Elusive customer loyalty

Based on experience in markets that have been opened to local and long-distance competition, predictions are that incumbent carriers stand to lose 15% to 30% of their customers each year when viable competitors arrive on the scene.

At that rate, 20 million to 30 million customers in the U.S. could churn in one year. And because the costs of acquiring new customers are increasing, churn is a drain on profitability. But studies show that margins on existing end users, who might be interested in new products and services, increase each year the customer stays.

It is no surprise that carriers are investing millions in re-engineering customer care processes and systems. But the investment will pay off only if the targeted customer base is the right one, and only if carriers' investments result in setting new standards for customer loyalty.

In this era of options, customer satisfaction is not sufficient to ensure retention and profitability. Studies show that, when options are available, as many as 70% of customers who say they are satisfied still have a strong tendency to defect.

The goal then is to raise the hurdle from merely satisfying customers to delighting them and creating highly loyal customers whose allegiance is measured by retention rates and higher revenues per customer over time. Getting to that point takes not only significant investment but also major changes in the goals, performance measurements and systems.

* Rule One: Change the paradigm.

Most investments in customer systems and process changes today are focused on achieving efficiencies and reducing costs. It is not clear whether the new systems and processes will result in more customers or more loyal customers. If the redesigned processes and systems do not delight the right customers, costs and revenues could decline in tandem.

* Rule Two: All customers should not be treated equally.

The service level and the way customers are treated should vary by the attractiveness and profitability of customer segments-and by known customer preferences. On average, fewer than 40% of customers will provide 90% of revenues.

While overall customer service levels must stay on par with those of the competition, this 40% is the group around which the most innovative customer-centric processes and systems should be designed. This requires rigorous customer analysis to define the segments and understand specific preferences when it comes to billing, product marketing, product information, customer service and overall contact with their carriers. Customer service representatives at one global carrier venture can access profiles so detailed that they can inquire about the health of a customer's child who was sick at the time of the last contact.

* Rule Three: Recognize that the customer management bar has been raised.

In today's electronic business environment, customers take cues for standards of product marketing and customer service from a wide range of experiences. The most desirable customers for telecom companies are likely to be the "platinum" customers for other industries such as financial services.

Intense competition has already caused financial services industry leaders to develop innovative, technology-based, customer-centered solutions: customer service groups that can access corporate or individual customer information instantly, profiles of the most recent customer contact, and single-call transaction and query resolution.

The leaders also can provide customers with positive confirmation of transactions or inquiries via the customer's chosen medium-fax, e-mail, voice mail or letter.

Carriers too often incorrectly measure customer service improvement for platinum and gold customers by the infrequency of communication with them. The target should be more frequent communications, focused on these customers' preferences and buying patterns, and presented through their channel of choice. As these innovations become standard, carriers will be outpaced if they don't rethink their target customer base and the systems required to serve it.

Competitive advantage will come from commitment to a robust, technology-enabled business model focused on fostering and increasing long-term customer loyalty. This will involve continued improvement in the ways that customers are treated, and with systems and processes designed to match the relative attractiveness of each customer segment and to meet its preferences. Easy to say, hard to do, but an imperative.