For telecommunications companies, the coronavirus pandemic has brought the “washing machine cycle” to a sudden halt.
For years, telcos have been stuck in an endless cycle of hunting to replace lost customers with new ones. In normal times, they feel pressured to deploy aggressive short-term promotions to meet quarterly financial goals and satisfy investors, even though these tactics are a primary contributor to customer attrition (see Figure 1). This emphasis on quarterly outcomes runs deep in the industry and influences decisions affecting the entire customer journey, from unexpected fee hikes to reduced spending on customer service and employee training.
Expiring promotions and related pricing issues account for one-third of telco customers who canceled service or switched providers
Many telco execs acknowledge it’s an inefficient way to run a business. And it misses two crucial parts of the value equation: It’s more effective to keep and maximize an existing customer than attract a new one, and not all customers have an equal impact on the business. Nevertheless, telcos have struggled to break out of this cycle.
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Now, there might be an opening. The Covid-19 crisis has caused a rapid, sharp reduction in new customer sign-ups and customer attrition. To illustrate, a Comlinkdata analysis found that activations of the latest smartphone models decreased by more than 40% in the US after federal officials issued their first physical-distancing guidelines in mid-March (see Figure 2).
Covid-19 reduced activations of the latest smartphone models by more than 40% in the US
Telco executives’ top priorities rightly continue to be the health and safety of their employees and delivering critical infrastructure and services to their communities. But an unexpected development of the crisis has raised the real possibility that telcos can break out of the washing machine cycle while it’s on pause.
The key is to start viewing—and actually treating—customers like a long-term asset, instead of a line on an income statement. Telcos already treat their networks as an asset, making forward-thinking investments in them. Those that take a similar approach to managing their customer base can strengthen their businesses substantially. Bain research has found that customer loyalty leaders across all sectors increase revenue 2.5 times faster than industry peers and deliver two to five times the shareholder returns over the next decade.
Telcos have historically performed poorly in this area. In the last five years, no leading telecommunications, cable or satellite company in the Americas or Europe has sustained a Net Promoter Score®—a measure of customer loyalty—above 50, a threshold that indicates a company is “beloved” by a majority of its customers.
But those that banish the myopic, transactional mentality toward customers can build a more loyal and valuable customer base. In doing so, they’ll run a more predictable business with stronger growth prospects.
The Covid-19 crisis could accelerate this shift. Telcos have a responsibility to invest in their customers and do right by them in this time of uncertainty. Mobile, broadband and video companies around the world have already taken decisive actions in recent weeks, including lifting data caps, offering discounts, temporarily eliminating late-payment fees, expanding WiFi hotspots and providing free access to educational, news and premium channels.
For the time being, telcos also have an unexpected reprieve from the pressures that have pushed them toward short-termism. They can use this window to move to a long-term mindset that favors investments in more targeted, sustainable and customer-friendly methods of serving people that account for the new normal and benefit both customers and the business. Telcos that choose to revert to the status quo, which may no longer be relevant, risk damaging customer relationships and emerging from the crisis in a weaker position.
Telcos that commit to this fundamental shift in customer base management can start by taking three actions.
1. Better understand each customer segment’s value to the business
Understanding the characteristics and relative value of each segment of the customer base is the key to shifting from short-sighted decisions to ones that will make the company stronger over the long haul. That’s because once a telco truly understands the value of its customers as a business asset, it will be more likely to treat them like one and make them feel valued. That’s even more critical during the Covid-19 crisis because customers are facing difficult challenges and their needs and behaviors are changing rapidly.
This goes beyond traditional customer segmentation. Leading telcos accomplish this deeper understanding of customers by developing an accurate view of each customer cohort’s lifetime value to the business, rather than one averaged view of the whole base.
Leading firms in telecommunications and other industries have deployed a combination of deep analytical capabilities and smart customer segmentation to develop the most comprehensive and effective view of customers’ long-term impact on the business. This enables them to glean a multitude of granular insights spanning different geographies, products, equipment types, customer groups and so on.
Leading telcos will be prepared to nimbly adjust their customer analysis as the situation evolves during the pandemic and in the aftermath.
2. Tailor products and services according to each customer group’s value
Telco leaders view customers not only through the lens of how valuable they are to the business, but what it will take to serve them well. This emphasis will help determine the amount of time and resources the company should dedicate to retaining each customer, and which ones to focus on attracting when things stabilize after the crisis. Leaders prioritize customer groups that are likely to be more profitable and loyal, because those are the most pivotal factors in increasing long-term business resilience and value.
The result? Leading telcos don’t just recognize that customers have varying levels of value. They act on that knowledge and deliver different service to different customer segments.
For example, a major broadband provider in the Asia-Pacific region designed a marketing campaign for the launch of its upgraded Internet service that sent personalized and targeted messages to people according to where they live and past customer behavior. The campaign helped lift the company’s year-over-year profitability by about 8% and increased the return on its Facebook and Google ad investments by 40% and 15%, respectively.
Meanwhile, Giffgaff, a UK-based mobile virtual network operator launched by telco giant O2 in 2009, has demonstrated the powerful impact of deploying a cohesive and targeted approach to customer segmentation and product and channel mix. Giffgaff determined its clearest path to a sustainable business was to focus on acquiring digital-savvy and price-conscious customers looking for an alternative to the traditional large telcos.
In an unconventional but effective move, the company has used its customers to in essence serve as its salesforce and support staff: Customers earn cash payments for recruiting new customers and are actively involved in solving users’ technical issues on company-facilitated discussion boards. Not only has this reduced Giffgaff’s operational and customer-acquisition costs, it has engendered customer loyalty and brand equity. Today, Giffgaff has the highest Net Promoter Score among UK telcos.
During challenging times like these, this personalized approach to treating customers can also help telcos make adjustments to better serve key customers who need extra support and care.
For example, in the current environment, a telco might decide to focus more on serving a longtime customer struggling with digital services than a tech-savvy shopper who is easier and less costly to serve, but is more motivated by price and more willing to switch to a competitor. The longtime customer normally makes purchases or seeks customer service help at a retail store, but with many of them shuttered during the pandemic, the customer needs help navigating the telco’s online store and customer-service channels. This might require more effort for the company, but it’s the right choice if the company determines the customer will be more loyal and profitable in the long run than the tech-savvy person.
A note of caution: Although the pandemic is increasing the use of digital stores and customer service, leading telcos won’t simply shift everything online after the crisis. They’ll use customer experience data to carefully decide which customer episodes make sense to go digital and which ones require more investment to make that transition—or shouldn’t.
The trick to all of this is finding the balance between personalization and scalability. Leading telcos design products and customer-service plans that are tailored to each group and can be viably scaled across the customer base.
3. Redesign decision-making processes to prioritize the impact on customers
Truly reorganizing the business around customers and their needs requires rewiring the organization and its decision making. That’s a complex undertaking with dozens of steps telco executives could take. It might seem even more daunting to attempt this amid an all-consuming pandemic and economic crisis.
We recommend telcos start by prioritizing customer impact as the key decision-making principle—with full-throated support from the leadership team; creating an organization-wide governance and incentive structure that favors maximizing customer lifetime value instead of short-term wins; and implementing financial models that track the outcomes of the new customer base-management strategy.
A sharper and more committed focus on customer loyalty metrics such as the Net Promoter Score can enable this shift. For years, telcos have closely assessed their relationships with customers. But leading telcos are actually doing something about negative feedback and are using loyalty metrics to guide their decisions.
While reorganizing around customers may sound radical, it doesn’t mean sacrificing the economics of the business. Rather, it means recognizing that doing right by customers—especially during a fraught period like this—can build stronger and longer-lasting relationships that ultimately lead to larger and more sustainable business growth.
Consider how in 2013, T-Mobile began adapting its business, products and services to address what customers cared about most. This lens led it to simplify offers, introduce unlimited data plans and reconfigure customer-service operations, among other changes. For example, the company reorganized customer-support staff around people having similar experiences. Customers are now routed to regional contact-center reps rather than assigned randomly, which has helped improve call outcomes and customer experiences.
These moves have helped T-Mobile become the Net Promoter Score leader among major US carriers, going from a negative score in 2013 to more than 30 last year. And the improved relationship with its customers has helped power the significant turnaround of its business: T-Mobile’s market cap grew by about $50 billion between 2013 and January 2019.
In other industries, companies have put customers at the center of their strategy by organizing around teams whose “products” are better described as customer experiences. The teams consist of representatives from each discipline needed to deliver the experience—IT, marketing, fulfillment and finance, for example—and each team focuses on meeting a defined need. Team members, whatever their functional province, view addressing the customer need as their primary goal, with individual performance measured and rewarded through their contributions to the team’s results.
For a telco, this could involve forming a cross-functional team with clear decision rights, oriented around a particular customer need such as onboarding new subscribers. Unlike the often messy team handoffs from purchase to service installation to first bill, the end-to-end onboarding process would be managed cohesively to ensure the customer is delighted with the product or service throughout the process. Furthermore, the team could adapt the process to accommodate each customer’s needs, whether the person is an urban millennial, rural retiree and so on.
When teams are organized around the customer, the functional and product expertise that often worked at cross-purposes when employees were locked inside silos can act as powerful accelerants to innovation and competitiveness, particularly when backed by huge storehouses of data and the capabilities required to mine it.
The overarching takeaway? Leaders who want to successfully transform their customer base-management strategy can’t take half-measures. It requires a true commitment from the leadership team and bold actions that will enable the new mindset and approach to take hold throughout the organization.
Throwing out the washing machine
The Covid-19 pandemic has disrupted life across the globe. Telcos are trying to figure out how to adapt to the changes underway, many of which will remain unclear and unstable for a while.
But the crisis has also opened a window for telcos to finally break out of their old value-destroying habits and begin transforming their customer base-management strategy for the better—by viewing and treating customers as a long-term asset.
It’s a big shift in mindset and operations, and a potentially long and difficult journey. But those who take proactive steps now can better serve customers during the crisis, earn their trust and loyalty, and emerge in a stronger position.
Once the value of this customer-focused approach becomes clear within the company, its leaders can turn outward, to the next part of the journey: demonstrating the value to investors. The most powerful way a telco can do that is through consistently disclosing customer value metrics in quarterly and annual earnings releases, showing it values the customer base as much as, or more than, its other assets, such as the network.
Investors’ mindset won’t change right away, but telcos can lead the way by prioritizing customer relationships over quarterly earnings—and backing it up with better long-term results. Eventually, that could mean the washing machine gets thrown out for good.
As the global pandemic deepens and the human cost of Covid-19 rises, the novel coronavirus outbreak is sending shocks through the world economy. But across industries, companies can take action now to protect their employees and customers and minimize the economic damage.
Net Promoter Score®, Net Promoter System®, Net Promoter®, NPS® and NPS Prism® are registered trademarks and service marks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.
The authors would like to thank Julianne McGee for her contributions.