What it Takes to be a Real CVM Player

Originally published 6 May 2009

We all know that adopting customer value management (CVM) throughout the organization is a true challenge, requiring a real transformation in the way organizations approach their customers. Change is required to shift efforts from acquiring new customers to retaining the existing ones who have the most value. Change is necessary to replace gut-feel decisions with a fact-based decision-making process.

Realizing the benefits and challenges around building world-class CVM systems, many companies are already investing in that area. The overall aim is to achieve a customer-centric organization by replacing product-focus strategies. Some companies are achieving tremendous revenue and margin opportunities by being the pioneers in the CVM game. There are a common set of characteristics those companies share which set them apart as “real CVM players” in the field, such as:

  • Quantifying customer value

  • Defining strategies across the customer life cycle

  • Standardizing the execution process

  • Creating a paradigm shift within an organization

Let’s take a closer look at each characteristic from the telco industry point of view which is where my expertise lies.

Quantifying Customer Value

The very first step of effective CVM is the true identification of value for each customer. When CVM-focused companies individualize their customers and associate a value to them, an individual P&L for each customer is created that can be used to define strategies about how to interact with these customers throughout their life cycle. It is true that the value from customer to customer differs significantly, so the investment level will not be the same for every customer.

There are many reasons why each customer varies in value to the organization. Low-value customers may simply not use the service frequently, generate low outgoing usage or  contact the call centre to complain, resulting in service costs. On the other hand, high-value customers usually are volume users, including data and roaming usage. Many of these users engage in social networking and are leaders in network usage (which can be derived by conducting Social Network Analysis Normal  – SNA) and thus very profitable for the company.

In the telco world, some measures used to determine CVM include building attributes such as average revenue per user (ARPU), tenure (length of customer stay with the company), simple usage patterns (voice, sms, data), inbound/outbound ratio, days of usage per month, need-based segmentation, usage-based segmentation and churn scores. This sampling will definitely allow operators to quantify the value of each customer. With the each value known and at their disposal, operators can tailor their marketing efforts appropriately.

Defining Strategies across Customer Life Cycle

After carefully assessing the subscriber’s value, the next step is to approach each individually at every stage of the life cycle with the company. As seen in Figure 1, customers pass through multiple stages during their life cycle with the company. Each stage requires a careful assessment about how to approach to specific customer based on their needs within the stage.

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Figure 1

At the acquisition stage, where prospects could be turned into customers, costs are at the maximum level. This results in negative customer lifetime value (CLV) numbers. In order to keep acquisition costs at the minimum level, many companies do not make any differentiated offers to their customers; however, well-designed offers at this stage can provide significant results in the long run.

The conversion phase offers the first real revenue generation opportunity for companies either from monthly fixed fees for post-paid subscribers or usage fees for both post-paid and pre-paid subscribers. Focusing on the usage stimulation strategies helps improve revenue. Also servicing costs start at this stage, ranging from network costs to bill printing, from tariff changes in call centres to complaint resolution. Careful evaluation of all these activities will result in lower cost savings.

The value enhancement phase is the one marketers frequently emphasize. This is the stage where companies get the most from their investment in their customers; yet, it requires huge marketing efforts. Advanced analytical capabilities now include customer segmentation based on usage behaviours, predictive modeling techniques for profit and pricing, targeted campaigns and use of cross-sell/up-sell opportunities. The more operators increase their ability to execute based on differentiated strategies at this stage, the more likely their CVM initiatives will succeed.

It is the retention phase where a number of promotions are offered to the customer. It is important to identify and target those customers who would generate long-term revenue. Base management activities usually take place in a search for understanding real-value customers within a period. Defining which customers are entering the base, how long they stay, their usage patterns which help to discover and predict likelihood of churn let organizations understand their base movements, allowing them build differentiated strategies. It is important to note that identification of customer base analysis often reveals that a small proportion of customers contribute to a large percentage of profits, and a substantial proportion of customers are unprofitable.

The reactivation phase is the final stage where churn occurs. Although it is a common belief that it is too late to get customers back into service, small investments can still result in some win-back opportunities for high-value customers.

Standardized Execution Process

Companies must develop a standard set of processes that effectively manage each phase of the customer life cycle. Making sure that all the marketing activities are evaluated within an ROI model is the first step. In this way, only the valuable ideas and strategies are taken into account and passed onto the next phase, where many sample tests are performed in a dedicated test environment. Marketers freely design and push test campaigns for different scenarios with multiple channels to fully understand the real benefits of their offerings. Then comes the payoff, putting all of the insight gained from the tests into action. Rolling out the campaign which was tested and simulated can significantly improve the success of the expected result. In addition, this standardized process should be automated beginning with data acquisition from the data warehouse, using a controlled group creation to report the effectiveness of the campaign. A best-of-breed standardized campaign execution process is crucial in this game.

Paradigm Shift in an Organization

Last and most important is the creation of a common understanding throughout the organization. The new CVM approach should not only change the business process but also shift the way that each person within the value chain thinks. Since this is an organizational transformation, cultural and structural changes are inevitable.

The road to being a real CVM player surely requires significant investment in technology in addition to establishing a company-wide strategy around the customer. Still, maybe the most important thing is to shift the paradigm so that employees think, work and are managed in a purely customer-focused environment.

  • Korhan YunakKorhan Yunak

    Korhan Yunak is a Global CRM Business Analyst at Vodafone Group, based in Dusseldorf, Germany, where he is responsible for business intelligence strategy, data warehousing best practices as well as the customer value management program within the group. He currently works on customer value management practices, BI strategy and customer analytics focusing more on the CRM area to cover the big picture around business intelligence. He has more than 6 years of practical project experience helping companies establishing enterprise data warehouse solutions and building BI vision.

    Early in his career, Korhan was involved in various enterprise performance management (EPM) and BI engagements in wide variety of industries including telco, banking and retail as a consultant. Korhan has extensive experience, combining technical and business acumen, especially in telecommunication industry.  Korhan holds a degree in Management Information Systems from Bosphorus University.

    Korhan can be reached at +491732620423 or kyunak@gmail.com.  

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