appropriate,
product-oriented measures.
So it’s hard to tell the angels from
the demons.

For example, a mid-tier cable
operator acquired about 3,000
new residential cable-TV subscribers
per month. The sales
leader and general manager always
achieved their monthly acquisition
quota. Marketing was
spending dollars on mass advertising
(TV, radio, print and
billboards) to create awareness
and drive leads into the channels.
All seemed well until further
analysis revealed that the
cable operator was acquiring
exactly the wrong type of customers
— demons — and didn’t
even know it. Across the three
major product off erings, cable
TV is by far the least profitable
due to associated fixed costs, including
labor, set-up, truck roll
and hardware. Analyzing the
acquisition results produced a
startling fact: The majority of
churners are cable TV buyers!
Turns out, this one-productonly
subscriber had a tendency
to buy on promotion and terminate
just prior to annual renewal
by switching to a lower cost competitor.
The  cost of acquisition was approximately $400; demons were
not only not breaking even but destroying
shareholder value. Sales
and the GM were “hitting their
numbers,” but profit was taking
the real hit.

The solution to a quandary
like this is to shift the focus to
where it belongs: on the customer,
making angels and demons
easy to recognize. This
scenario can be avoided with
three steps that treat customers
as assets that generate profits
over the long run.

First, marketing expenditures
to acquire and retain customers
should be treated as investments,
not expenses. Rather
than using traditional metrics
such as product revenue, the
fundamental building block to
protect this investment should
be the customer’s “lifetime value”
— the present value of a customer
based on future cash flows
attributed to the relationship.

Second, telecommunications
marketers need to manage customer
segments to optimize
shareholder value. Since some
customer segments drive profits
and others don’t, investing in customers
should vary by their profit
contribution and potential.

Third, marketers need to create
mutual value exchange based on
profi tability and organize around
customers, not products. Organizations
such as Best Buy, Apple
and American Express have
shifted their strategy, operating
model and execution from products
to customers, managing
their customer segments extraordinarily
well and, as a result, delivering
shareholder value quarter
after quarter.

Telecom marketers can learn
from those successes by following
these three steps and creating
a customer view that lets
them avoid the demons and
welcome the angels.

Kevin McShane is senior vice president and general manager of marketing-automation software-as-a-service provider Entiera.

September