CRM Meets Revenue Assurance

Posted: 2/2004

CRM Meets Revenue Assurance
Introducing Customer Profitability Management
By Khali Henderson

Post-tech bust, communications providers understandably have been obsessed with revenue assurance. This discipline primarily has focused on accurate reconciliation of intercarrier billing and fraud prevention. It has progressed to include other strategies such as network inventory assessment and least-cost routing. Now, its wriggled its way up from the OSS and network infrastructure departments to customer relations.

In fact, a July 2003 study by Yankee Group puts customer profitability analyses as the most important business intelligence initiative for telcos in 2003-2004. To succeed in todays communications market, companies must know which customers are profitable and focus on the quality of customer revenue rather than the quantity, the Yankee Group report notes, identifying this new focus as customer profitability assurance.

Daniel Kenyon, vice president of communications industry solutions for PeopleSoft Inc., and his colleagues at the software firm call it customer profitability management. Whatever its name, this new discipline goes beyond measurement of average revenue per user, net new customer additions and market-share acquisition to evaluation of the present value of the customer. Its getting an accurate picture of the profitability of a customer ... to create a view of customer value, Kenyon says.

Last summer, PeopleSoft packaged this capability in its Customer Profitability Management for Communications, a solution combining CRM, financial management and business analytics to enable telcos to compare revenue and cost for each customer in real time. Products like PeopleSofts are moving financial accountability into the customer management process. The Yankee Group says customer profitability assurance synchronizes CRM, product promotion and pricing, billing, collection, cash management and financial analysis in an effort to reduce revenue leakage  a process that begins before the order is taken.

On this point the Yankee Group finds a vocal ally in the folks at Bluespring Software Inc. It all starts with the deal, says Jeffrey Mills, marketing manager for the software company. You can eliminate a lot of the revenue leakage that you are trying to track down if you focus on getting it right up front, knowing how you are going to bill for it, knowing that you can do it.

Bluespring Software is championing a solution for what it calls deal assurance. The tie to customer profitability, says Mills, revolves around the fact that these companies [telcos] have to rethink their customer acquisition. Many of the issues that impact profitability are decided before the deal is signed.

Bluesprings Opportunity Feasibility Management (OFM) software, launched in April 2003, was designed to address deals done on a one-off or individual case basis. Such nonstandard deals also are known as ICBs and, according to Bluespring, are being offered to an increasingly larger number of customers, complicating the presale assessment. About 90 percent of these ICBs are flawed before they are sold to the customer, says Rob Daly, president and CEO of Bluespring. Common errors include miscalculation of total delivered cost and inaccurate solution design.

Mills says OFM standardizes ICBs by using automated tools to qualify the opportunity, design the solution, set pricing and terms, obtain approvals and generate contracts (see diagrams, right). For simple deals that meet pre-approval criteria, the process reduces the sales cycle from days to hours. For more complex deals, those taking more than 60 days, OFM decreases the time to about a week. Overall, says Daly, customers report a 60 percent reduction in the sales cycle.

A bonus with the software is the ability to automate management of the contract, and application of rebates and credits. If a customers special long-distance pricing is tied to adding T1s later in the contract period, that event is automated so new service can be ordered or penalties applied on time. For all the dynamic or consequential aspects of the contract, its a very sophisticated tickler system, says Daly.

Bluesprings OFM solution is available for license for north of seven figures and as a service bureau for $35,000 to $50,000 per month. Daly says telcos, in most cases, can cost justify the software with cost reductions realized from any single function  billing, finance, operations, network or sales support.

Image: Effective ICB Opportunity Management

GARBAGE IN, GARBAGE OUT

Inaccurate data not only from order entry but also from billing and network systems combine to form the flotsam and jetsam that get in the way of determining customer profitability. Many of the more common revenue assurance solutions, which are solving data errors at deeper network and OSS levels, allow accurate information to float up to the CRM level.

Take inventory management. Robert Curran, director of global communications for OSS automation vendor Cramer Systems Ltd., say inventory management is crucial to customer profitability. Traditionally, when operators think inventory management, they really mean database of record, Curran says. The problem is [the database of record] is a static repository pushed by other applications, he explains. Managing the inventory requires much more, he says, describing an application that provides a reliable view of capacity, configurations and assets in the network and enables the carrier to accurately determine which resources are being used, at what capacity, by which services and for which customers.

When a marketing department recommends an upsell or bundling program, the operator can determine in advance whether it has the capacity to support the initiative, says Curran, offering a practical example of such an application. Process-driven inventory management precludes situations where the operator might offer a service [only] then to find it has to make additional capex investment to support the provisioning and explain to customers why service has been delayed.

He adds the same tools let operators find overlooked revenue opportunities by showing available, underused capacity, creating an opportunity to offer customers additional services at a reduced rate, fueling revenue and hopefully customer satisfaction.

A similar result can be had from cleansing bad  inaccurate, incomplete or missing  billing data, says Connexn Technologies Inc., a firm that focuses on data recovery and its impact on cost and revenue assurance. As customer profitability comes into focus, the accuracy of the data becomes very important, says Gary Ross, vice president of product management, explaining that an incorrect billing address can cost years of profitability for an account thats not billed, billed late or ends up in customer care or collections scenario.

Connexns Usage Data and Rating application, rolled out last summer, is designed to stop this kind of revenue leakage. The application sources data, including raw event records from network elements and output from the mediation, rating, billing and invoicing systems, and analyzes it to ensure the integrity of recorded data and that all usage data records accurately flow to customer invoices. This allows service providers to independently rate the usage records to validate rate plans, tariff structures and pricing models, and ensure the accuracy of the value assigned and presented in the rating, billing and invoicing systems. In addition, the application helps correct under billing of national and international toll, premium rate, third-party billing and toll-free calls, and provides an accurate representation and reconciliation of prepaid platform and thirdparty content usage.

Vibrant Solutions is another company focused on curbing revenue leakage in the order-to-bill cycle. Its Order Verification and Validation Application identifies lost revenue and discrepancies between a carriers order management and billing systems, including customer errors, underbilling and overbilling, incorrect product feature and charges and erroneous rates. Its Off-Net Revenue Recovery application examines a carriers off-net invoice data, inventory and billing system to identify off-net order errors, overcharges, billing errors and unused or unidentified network capacity for leased circuits and services.

Andrew Hurrell, director of product marketing for Vibrant, says the company has been in the cost and revenue management business since the early 90s primarily focused on the intercarrier billing reconciliation, but in recent months has applied its core competency at the subscriber level.

Historically, there has been a disconnect between revenue and costs. Correlating them at the market, product or subscriber level is complicated and becoming more so. If a company is a local, long-distance and wireless company, you have a huge issue allocating costs back to each service line let alone each specific customer, says Carl Geppert, partner and industry director of the Americas Communications Practice of audit, tax and advisory firm KPMG LLP, which, among other things, helps telcos develop cost-allocation methodologies. He cites the example of the longdistance service for a wireless customer that could be allocated in multiple ways. Cost allocation is further confounded, he says, by different pricing schemes  usage or flat rates  as well as different schools of thought on assigning costs for incremental products over the same network. Should I look at the full cost or the marginal cost of adding that product? One of the things we are starting to see is that marketing people are moving faster than the network and cost-allocation people can keep up with, he adds. As we begin to talk about different rates for different speeds, or different rates for different types of data, for example, those are new issues that enhance the complexity of being able to compile the necessary cost information to get a really good working model for customer profitability.

Nevertheless, he says telcos are working to amass this data because of its impact on pricing and bundling. If a company can get an extremely robust product and customer profitability process in place, thats a competitive advantage, he says. They know what they can bill on new contracts, they know what they can deliver new services (or bundled service packages) for and they can enter into each of these arrangements more openly. Secondly, they can identify who their really valuable customers are; the ones they need to super-serve because those are going to be the ones that they can least afford to lose.

PREDICTING BEHAVIOR

Indeed, one of the key aspects to customer profitability assurance, according to Yankee Group, is that it also embeds into the process a greater degree of customer behavior model and metric analysis to make more informed customer service decisions.

In other words, techniques used by telco credit departments for risk management are now being turned to product marketing and customer care.

PeopleSoft, for example, includes a predictive analytics offer as part of its Customer Profitability Management solution, which also includes CRM and activity-based cost costing. The software features templates for churn and campaign response that bring complex tools to customerfacing employees. According to PeopleSoft, call center managers and account executives can use predictive analytics tool in real time to ensure the most effective messages reach customers most likely to purchase or defect, increasing customer profitability and lifetime value.

Telco billing vendor CSG Systems Inc., also offers a predictive analytics modeling engine it calls ProfitNow! ProfitNow! not only identifies customers that are likely to churn or buy services but also offers reasons why and strategies for preventing attrition and increasing profitability of existing customers. CSG Systems claims one unnamed telco realized a 95 percent acceptance rate on an upsell campaign dictated by the application. The application, which takes advantage of multiple data sources, decision theory and neural networks, can help carriers figure out which plans or payment methods  post- or prepaid  will be more profitable over the long term. We predict the net present value of the future revenue stream and what may cause that to change, says Richard Wolniewicz, vice president of engineering.

Wolniewicz says while carriers are aware of churn and are looking at upselling, they havent thought through the ways that predictive analytics can be used.

Mike Pfeifer, a senior consultant in the Global Telecommunications Division of Fair, Isaac & Co., says although there is some adoption of what his company calls adaptive control tools among larger telcos, the telecom industry as a whole is surprisingly behind other industries such as financial services, insurance and retail in embracing predictive analytics about customer behavior that can impact profitability.

Fair, Isaac has adapted its proven risk-management software products for the telecom industry in TelAdaptive. The company helps telcos to treat customer segments differently based on their profiles  current services, payment information, demographics, etc.  when considering new offers and promotions.

If a telco wants to offer a new product, such tools help identify which customers will be more responsive to the offer and which ones will be most profitable so that it can refine its marketing efforts to a segment of the base, lower costs and improve response rates and profitability of customers that take the offer.

This is the way banks offer credit cards, says Pfeifer offering up a commonplace example of this technique in practice.

Pfeifer says the same approach can be used for collections actions, enabling a telco to determine which customers will pay when left alone and which will not and need to be put into collections. Similarly, identification of fraud or propensity for fraud can be spotted using such tools, he says. All of these things have an impact on profitability, he adds.