Clear Picture Inc. and RCH Cable Outsourcing. Services: Increasing Market Share through Direct. Marketing, Collections, and System Audits

Transcription

1 Clear Picture Inc. and RCH Cable Outsourcing Services: Increasing Market Share through Direct Marketing, Collections, and System Audits ENGL 406 March 23, 2005

2 Table of Contents Executive Summary 2 Introduction 4 Chart 1: CPI Basic Subscriber Growth 4 Table 1: Declining Market Share 5 Description of Services 7 Demographics 11 Chart 2: Household Incomes 12 Methods and Timeline 14 Table 2: Timeline 15 Cost 16 Table 3: Prices for RCH Services 17 Qualifications 18 Recommendations 19 Works Cited 20 Appendix 21 Organizational Chart RCH Sample Contract Projected Income and Expenses Résumé 1

3 Executive Summary In the past five years, Clear Picture Inc. (CPI), a wholly owned subsidiary of Massillon Cable TV, Inc. (MCTV), has lost ten percent of their market share in Wooster, Ohio. This accounts for $1.16 million in lost revenue annually. The losses can be attributed to two factors: increased competition and theft of services. Beginning in 1999, satellite companies started to gain market share and cable providers were unprepared to react. Industry wide, theft of service is a major problem. This accounts for billions of dollars lost by the cable industry every year. No specific information on cable theft in CPI s system is available, but there is no doubt that it has played a part in the reduced subscriber growth. The demographics in Wooster are diverse. This offers CPI many opportunities for reaching customers of all kinds. These demographics allow for targeted marketing towards specific income levels. The education level in Wooster is relatively high which allows for more technical terms in advertising. Understanding the demographics of the city will help CPI long after RCH is gone. To reverse this decline in subscribers, a two to three percent gain in market share is advised. This would bring in additional annual revenue of $350,000 and approximately 650 new subscribers. RCH Cable Outsourcing Services offers the services needed to meet this challenge. They will provide a system audit of all non-subscriber homes, door-to-door sales sweeps with a contact rate of at least 80% of non-subscriber homes and 30% of subscriber homes, and collection services. The system audit will determine the amount of theft in the system. The non-subscriber campaign will introduce people to the services offered by CPI and MCTV in hopes that they will become 2

4 subscribers. Current subscribers will also be informed of new services. The last service that RCH will perform will be the collection of non-payments and lost equipment. The timeline for this project is brief. RCH would work with CPI for eight months; six of which would be spent in the field. During the first month, CPI and RCH would spend preparing for the field work. CPI would gather promotional materials and create databases to be used by RCH. RCH will use these databases to prepare logistical plans. During the sales sweeps, reports would be presented to both companies on a daily basis as well as a monthly report to MCTV. The last month will be evaluative. RCH will prepare reports for both CPI and MCTV. The proposed cost for their services is approximately $186,540. The system audit will cost $5/home for a visual audit and $8/home for the technical audit. All houses contacted for sales will cost CPI $8/home and RCH charges commission equal to the third month payment on services. RCH receives a $40 commission on all non-payments and a flat fee of $20/piece of returned equipment. These costs may seem high, but CPI could make almost $300,000 in one year if all customers who either subscribed or upgraded remain customers. While there are some risks associated with this project, I recommend that CPI move forward and contact RCH. The potential for immediate gains (within one year) and future gains far outweigh the possible risks involved. The research used in this proposal consists of primary and secondary data. Primary data includes an interview with company president, Robert Gessner, and internal data. Secondary data includes Internet research from industry websites. 3

5 Introduction Company Profile Massillon Cable TV, Inc. (MCTV) was founded in 1965 by Richard and Susan Gessner in Massillon, Ohio. The family owned company is the 50 th largest multiple system operator (MSO) offering cable, internet, and telephone services. An Organizational Chart can be found in the Appendix. The four subsidiaries of MCTV employ over 100 people. Clear Picture Inc. (CPI) provides cable services to customers in Wooster, Ohio. Massillon Cable Communications, an Internet Service Provider, has over 20,000 subscribers in Massillon and Wooster. The newest subsidiary, Super-Net Inc., began offering broadband telephony service in January MCTV has 32,000 subscribers in Western Stark County. CPI serves 13,000 homes in 12 communities in Wayne County. CPI was founded in 1968 and purchased in 1979 by MCTV. CPI currently employs 32 individuals. Basic and digital cable services are provided along with additional services such as premium channels, Pay-Per-View, High Definition services and Digital Video Recording. Dwindling Market Share After 12 years of growth, CPI began losing market share in This loss has accounted for a ten percent decline in market share- approximately 650 customers, according to Robert Gessner, President of MCTV (1). As seen in Chart 1, CPI Basic Subscriber Growth, 2004 was Chart 1: CPI Basic Subscriber Growth the first year of positive growth. Massillion Cable Subscription Data,

6 Table 1: Declining Market Share Households Passed By CPI 21,500 Households Served 13,000 Percent Served 60% Loss in Market Share 10% One Percentage Point (Customers) 215 Ten Percentage Points (Customers) 2,150 Average Customer Monthly Payment $45 Annual Revenue Lost $1.16 million Source: Robert Gessner This decline in market share is costing the company $1.16 million in annual revenue. This loss is seen in Table 1, Declining Market Share. There are 21,500 households passed by Clear Picture but only 13,000 (60%) households subscribe. For each percent of market share that is lost, 215 customers are lost. A ten percent loss equals 2,150 customers. Customers pay an average of $45/month for services (1). These losses can be attributed to increases in competition and cable theft. These issues are industry wide. The strongest competition the cable industry faces is satellites. According to a study by The National Cable & Telecommunications Association (NCTA) in September 2004, million households are satellite subscribers (2). Beginning in 1999, cable service providers began to lose subscribers. Satellites hold two distinct advantages: marketing strategies and prices. Satellites offer very competitive prices. However, these prices do not include installation, local channels, or additional receivers and require the signing of long term contracts. Prices for satellite service range from $32 to $43 per month. CPI charges $39 per month for basic digital cable service (3). Satellite companies employ aggressive marketing tactics including national advertisements and telemarketing. CPI s marketing is geared towards the retention of current customers. Bill stuffers and television commercials are the main promotions and no direct marketing is used. 5

7 The NCTA estimates that the cable industry loses over $6.6 billion annually because of cable theft (4). Theft ranges from passive theft (when someone moves into a residence with cable and does not contact the cable company to set up an account) to active theft (purchasing a descrambler or theft of broadband services) (5). Identity theft is also becoming a major concern. CPI has no data available on subscription loss due to theft. Proposed Solution The best way for CPI to regain lost market share and revenue is to utilize the services of RCH Cable Outsourcing Services with the goal of regaining a two to three percent market share (between 430 and 650 customers). The company will provide collection services for lost payments and equipment. They will also complete a system audit to determine the amount of theft within the system. RCH will conduct a door-todoor sales campaign to promote services (6). Research The research used in this proposal is a mix of primary and secondary data. An interview with Robert Gessner, President of MCTV, provided valuable firsthand information. Primary data includes sales and subscription data and price quotes from RCH. Secondary data includes statistics from NCTA and information from websites such as Time Warner Cable and the Wooster Chamber of Commerce. Organization The information in this proposal will explain the services to be provided by RCH. It will examine the demographics and target markets within Clear Picture s service area. A timeline, associated costs, and recommendations are included. 6

8 Description of Services Located in New Jersey, RCH Cable Outsourcing Services has been serving the cable industry exclusively since RCH has worked with the top cable systems in the United States including Cablevision, Charter, and Time Warner. Services offered by RCH include door-to-door sales, payment collections, and system audits which would all be useful for CPI in regaining lost market share and revenue (6). A sample agreement can be found in the Appendix. Door-To-Door Sales Campaign RCH has two types of sales campaigns (6), both of which can be utilized by Clear Picture. The first is for non-subscribers. Non-subscribers are contacted and given information about all of MCTV s services. People will be informed of new and upgraded services such as cable modems, telephone services, and high definition stations. RCH recommends offering a free installation promotion. RCH would collect the service fee for the first half of the month up front and the second half of the month s service would be free (7). RCH representatives will make contact with at least 80% of all nonsubscribers during this campaign (6,800 customers). In addition to finalizing the sale, representatives will also collect fees and schedule installation times. A similar campaign can be used for current subscribers. This campaign would focus on upgrading or adding services. Customers may be unaware of new services or may not fully understand them. RCH representatives sit down with customers and explain these services. People are more inclined to buy something from a person rather than over the phone. 7

9 Collection Services CPI lost an estimated $37,000 in non-payments over the past six months. This does not include lost equipment. This represents only 1.6% of MCTV s monthly service payments of $2.3 million (8). RCH s collection services could recover some of these lost payments and equipment. This reduces the time that Clear Picture employees spend trying to collect delinquent payments. RCH acts as a collection agency, collecting money before the subscriber is disconnected. RCH will also contact customers who voluntarily disconnect. They will try to persuade the customer to retain their services. Because CPI has experienced substantial customer loss in the past few years, contacting past subscribers who have disconnected recently could be beneficial by offering dish buy-back programs. System Audits RCH will conduct two separate system audits. A visual audit will be conducted followed by a technical audit. The visual audit is done in conjunction with the nonsubscriber sales campaign. RCH will identify the connection status of all non-subscriber homes. Those using cable services illegally will be reported to CPI. RCH tries to convert them to paying customers. If not, they are disconnected during the technical audit. If CPI so desired, legal actions could be taken. The technical audit includes all the aspects of the visual audit with some additions. RCH will check and correct the connection status of all homes passed by CPI. Those homes that are identified as having illegal hookups with be disconnected. In addition they will identify those homes which have satellite services which can be used later in marketing initiatives (6). 8

10 After the audit is complete, CPI would be provided with a street-by-street database of the system (7). This will be useful in the future for marketing campaigns and promotions. It could also be used to bring charges against those who have been using CPI s services illegally. Staffing and Field Support RCH employs over 1,200 sales representatives (6). All representatives are employed by RCH; no outside contractors are used. Before working in the field, representatives are trained in-house in all areas (sales, collection, audits). During the sales sweeps, representatives are paid a commission for every sale they make (9). After reviewing data provided by CPI, RCH would decide how many representatives to bring. Both RCH and CPI will provide sales support. RCH monitors field results on an ongoing basis from their headquarters. All managers have PCs for collecting data and communicating with RCH and the cable company. This allows them to maintain real time reporting. CPI will provide RCH with sales support from noon to 8 PM six days a week. This allows representatives to call in sales and to confirm dates for installations. CPI will be required to maintain an 85% installation completion rate on all sales and maintain a backlog of seven days for installs (9). 9

11 Demographics With Wooster s steadily growing population (10), there are many opportunities for CPI to increase its market share. By understanding the area s demographics, RCH and CPI will be able to create targeted marketing campaigns. The city would be segmented into neighborhoods and RCH could use this to tailor their sales campaign to make it more beneficial. There are three important demographic features: population distribution, employment rates and incomes, and educational opportunities. Population distribution As previously stated, the population of Wooster area is growing. In 2003, the city population was 26,000 with another 27,000 people living outside the city limits, as stated on the Wooster Chamber of Commerce website (10). According to Claritas PRIZM Segmentation System, the population is composed primarily of people under the age of 40 (11). The area is not very racially diverse. The population is mostly white (92.5%). African Americans make up 3.8% of the population while the rest is composed of American Indians, Asians, and people with two or more races (10). Income Like most small towns in Ohio, Wooster is predominately a blue collar town with a large farming community. Of the five groups identified by Claritas, occupations for all five were identified as blue collar/service and two were also labeled as farmers (11). The major employers in the area are manufacturing companies, including the Timken Company and Wooster Brush, and higher education institutions (10). 10

12 According to the Chamber of Commerce, Wooster has a median family income of $42,586 (10). Chart 2, Household Incomes, shows a full distribution of incomes. While most do not have large amount of discretionary income, many people have some extra money to spend. For CPI, this means that people may choose to upgrade services or subscribe to broadband Internet access. By supplying RCH with neighborhood segmentations, door-to-door sales could be tailored to fit each segment. Those living in higher income areas would Chart 2: Household Incomes (Thousands) 2% 3% $5 - $10 10% 3% $10 - $15 12% 10% $15 - $24 $25 - $35 $35 - $50 18% $50 - $75 22% $75 - $100 $100 - $150 20% $150 or more Source: Wooster Chamber of Commerce be prime candidates to inform about Super-Net s telephone services while those in the lower income areas might only be told about upgrades for cable services. Education The education level is important in designing advertisements and promotional materials. 79.3% of residents hold a high school diploma or higher and 24% hold a Bachelor s Degree or higher (10). The three higher education institutions in the area offer a unique marketing opportunity. Professors and students living off-campus are prime candidates for high-speed internet access. The free long distance charges offered by Super-Net might appeal to students who do not own mobile phones (1). Given this level of education, advertisements could include more technical terms without confusing the reader. One of the advantages of using RCH to distribute materials is that they would have the opportunity to help people understand CPI s services and answer any questions. 11

13 Methods and Timeline The timeline for this project will be relatively short and Clear Picture s involvement will be small. After an agreement is made, the project will last eight months. The majority of that time (6 months) will be the field work done by RCH. During this time, CPI will be involved only with payments, scheduling installations, and handling customer questions. RCH has specific guidelines which will be agreed upon in the contract, which can be found in the Appendix. After the contract is signed, the project will take eight months. The timeline on page 14 is laid out in Table 2, Timeline. Month One will consist of training and organization. Clear Picture staff will need to learn about RCH s procedures and what will be expected of them by the RCH staff. It may be beneficial to appoint one or two employees to handle all RCH issues. CPI will spend this time preparing sales material for RCH. CPI and RCH will work together during this time to create street lists and maps. CPI will identify those neighborhoods to be contacted first and RCH will develop logistical plans for its services. RCH representatives will be in the field during Months Two through Seven. RCH will report all sales data to RCH headquarters and CPI on a daily basis. Monthly reports will be given to RCH and MCTV. During this time, CPI may experience a greater need for installers and technical support. Scheduling more installers during this time is imperative. Massillon Cable s office can assist with handling the influx of telephone calls. Telephone lines are already directly linked so this will not require any additional work. 12

14 The last month, Month Eight, will consist of final reports. RCH will make a final report and evaluation to Clear Picture. It will consist of data from the door-to-door campaign, payment collections, and the system audit. CPI will also prepare an evaluation report to be given to RCH and Massillon Cable. Internally, CPI will discuss additional steps that can be taken to increase and retain market share. Table 2: Timeline Month One Train and educate CPI employees on RCH procedures Prepare sales material for RCH Create street lists and neighborhood maps Coordinate logistical plans with RCH Months Two Seven RCH representatives in field Daily reports to CPI and RCH Monthly reports to RCH and MCTV Increase installer schedule Coordinate technical support with MCTV Month Eight Final reports and evaluations to RCH, MCTV, and CPI Internal meeting for CPI 13

15 Costs At first look, the costs for RCH s services may seem high, but it will result in a gain in market share and considerable revenue for CPI. RCH s payments are contingent on the number of homes contacted and a commission is paid on all services sold and returned payments. No deposit is required and CPI will make payments every 30 days based on the previous 30 days sales figures. For the door-to-door sales and cable audits, RCH charges a flat fee for all homes contacted. Visual cable audits cost $5/home and $8/home for a technical audit. Homes that are contacted for sales are charged a fee of $8 each. RCH receives a commission on homes that start subscriptions or upgrade pre-existing services. The commission is equal to the amount the customer pays on the third month of service. There is no flat fee charged for collection services. RCH does, however, receive 40% of each non-payment that is collected and $20 for each piece of returned equipment (7). Table 3, Prices for RCH Services, shows prices charged by RCH for various services. It can be found on the next page. RCH s services will cost Clear Picture approximately $186,540. This is based on: 100% visual audit of all non-subscriber homes and a technical audit of ten percent of these homes contact rate for non-subscribers of 80% with ten percent of these homes purchasing an average of $45 services/month Contacting 30% of subscribers with 15% upgrading services averaging $15/month Eighty percent of non-payments collected and 100 pieces of equipment returned 14

16 While this cost seems high, in one year CPI will earn almost $300,000. This amount is consistent with the two to three percent market share increase. A chart, Projected Income and Expenses, which illustrates the costs associated with employing RCH and the possible monetary benefits can be found in the Appendix. Table 3: Prices for RCH Services System Audit Visual: $5/home Technical: $8/home Door- To-Door Sales $8/home contacted Commission equal to third month of paid service Collection Services Non-payments: 40% commission Equipment return: $20/piece Source: RCH information letter 15

17 Qualifications While I have never been employed by Massillon Cable TV, I have been involved with the company my entire life. This gives me a unique perspective when looking at issues facing MCTV and the cable industry as a whole. I am able to look at these issues with an external and often critical eye. However, because I have a vested interest in the company, I must also think about what is best for MCTV and what will ensure its long term success. Throughout my college career, I have been involved with several marketing projects. These projects, along with case studies and class work, have prepared me to take on the marketing challenge at Clear Picture. My résumé can be found in the Appendix. 16

18 Recommendations Risks are associated with any new project and this one is no different. However, I recommend that CPI consider working with RCH on a sales campaign. Over the past six years, CPI has lost ten percent of its market share, resulting in annual revenue loses of $1.16 million (1). Working with RCH will allow them the opportunity to earn some of the lost revenue and market share back. Competition is growing stronger and CPI cannot afford to wait any longer or they run the risk of losing to the competition or being sold. The services offered by RCH include a door-to-door sales sweep of all nonsubscriber households passed by CPI (with a minimum 80% contact rate) and 30% of current subscribers. They would also conduct a system audit of all non-subscriber households and would provide collection services. Theses services will increase market share, generate revenue, and identify illegal users. This would all be done by RCH representatives. The recommendations made in this proposal would earn the company around $300,000 dollars in unrealized revenue and increase its market share by two to three percent. 17

19 Works Cited (1) Gessner, Robert. Personal Interview. 6 March (2) Statistics & Resources. National Cable and Telecommunications Association (NCTA). Industry Overview. 11 March < (3) Product Comparison. <E:\ProductComparison>. (4) Cable Piracy Facts. NCTA. Industry Overview. 10 March 2005 < (5) Types of Theft. Time Warner Cable. 11 March 2005 < (6) RCH Cable Outsourcing Services. Moorestown, NJ, (7) Halgas, Bob. RCH Letter of Information. 28 Feb (8) Losses Due to Non-Payments. <E:\BadDebt>. (9) RCH Agreement. 28 Feb (10) Community Profile. Wooster Chamber of Commerce. 3 March 2005 < (11) My Best Segments. PRIZM NE Segmentation System. Claritas. 3 March 2005 < 18

20 Appendix Organizational Chart RCH Sample Contract Projected Costs and Gains Résumé 19