Defending Revenue through Customer Centric Pricing

Solutions for Enabling Lifetime Customer Relationships. Defending Revenue through Customer Centric Pricing Leveraging Customer Behavior Modeling to Optimize Bundled Offers W HITE 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. www.pb.com/software

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 Projections through 2016 indicate that worldwide, the telecommunications industry will outstrip the growth rate 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: 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 consumption is forcing the telecommunications industry to actively move away from flat-rate usage plans. For the largest communications service providers (CSPs), the bundling of customer offers now plays a key role in building customized solutions to meet the subscriber s specific needs and enhance Customer Lifetime Value (CLV). A Global Phenomenon Consumers are increasingly frustrated with the complexity of pricing plans, the pain of penalties for overages, and a perceived lack of customer care. A study by the Australian 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? This study reports that the key drivers of customer complaints are The lack of clear and comparable information Bill shock that comes from receiving unexpectedly high 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. 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. However, most CSP billing and rating engines were built to meet the needs of a relatively static services environment. They are not equipped to meet marketing demands and cannot generate custom customer-centric solutions built around individual customer needs. Today s market calls for a flexible, open, configurable bundle optimization system that can support marketing innovations and enable CSPs to maximize efforts to reduce churn and 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 is increasingly important. Clarifying pricing bundles and helping to protect customers against bill shock offers substantial opportunities to reduce churn and increase customer satisfaction while defending long-term revenue streams. 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 inconvenience. Beyond bill shock and lack of clarity, there are two other key reasons that customers consider switching providers: 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. From a CSP perspective, optimized pricing delivers both a high-value offer and a driver of revenue. It can address customer concerns, be used to proactively address competitive offerings, and provide a proactive, costeffective option for reducing customer churn. 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. Other CSPs, when confronted by a customer about overusage charges, will do a more rudimentary analysis and move the customer into a more expensive plan based on one dimension of historical usage without considering all aspects of the relationship. This may enable the CSPs to placate and retain the customer temporarily, and do so very profitably in the short-term; however, in the longer 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. How Customer Bundle Optimization Works Most CSPs have hundreds of pricing and service options from which to form bundled service plans. Selecting the 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 may be eligible as well as key business goals. It ultimately recommends a best fit that can be clearly articulated to the customer based on their needs and maximizes longterm relationship value to the CSP. Automation makes this process very fast even with huge volumes of behavior data, so Customer Service Reps (CSRs) 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. www.pb.com/software

OPTIMIZING CUSTOMER OFFERS DELIVERS A TRUE BEST FIT PLAN FOR EACH CUSTOMER. Optimizing bundled offers enables a CSP to: Up-sell effectively to appropriate customers based on recent historical usage patterns, customer experience, churn risk and customer segmentation Stop down-selling when low usage has been detected, instead encouraging better usage or substitution of more appropriate services to meet customer needs Proactively retaliate against competitive offers by offering appropriate service plans and features to at-risk customers Offer loyalty plans that are meaningful to the customer, increase the stickiness of the relationship, and don t incur additional costs for the CSP. upsell Enables effective Identifies customer-appropriate bundle substitutions Customer Bundle Optimization Offers profitable alternatives to downsell Helps define loyalty plans 5 20 15 10 5 0 19% Last plan finished 16% 15% 15% Wanted phone with more features Upgrade from previous plan Wanted phone with latest tech 4% 10% 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.* Bundling Customer Offers to Stem Attrition One of the key differentiators of a true customer bundling solution is its ability to proactively deliver best-fit recommendations in real-time. Rather than panic downselling 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. Through this approach, customers gain peace of mind that their new plans match up with their usage history and offer 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. * Australian Communications and Media Authority, 3G mobile bill-payers understanding of billing and charging arrangements Quantitative research report Commonwealth of Australia, June 2011

WHITE PAPER: TELECOMMUNICATIONS Defending Revenue through Customer Centric Pricing Leveraging Customer Behavior Modeling to Optimize Bundled Offers 6 Pre-emptive Optimization Holds More Power Once a customer has called to complain or attrite, the provider has to fight to bring them back from the edge and many customers may not listen long enough to gain from an optimization proposal. Increasingly, therefore, telecoms are taking action earlier. in an industry where customer acquisition is leveling off and commoditization is becoming a risk, bundling is a key differentiator for telecommunications companies today. The old saying that it takes much more to get a customer than to keep one truly needs to be considered here. Proactive pricing changes can boost customer satisfaction and loyalty. Tracking Usage When certain customer-usage activities or patterns emerge, changes to bundles and pricing can often make sense. Overages are one obvious trigger, but other changes in the pattern of service usage can also present opportunities. In these situations, CSPs can contact customers to offer improved plans even before the customer takes action. This proactive approach is even more potent for strengthening customer relationships it shows a level of attention to customer needs that stands out in the industry. At first blush, optimized migration may seem to be a risky proposition from an ROI perspective. Customers pay as much as three to ten times as much per minute for marginal minutes over their talk and text limits. And, if they are not calling to complain, the over-usage charges are pure profit. However, what a company may lose in short-term over-usage charges when they provide a proactive recommendation, they often gain in goodwill and long-term customer value. The optimization process offers opportunities for CSPs to engage their customers, to provide pricing clarity, and to explore other customer needs. It keeps the focus on bundles of services. It helps to reduce customer churn. And, Maximizing Revenue at the Point-of-Sale Offering a well-conceived bundle that is specifically selected to meet customer needs is far more beneficial to the long-term customer relationship than a teaser rate and, this right fit approach is often an effective counter to the low-ball competition that otherwise threatens to commoditize the sales conversation. Running through a quick series of usage questions, with an agent or in a self-service scenario, provides a readymade opportunity to gather customer insight that can be used later for effective cross- and upsell and a strong foundation for future conversations about aligning pricing bundles to actual usage. Using a customer bundle optimization solution at pointof-sale can also help the customer understand and take more responsibility for the levels of usage s/he expects to undertake and agrees to pay for. This starts the relationship with greater clarity and understanding about future billing expectations. www.pb.com/software

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 The largest CSPs have already made the move to bundling customer offers, and this challenges smaller providers to follow suit. 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. Solutions from Pitney Bowes Pitney Bowes Software provides industry-leading customer bundle optimization solutions for the telecommunications industry. 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

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