The commodity trap

Residential long-distance and wireless services were once good businesses. But increasing competition from new players and technologies is creating a price-driven mentality in which companies-fearing anemic returns-are focusing too much on network cost, scale and utilization.

There is a path to a more profitable future. But to find it, carriers need to stop selling from the network out and rebuild their businesses from the customer in. Here are some ideas to consider:

Build customer assets. Carriers have typically measured success in terms of network size and technical capabilities. Today, however, physical assets can be easily duplicated or made obsolete.

But customer assets are unique. Competitive advantage is founded in the loyalty, value and extendibility of a company's customer relationships. America Online, for example, owns one of the largest, most valuable consumer franchises in the communications marketplace. It has tripled subscriptions and increased its market value more than 20 times since divesting its network. AOL doesn't have subscribers-it has "members" whose affinity allows it to capture the lion's share of Internet advertising and e-commerce dollars.

Sell to customers that stay. Customer acquisition is a wasted investment if you don't give people reasons to stay with you. Yet, many long-distance and wireless companies with 80% annual churn continually invest in acquisition.

Few customers actually want to change suppliers. They want suppliers that put them on the right pricing plan, understand their needs and help them get value from the services they buy. Great suppliers choose attractive customers, then invest to keep them by placing the customers' interests ahead of their own.

Know and manage brand value. Most companies don't know how their brand drives marketplace demand or how to leverage it to create shareholder value. Brand value is measured by customers' willingness to pay a premium for a similar service, to invest time in a company's services and to share personal information.

Starbucks is not just a cup of coffee-it is an experience for which people will pay a 100% premium. Great brands may be founded on commodities, but their customer experience is unique.

Focus on franchises. Franchise-building dollars enhance the customer's experience. They deliver benefits customers want, save time, make the experience fun and create better relationships. Yet, many companies underinvest in these areas.

Take a typical customer service center. Only half a service rep's time is spent talking with customers, and little of this is devoted to activities that customers value. What customers want to call you, wait until you answer the phone, prove their identity-and then hope you can solve their problem?

Virgin Atlantic designs its service from the outside in. You tell them when you want to eat and whether you need a ride to the airport. They put you to bed with a quilt and have a sense of humor, making air travel fun. When was the last time telecommunications was fun?

Go beyond the physical. A customer-centered company knows how consumer priorities are changing and invests where market value is migrating. In communications and Internet space, value is moving from the physical connection to the audience connection.

Many carriers are still designing strategies around physical connections. They focus on developing and packaging network capabilities rather than audience development, customized software design and non-network services. When GE saw value shifting from manufacturing to asset financing, it didn't decide to sell better locomotives, appliances and engines. It decided to be in the loan-and-lease business.

If a carrier chose to be in the personal systems integration business, would it own or resell network? Which products and services would it want to sell and why? Which customers would it cultivate and which would it ignore? What strategic assets or relationships would drive competitive advantage?

Change requires companies to rethink traditional business approaches and continually reinvent themselves to deliver new and uniquely valuable consumer experiences. Those with an eye on the customer connection can rise above the commodity game and reap the rewards of price premiums, customer loyalty, and value growth.