Using Customer Segmentation to Increase Margins

The ultimate goal of wireless carriers is to retain customers while growing their base. Unfortunately, neither end is easy these days as domestic mobile penetration strides past 50 percent. In fact, it is becoming increasingly difficult to secure and build a customer base in this buyer’s market. For example, consider the myriad service providers in any given market, then consider all of the rate plans, features, devices, and “me too” programs that subscribers may choose from.

Today, carriers are painfully aware that instead of promoting retention and growth, the market conditions promote shopping around for “whoever can best take care of my needs.” From a retention perspective, the operative word to subscribers is “my,” which indicates an increased demand for personalization and tailoring of services around individual users.

This, however, by no means indicates that a carrier wants to retain every customer. To encourage growth and profitability, carriers must be ready to churn, or encourage new plans for, those customers that are unprofitable, while driving more specialization and personalization to retain existing customers and to attract new accounts.

In either case, a better understanding of the subscriber population is needed. This knowledge is not limited to demographics and simple segment analysis, but requires detailed micro-segmentation and customer tracking. Likewise, this information will have to be actionable, serving as a proactive function within the carrier’s business model.

Getting to Know Your Customers

If a carrier does nothing else, it should at least study available customer data to learn as much as it can about its subscribers. Consider this example of a large wireless carrier that micro-segmented its entire subscriber base into more than 60 groups. Once divided, these groups were placed in deciles, which represented the proportional amount of revenue, or lack thereof, generated by those groups. As a result, this carrier determined that the top 10 percent generated the most revenue and therefore required premium attention and care; the next 70 percent were considered good customers who should receive good and attentive care; while the lowest 20 percent were considered a cost and were deemed “up or out.”

The last group did not generate much, if any, revenue for the company and required, or most likely insisted upon, the most maintenance. Each group could then be flagged within the carrier’s CRM system to ensure that client service and sales teams were better equipped to manage, and respond to, those accounts.

Additional benefits of this segmentation analysis are new perspectives on known markets that were thought to have similar attributes. Historically, markets that were thought to be similar were equally funded for marketing campaigns. It was not until micro-segmentation was done that the carrier saw a disproportionately low acceptance rate in one of those markets. Funding was adjusted and dollars were more effectively allocated.

Overall, this carrier leveraged what data it had within its systems to better understand its customers. The end result was a more effective customer management strategy, better utilization of service subsidy, better targeting of non-profitable customers and a more clearly defined strategy for marketing efforts.

Simply put, segmentation alone can pay off. With embedded customer data and statistical modeling, carriers can benefit by using some rather straightforward methodology. The typical challenges facing carriers are the development of a repository, the pooling of customer data, and knowing what to look for within that data. Data mining and statistical analysis are unique skill sets, and it is rare when a carrier’s internal initiative proves successful. For these reasons, an outsourced solution for business intelligence or data mining should be considered.

Filling in the Missing Pieces

Market segments defined by billing and CRM data are incomplete at best. Limited data cannot give carriers a complete picture of each customer as an individual, nor how well their customers represent the market population as a whole.

Once a customer intelligence repository, or warehouse, is in place, carriers should enrich their customer data with demographic and psychographic (behavioral) data. This lifestyle data comes from many sources and may even be provided by a business intelligence vendor. If not, there are companies that specialize in demographic and psychographic analysis that offer a variety of programs to enrich customer data. Acxiom, Experian and Claritas are but a few larger organizations that offer enhanced consumer data services. The frequency of updates will depend on the carrier’s unique needs. Outcomes not only show carriers a more complete view of their market, but also provide insight into what lifestyles are most closely associated with which services, who is profitable, who is not, and where to emphasize marketing efforts to gain new customers.

In order to make the best use of lifestyle data, carriers must remember two things: They are a service organization reaching out to an ever-more discerning customer base, and the mobile market is a buyer’s market. Given this context, carriers need to understand their service represents some facet of that customer’s lifestyle, personality and behavior. Once this concept is understood, carriers can begin to speak to customers and prospects alike on a new and more engaging level.

Instead of seeing ads that highlight features (SMS, free minutes, flat-fee, etc.), we begin to see ads that read “best soccer mom plan in the greater metro area,” or “the proud grandparent’s plan”—the latter providing a camera phone. In the end, the goal is to speak to people’s interests rather than having them guess at what plan best meets their needs.

Many carriers have a difficult time educating their market about emerging technologies, however, positioning service around key aspects of lifestyle interests help to facilitate that process. Because this is a broad approach to market communication, carriers will have to be mindful about what to emphasize and what to avoid.

Toward 1:1 Service

So far we’ve looked at organizing and mining customer data, augmenting that data, and positioning services to match customer lifestyles. The next phase is to re-introduce this enhanced profiling data back into the carrier’s systems. Here, the goal is to make this information readily available, in real time, for a carrier’s sales staff, client services teams and all points of sale. Especially important is the migration of this data into the carrier’s CRM infrastructure. This is critical because

the carrier will want to see cyclical

enrichment—new data is recycled back in, creating a learning cycle about customers—among the systems by leveraging third-party demographic and psychographic data, usage data from billing, and a subscriber’s unique data from a CRM application.

This cyclical enrichment also affords carriers the opportunity to explore new attributes and define new points of segmentation as the data and market evolve. While an in-depth discussion of architecture is beyond the scope of this article, carriers must understand that this solution requires a dedicated system capable of accepting feeds from a variety of specialized applications and databases (consumer-related OSS/BSS/CRM, POS). The data will constantly be replenished through an Extraction, Transformation and Loading or ETL process, and specialized analytical applications will be required to provide actionable intelligence for the carrier.

When a carrier can effectively introduce customer data back into its call center applications and point of sale systems, several things can be accomplished. From a retention perspective, personalization is of utmost importance. Most calls initiated by customers stem from a problem, so representatives will need to be prepared to solve the problem from the customer’s perspective and then take an opportunity to up-sell service. If the up-sell is successful, the customer gains a valuable new service, a barrier to exit has been reinforced, and the carrier earns additional revenue.

To illustrate, imagine that a carrier representative receives a call from a current customer. As soon as the caller is identified, the representative is able to pull up the account history which shows all contact to date, the customer’s usage metrics, the customer’s rate plan and features, and most importantly, a profile score showing that this person generates premium revenue, tends to be temperamental about service, and has a subsidy value of $500 dollars to be used at the representative’s discretion. Additionally, this profile lists alternate rate plans that have a statistically strong up-sell potential based on that same scoring.

A call center representative would then be well positioned to address whatever problem may exist (or at least document the problem and appease the customer), then immediately engage the customer about new plans and, most importantly, talk to them about why those plans would be good to try. “Mr. Smith, I know you spend X amount of dollars with us and travel quite a bit. Given your current voice plan, I think you may be interested in a plan better suited for productivity. The plan has these features and while it costs slightly more than your current plan, it allows you to do so many more things away from your office. If you would like to change plans today, we will offer you this PDA phone free of charge.” The trade-off on the up-sell revenue versus the mobile phone cost may be a break-even in the near term, however the impact on customer care and increased lifetime value for that subscriber will have positive repercussions in the long term.

Now, consider the opportunities at the point of sale for new service. Using lifestyle profiling, representatives can be much more proactive as they engage a potential customer. Based on a quick interview and the entry of a few key attributes, the sales representative can make sound recommendations of service plans based on that customer’s lifestyle profile.

As previously mentioned, mobile service is all about “my” needs, so personalization and individualization of plans is becoming increasingly important for a carrier to deliver. Most likely, the profile scoring and recommended rate plans are just the beginning of a much more customized service offering, and carriers should be prepared for this type of demand.

As such, billing vendors play a key role in a carrier’s ability to customize to this individual level. The more flexible a billing system is, the more accommodating a carrier can be to its subscribers. While it is safe to assume that a carrier would not want a unique plan for every customer, for those premium customers that have unique needs—or for those customers that have premium potential—personalized service will be paramount.



Brent Phillips is a manager withVeriSign Communication Servicesand has marketing responsibility for VeriSign’s next-generation mobile payments platform. He can be reachedat jbphillips@verisign.com.