Are Happy Customers Really Loyal? Are Loyal Customers More Profitable?

Loyal customers are “good” because they do not churn, conventional wisdom suggests. There are other ideas we tend to take for granted: Satisfied customers are loyal; customers who give a firm high “net promoter scores” are satisfied and loyal; loyal customers have longer “customer relationship lifetimes;” and are “more profitable.”

Sometimes those assertions are correct; often not. Customer satisfaction might not translate into customer loyalty, defined as unwillingness to desert a current provider for another supplier.

“What we’ve found is that the relationship between loyalty and profitability is much weaker—and subtler—than the proponents of loyalty programs claim,” say Werner Reinartz, Professor of Marketing at the University of Cologne, and V. Kumar,  executive director of the Center for Excellence in Brand and Customer Management at Georgia State University’s J. Mack Robinson College of Business.

source: Harvard Business Review

“Specifically, we discovered little or no evidence to suggest that customers who purchase steadily from a company over time are necessarily cheaper to serve, less price sensitive, or particularly effective at bringing in new business,” they argue. The researchers find “no evidence” to support such claims.

“In none of the four companies we tracked were long-standing customers consistently cheaper to manage than short-term customers,” say Reinartz and Kumar. “In fact, the only strong correlation between customer longevity and costs that we found—in the high-tech corporate service provider—suggested that loyal and presumably experienced customers were actually more expensive to serve.”

In business-to-business markets, that is perhaps easy to understand.  n business-to-business industries, high-volume customers often exploit their value to get premium service or price discounts from suppliers.

That arguably is not so true, if true at all, in business-to-consumer markets. “At the very least, the link between loyalty and lower costs is industry specific,” they say.

“Long-term customers consistently paid lower prices than the newer customers did—between fiver percent and seven percent lower, depending on the product category,” said Reinartz and Kumar. “What was surprising was that we found no evidence that such loyal customers paid higher prices in the consumer businesses.”

In fact, they argue, loyal customers--business or consumer--are more price sensitive than less-loyal customers.  That might help explain higher churn in telecom markets. If consumers believe loyalty should be rewarded with lower prices, then raising prices after an introductory period runs completely counter to that belief.

source: Harvard Business Review

Churn, to be sure, is a key issue for most service providers, as getting new customers costs money. By some estimates, postpaid subscriber acquisition costs run about four months recurring revenue, while a new prepaid account might cost about one to two months’ revenue.

What is not so clear is the direct linkage between service provider programs and customer behavior (lower churn, less call center traffic).  Should service providers aim to “delight” customers, or only prevent and fix problems quickly? Should providers invest in relationships or not? If so, in which segments? The research is not so clear on such matters.

AT&T to Attack Verizon MDUs in Boston

Anybody who thinks internet access competition is reaching a nadir might need to rethink those assumptions in the wake of new out-of-region assaults by Verizon, now countered to some extent by AT&T.

The important development is that markets traditionally lead by a telco and a cable operator, sometimes supplemented by competition from Google Fiber or other independent internet service providers, now will become markets where two tier-one telcos, a tier-one cable operator and often other ISPs also compete.

In other words, competition still is increasing, not shrinking, as some believe.

AT&T is offering internet access to multiple-dwelling units in Boston. The move is one example of a new trend in the fixed network business: large tier-one competitors moving out of region for the first time at scale.

Verizon, for its part, already has launched an assault on the AT&T market in Sacramento, and seems likely to attack another dozen or so markets as well. Most of the new 11 launch markets are out of region for Verizon, including Ann Arbor, Atlanta, Bernardsville (NJ), Brockton (MA ), Dallas, Denver, Houston, Miami, Sacramento, Seattle and Washington, D.C.

Of those markets, Washington, D.C.; Brockton and Bernardsville are inside Verizon’s fixed network footprint. The other markets are AT&T or CenturyLink domains.

Those moves outside the fixed network footprint by Verizon indicate thinking about growth prospects outside the core fixed network service territories, and probably also show that fixed wireless in the millimeter wave bands offers a new business case that did not exist before.

It remains unclear how much--if at all--the Verizon deep fiber architecture will play a key role in those out-of-region assaults. At least initially, the targets of opportunity likely will be locations reached by the metro fiber assets, using fixed wireless for access. That tends to suggest urban core targets of opportunity.

Essentially, AT&T and Verizon are becoming competitive local exchange carriers, at some scale, for the first time, attacking other tier-one telcos in their home markets.

The business case likely also includes the ability to use those assets to help with backhaul operations to support 5G small cell deployments as well.

T-Mobile US Deploys AI-Based Customer Care

T-Mobile US has deployed an automated customer care resolution tool supplied by Tupl.

The ACCR tool provides T-Mobile US customer care reps with detailed and easy-to-understand cause reports and technical resolutions, Tupl says. The ACCR tool is said to be 100 times faster and up to four times more accurate than legacy resolution practices support, automating as much as 90 percent of such interactions.

A TM Forum survey suggests service providers already are using artificial intelligence to support chatbots for customer service, network automation and service management, while 70 percent of service provider executives are conducting “proof of concept” trials.

At least so far, improving customer experience is top reason for AI interest, followed by reducing operating expenses.

The survey of 187 executives from 76 communications service providers operating in 51 countries, and 115 executives from supplier companies also suggests some problems.

Since AI is designed to augment human intelligence and processes, reaping value presupposes that organizations actually understand their core processes well enough to augment them, and can do so, as a practical matter. The history of enterprises applying information technology and reaping rewards is spotty, though.

source: TM Forum

Service Providers See AI Helping Most with Customer Interactions

A TM Forum survey suggests service providers already are using artificial intelligence to support chatbots for customer service, network automation and service management, while 70 percent of service provider executives are conducting “proof of concept” trials.

At least so far, improving customer experience is top reason for AI interest, followed by reducing operating expenses.

The survey of 187 executives from 76 communications service providers operating in 51 countries, and 115 executives from supplier companies also suggests some problems.

Since AI is designed to augment human intelligence and processes, reaping value presupposes that organizations actually understand their core processes well enough to augment them, and can do so, as a practical matter. The history of enterprises applying information technology and reaping rewards is spotty, though.

source: TM Forum

The Internet Era is Fundamentally Different

The internet era is fundamentally different from all prior eras of telecommunications. “Telecom” once was the center of its own universe. These days, telecom is part of the internet ecosystem. And some of us would argue telecom essentially is a tail on an internet ecosystem dog.

In large part, that means the industry cannot independently determine its own destiny, but supports, reflects upon and builds on other key trends in consumer behavior, device use, app use and enterprise priorities.

For that reason, argues the GSMA, “it is no longer appropriate to develop corporate strategies, or to assess policy situations, with a narrow focus on a single segment of the value chain.” In other words, the business context has changed. Boundaries between formerly-distinct industries have become porous, and actors in one part of the value chain now routinely expand into additional roles.

The implications for service providers--at least tier-one providers--are clear: movement beyond the access and transport function are within the realm of necessity and reason. You might compare such options to the older notions of vertical integration. The business logic is the same.

Sometimes revenue growth, profit or cost control is enhanced when firms operate across more of the value chain.

source: GSMA

There is an important caveat, though.

It might not be possible for small service providers to contemplate strategies that include operations across multiple parts of the ecosystem. Large entities, whether app providers, device suppliers or access providers, can reasonably expect to have the scale necessary for success across multiple roles.

Smaller providers, for reasons of scale (or lack of scale), will have to adapt to more specialized roles, as smaller participants in the core telecom ecosystem always have done.

That does not mean awareness of the trend is unimportant. Small providers have to understand where opportunities exist within the larger ecosystem, and as potential partners for tier-one actors who do operate across multiple roles.

Precisely how many tier-one telcos actually might envision a substantial role across multiple areas of the ecosystem (apps, services, devices, access, advertising) is unclear, but it will be a relatively small subset of the universe of service providers.

When researchers at Nokia Bell Labs predict a consolidation of some 810 global service providers to perhaps 105 within a decade, that gives you some idea of the universe of possibilities. As only the largest app providers are able to occupy meaningful positions across the ecosystem, so only a few of the largest service providers can contemplate similar moves.

source: GSMA

The internet value chain has almost trebled from $1.2 trillion in 2008 to almost $3.5 trillion in 2015, a compound annual growth rate of 16 per cent, according to the GSMA. So the ecosystem has grown substantially. So has the gross amount of revenue earned by the global service provider industry. But the percentage of total value earned by service providers is dropping.

The implications are perhaps obvious.

We sometimes forget that the global telecom business had, for most of its history, been about the sale of apps (services), not “access” to such apps. In other words, consumers and businesses bought the right to make phone calls, and not the right to access a network to make phone calls.

The difference is subtle, but crucial. “Phone companies” were in the “make a phone call” business, not the “network access” business. In the internet era, the value proposition flips.

If access to the internet now is among the primary values, if not the exclusive value, service providers now are in several businesses. “Access to the internet” (dumb pipe) drives significant revenue. But so do “apps” (voice, messaging, video entertainment).

So a core part of strategy is to grow the portion of the business related to apps or services, compared to lower-value “access.” That especially is true if one believes there are clear limits to the amount consumers ever will spend on access services.

The point is that growth options for providers that remain in the access services business (voice, messaging, video, internet access) are probably limited, going forward. Gaining scale (making acquisitions, especially outside the existing geography) will help, for a while. The limit there is the availability of capital and acquisition targets.

As always, that will spur a search for niches. As in the past, those niches will tend to be smaller or specialized segments that a tier-one service provider simply cannot support and make a profit. Rural geographies, local geographies and specialized business services have provided opportunities in the past. That should continue.

In the internet era, successes in other areas are harder to identify, with few clear sustainable advantages for carrier-supplied voice or messaging apps or app stores. There might be new advantages for some carrier-supported devices in some markets, especially where a service provider can use its own branded handsets to drive market share gains.

Language-specific content also could be promising.

The larger point is that, in the internet era, opportunities often are shaped by what other segments of the value chain will allow.

Vint Cerf on Where the Internet is Going

Internet pioneer Vint Cerf talks about where the internet might be going.

Are We in the Pipe Business? If Not, What?

Dean Bubley, Founder, Disruptive Analysis, and Connie Wightman, CEO and Chairman of Interserra Consulting Group, interviewed by Gary Kim, trying to think seriously about the future. Sources of value, roles and functions, prices trending to zero and other hairy challenges.

Part of the problem is that customers "want as little as possible, and don't want to pay for it," said Bubley.

“Voice mail is irrelevant,” says Wightman. “I don’t think telecom is a separate sector, anymore.” And eventually, app interfaces will be as ubiquitous as electrical outlets.”

“There are many more blurred boundaries,” says Bubley. “That makes it hard to classify things with a bright line.” Basically, the old monopoly on creating “telecom services” is over, and “anybody” can create communications features. In other words, private communications networks will be possible and common.

“Telecom is a tail on an internet dog, and cannot determine its own fate,” Kim said. “What drives value,” in that context?”