There’s A Hole in the Bucket, Dear Telco

Posted: 10/2001

There’s A Hole in the Bucket, Dear Telco
By Jeff Maszal, Donna Nogay

and Kelly O’Donnell Hughes

Are average American consumers — our mothers, our brothers, our classmates, our colleagues, our children — unreasonable?

Most of us don’t need to see all the research studies to know that most customers have reasonable expectations, even for telephony services.

So why do phone companies continue to have high churn rates? Why do wireless providers have some of the highest churn rates of any industry?

Research has shown, and experience has confirmed, that it costs from five to 30 times more to acquire a customer than to retain one. Yet, companies continue to allocate a disproportionate amount of resources to acquisition rather than retention.

Is this because retention problems are too complex to overcome?

The solution is much less complicated than telecom executives would have us believe. In the early 1980s, companies talked about customer loyalty in terms of decades. Today, the expected lifetime of a long-distance customer is no more than a few years.

The emerging telephony markets, like wireless and DSL, need not suffer from the same tide.

The Hole In The Bucket

A company’s ability to retain customers is related directly to how well it knows its customers and how well it understands its customers’ expectations.

Culprit No. 1 is a lack of effective research. In a recent Forrester Research Inc. ( study, only 17 percent of companies that have implemented a customer relationship management (CRM) initiative have conducted primary customer baseline research. Companies are spending millions of dollars on CRM technologies, but only 17 percent of them measure the effect on customers. That doesn’t make good marketing or business sense.

Without the necessary pre- and post-sales research, a company can fail to understand its customers’ needs, wants and expectations.

Effective research focuses on customers throughout their lifecycles and quantifies the impact of the customer experience on the corporate bottom line. Using lifecycle economics, companies can identify the primary points of pain in the customer lifecycle.

But more importantly, lifecycle economics takes the traditional points of pain and drives the information deeper, including tying loss of revenue directly to each point of pain.

A second impediment is the low expectations companies have of their customers. When companies are planning new product or service launches, customer relationships and how to maintain them are often overlooked. Retention usually is addressed only after market launch.

Equally at fault is an over-emphasis on technical solutions rather than on the basics of managing customer relationships. Technology is a means to an end — not the end itself.

Although we all claim to know this, it is surprising how often companies look first towards technology to solve their customer challenges. A balance among technology, processes, people, partnerships and reporting capabilities can maximize acquisition and retention capabilities when it comes to managing customer relationships through the lifecycle.

If you have the right technologies, but the wrong processes, you end up doing the wrong thing faster.

If you have the right technology and right processes, but the wrong people, you duplicate and triplicate your mistakes.

If you have the right technology, processes and people but are unable to manage your vendors, you end up promising what you cannot deliver.

Finally, if everything is in place — the right technology, processes, people and vendor solutions–but you have inadequate reporting capabilities or structures, you end up drowning in data, yet starving for information.

Plugging The Hole

and Filling The Bucket

The model for plugging the hole in the bucket begins with getting the basics right. If you can’t get it right the first time, then absolutely get it right the second time — assuming the customer gives you that chance.

If you can do this, then you can optimize retention and revenue with minimal costs.

One study showed that wireless customers generally are willing to give companies a second chance.

However, an area in which customers are very sensitive to mistakes is billing. Customers, even those who have stayed with the same wireless carrier for more than two years, vow that they won’t give their carrier a second chance if they’re burned with an inaccurate bill.

Getting the basics right begins by making retention an integral part of the product development process.

Is there an association between market demand and the product being built?

Early pre-acquisition research and retention planning helps companies determine whether they are targeting the right customer market or their product has a viable market. Research also is key to identifying the metrics that will drive satisfaction and loyalty.

Understanding the boundaries within which customers will remain satisfied can help companies determine customer service call wait times and the maximum number of dropped calls per month that customers will tolerate before calling service for resolution or credit.

After being denied access to a wireless company’s self-care web site and then waiting for 45 minutes on the phone to reach a customer service representative, one of our colleagues was told that the representative could handle only three issues.

If the caller had more than three issues, she would have to have someone call her back.

The best customer-retention research has shown repeatedly that if a customer calls with a question or problem and it can be resolved in one contact, the customer is often more loyal than if the customer never had the problem in the first place.

If a customer has to call three or more times to resolve a problem, however, loyalty almost certainly is lost forever.

Knowing that you have one chance to get it right creates an economic imperative for the company to invest in handling customer calls in one contact. In short, effective pre- and post-sales research gives companies the benefit of moving from management by anecdote to management by fact.

Once companies realize they have one chance to handle customer concerns and understand the prohibitive cost of multiple contacts, they can make sure front-line representatives have the necessary tools (customer history, product/pricing/billing information), training and empowerment levels to handle each call in a single contact.

Early and effective customer attention is crucial to long-term retention. Billing accuracy is vital to making sure a customers have a positive experience, especially in the first 60 days of their life.

Setting proper expectations before the first invoice is received can remove the initial sense of dissatisfaction. Companies can accomplish this through education and introductory activities like welcome calls before the first bill arrives.

During the welcome call they can educate the customer on the top three questions usually asked about bills. This initial investment in customer relationships can help set proper expectations even exceed those expectations.

Inbound service call volumes can be reduced substantially by removing the element of surprise when the customer receives the first bill. This preventative measure has been shown to have a direct correlation to reducing churn in a major U.S. wireless service provider.

Companies need to do the big things right, and also the little things.

In ordering, make sure customers understand what channels they can use to sign up. When taking orders by phone, ensure the customer can get through on the first call, to the right person, who can answer 90 percent of product questions. Train representatives to assess the customer’s potential calling patterns and sign them to the correct plan.

The financial impact of making sure the potential customer becomes a customer is evident. Providing a hassle-free purchase experience is key. If you don’t make the process easy across multiple channels, someone else will. Count on it!

Another wireless example: A customer called to sign up for a digital plan with no network coverage within a three-mile radius of the customer’s home.

If the customer service representative had taken an additional 15 seconds to ask three pertinent questions, the customer could have been placed on the right service for the area.

Instead, the company incurred the cost of multiple phone calls to customer service and the long-term impact of the oft-repeated negative word-of-mouth story.

One of our favorite anecdotes concerns telephone numbers printed on customer welcome letters, fulfillment packages and invoices.

In one case, an ILEC bill had seven different phone numbers to call, two of which were incorrect. A second recent example was the placement of a billing inquiries telephone number that is no longer in service on an ILEC monthly statement. A simple review, prior to printing the invoice, would have solved the problem.

Word of mouth travels fast and associations run deep. The long distance market is considered a commodity market today with a largely indifferent user community.

Among the three major carriers, U.S. market shares have not changed considerably during the past decade.

In today’s environment, companies must learn from the lessons of the past. Doing a poor job with any product or customer service activity will reflect negatively on the entire brand image and will reduce long-term growth opportunities once the definable market has been fully penetrated with the relevant technology.

How can this be avoided? How can companies turn past mistakes into profit?

Companies must drive retention from the top down and everyone must be responsible for every customer lost.

Proper incentive and motivation at all levels of a company are required to ensure executive buy-in.

Companies need to know their customers and how they are being treated, and they need to translate this information into effective retention and customer care activities across all organizations.

Only two weeks ago, a colleague described being told by a customer service representative that a billing problem was not her department’s fault, but the fault of some other department.

Does the customer care? No!

The customer wants the problem fixed.

Those who put their customers first will survive in this tight economy.

Jeff Maszal heads up TMNG’s CRM Practice while Donna Nogay and Kelly O’Donnell Hughes are principals with TMNG Marketing (, a subsidiary of the management consulting firm TMNG ( They can be reached at +1 301 913 9035.

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