Qwest Engenders Loyalty


Communications service providers in the U.S. market arguably have been slow to adopt sophisticated loyalty and rewards programs like their colleagues in the airline, credit card and retail industries have. But confusing collections of semi-redeemable points or miles isn’t the only way to engender loyalty.

Qwest Communications International Inc. greatly has advanced its American Customer Satisfaction Index (ACSI) scores and has been recognized by J.D. Power and Associates for loyalty in its broadband services in the western United States. The keys to its success are simple, according to Kim Whitehead, vice president of consumer marketing for Qwest. The combination of flexible bundles and price certainty has helped put Qwest’s customers at ease. While this is a solid foundation for a long-term loyalty program, it is about as sophisticated as U.S. service providers get. There is still much to be learned from more competitive markets in Europe, but forces and attitudes remain in the United States that threaten to limit how positive the customer experience might ever become.

Historically, Qwest often has been derided as the overlooked stepchild of the RBOC family. But the company has become more aggressive in recent years, particularly in response to new competitive threats. “What has changed is the increase in competition, especially from cable companies,” says Whitehead. She acknowledges that cable MSOs’ voice offerings and their mobile service joint venture with Sprint already have upped the ante in the multiplay marketplace.

In May, the University of Michigan released its ACSI survey for fixed-line providers, and Qwest found itself tied for first in the industry for overall customer satisfaction. The company’s overall scores have gone from 56 in 2002 to 72 in 2007. Similarly, J.D. Power and Associates ranked Qwest first among high-speed Internet providers in the western United States. Whitehead credits this success to the work Qwest has done during the past five years to improve its products, ensure reliability, and simplify its pricing and billing.

“We’ve instituted a price-for-life guarantee in our broadband space,” explains Whitehead. “Unlike many of our competitors that have promotional rates that escalate,” she says, “we offer a good price and commit to it for the life of the contract.” The benefit of this tactic is that customers have price certainty and rarely become confused by fluctuating bills or rates that seem to change without warning. One of the greatest drivers of customer churn is pure frustration born of billing problems or confusion. Customers want a straightforward deal. “Customers say that they hate gimmicks. So we have instituted price-for-life [guarantees] and have had great success,” says Whitehead.

In addition to providing price certainty, Qwest has been working consistently for the last five years on giving customer care reps as much information visibility as possible and providing single points of contact, like single 800 numbers to call and retail outlets where customers can have face-to-face interactions. Whitehead says that as products become more varied and complex, people — especially wireless customers — seem to need more in-person interactions.

That said, Qwest also has made investments in its online and self-care capabilities, and has found that online chat features are “the next best thing to the face-to-face interaction, and it’s at any time and at the customer’s convenience,” says Whitehead. This is coupled with significant qualitative and quantitative research, from surveys to focus groups, into how customers interact with the company and what capabilities they’d like to have at their fingertips.

Bundling is also a key loyalty driver, but the ability to personalize bundles is proving to be as important, argues Whitehead. “Customers want to create the bundle that works for them,” she says. Qwest allows customers to combine services like mobile and broadband; entertainment only; or video, telephone and data. “We try to structure the bundle to provide the best discount based on the customer’s needs,” Whitehead says, adding, “I think the concept is to reward someone for working with us, not punish them for not doing enough.”

Following up on its services, Qwest also has created a partnership with MSN to provide its Internet users with parental controls and various security functions. “Identity theft is a huge concern for customers,” says Whitehead. She adds that Qwest wants to make sure it partners with the best companies who can provide security services. “We’re constantly looking at partnerships that help us,” she says. The company also is looking at partnerships to help mobilize content and currently is working with Slingbox to do so. “Convergence is real and customers want it,” Whitehead says.

Qwest deserves credit for trying to be straightforward with its customers and increasing the value it delivers. But there are dark sides to guaranteed price offers and bundling of which carriers and consumers both should be aware. “I like the idea that Qwest is granting price certainty through the contract. It can change at the end of the contract, but it’s much better than a promotional rate that confuses you,” says William “Duffy” Mich, CEO for Aperio CI. Mich argues that price certainty is a valuable loyalty driver, but only so long as it is not used to hide other fuzzy math relating to new fees. “Fees are another hidden snag in guaranteed pricing,” says Mich. “They guarantee a price, but then jack that price up with fees that look like taxes,” he warns.

Bundling is a proven loyalty driver, but it too has pitfalls. “I think we have to be careful about the term ‘bundle’ because it means different things to different segments of the industry,” says Mich. He explains that bundling similar services, as opposed to dissimilar services, are two different animals. A bundle of dissimilar services is something obvious, like VoIP, television and broadband. A bundle of similar services could include bonus text messages with a new text-message plan, or extra pay-per-views with a package.

Churn clearly declines with dissimilar bundles, says Mich, but can increase with bundles of similar services because they don’t increase the scope of the customer relationship. He adds that quality is critical to a successful bundle. “If the quality is good-to-excellent on each element of the bundle, then bundling discourages customer churn,” says Mich. He says that in his own experience, he’s not been able to beat his RBOC’s reliability, but he also can’t yet receive that RBOC’s multiplay bundle, so he uses multiple carriers for telephony, mobile and television. “I don’t think people will put up with poor quality just to get a bundle,” he argues.

One constraint of the U.S. market for multiplay bundles and mobile services is that people have limited choices. In Europe, for example, where the competitive market is dense, subscribers are given far more choice, personalization and loyalty rewards for their business. In the United States, people have little ability to choose among providers, and are faced with steep penalties when opting out of what proves to be a long-term subscription, especially for mobile and satellite services.

“The U.S. markets for certain services are absolutely built on collusion,” says Mich. He argues that all of the U.S. mobile operators drive subscribers into minimum two-year contracts, cry foul regarding handset subsidies, but only warranty handsets for 12 months. Mich says the handset subsidies usually are recovered within eight months, and that subscribers get locked into two-year contracts even if they bring along their own handsets. Mich blames these oligarchic conditions on the FCC and points to the relative lack of competition as a reason why loyalty programs among U.S. operators haven’t been very sophisticated.

Steve Bamberger, industry vice president for communications, media and utilities for Oracle Corp. agrees the U.S. market has some restrictions, but he sees possible change coming because of the iPhone. “The iPhone is really the world’s first non-subsidized phone,” he argues. He says that if all of the carriers begin to follow suit with such advanced devices, handsets could begin to follow the economic rules of any other consumer electronics device. “It’s not the contract that kills you, it’s the subsidy,” Bamberger says. The question, he says, is whether the iPhone is an exception to the rule, or a sign that the market for handsets is about to change radically because of their increase in capability and value.

European carriers have had to be more creative than their U.S. counterparts. “I think European carriers have been in a more competitive environment, especially because of GSM. In the U.S., carriers have been able to relax into their regulated mindset without having to work quite as hard,” he says. He adds, however, that another reason why loyalty programs are limited in the United States comes from the Universal Service culture. He says many executives can’t get past the idea that some customers are more valuable than others and should receive special treatment. “It’s almost like you violated a moral code if you tell them some customers are more important than others,” Bamberger says.

Another similar legacy issue U.S. mobile operators have is that “their officers are from a wireline company where subscribers are a number and a line card — not an individual,” says Lucas Skoczkowski, CEO for Redknee Inc. He says that the mindset of a subscriber as an individual is prevalent in Europe, but is starting only to take hold in the United States. “[Operators] usually talk about households, but now they are starting to look at subscribers as individuals,” Skoczkowski says.

The two fundamental drivers of a loyal relationship, according to Bamberger, are the number of connections a provider has with a customer and its ability to differentiate service. He says it already is well-proven that the more services, points or other connections a customer has to a provider, the less likely that customer is to churn. “Airlines have been good at rewarding people for loyalty,” says Bamberger. “I’m not so naive to think that United [Airlines] is all that much better than American, but I have more than 100,000 miles on United [Airlines] and I’m treated like a king,” he says. Differentiation of service, however, for a telecom provider, is not as simple.

Bamberger says that he’s seeing increasing interest in automated personalization as a loyalty driver. He says Oracle’s real-time decision engine, which self-learns and can make product upsell suggestions akin to Amazon, has been receiving the most energetic responses of any piece of the product line. He says carriers recognize that companies like Amazon and Netflix have raised consumers’ expectations around personalization, intelligence and interactivity and are seeking ways to follow their lead.

Ultimately, the call center is the frontline for any customer loyalty program. Having real-time data about the customer is certainly important, but just as important, says Dr. John Georgesen, senior director of analytic and decision sciences for Convergys Corp., is that “people want an empathetic, friendly agent, and that can have a strong impact on satisfaction and loyalty.”

It starts with the contact-center personnel, who absolutely need to be hired for their interpersonal abilities. “Soft skills should be part of the hiring profile for agents, part of the quality-performance process, and part of team leader recognition and coaching,” says Georgesen. He says it doesn’t take a huge investment to reinforce this in a call-center environment and to train and coach agents continually to hone their craft.

One of Convergys’ large ISP clients discovered the reason behind most of its churn was a poor customer service experience, and therefore put a priority on successful call resolution. Dissatisfied customers who don’t have problems solved in one call tend to lead to very high churn rates, says Georgesen. Adding channels, like online chat, to make it easier for customers to interact is important to reducing frustration and driving loyalty as well. All of these are simple tactics that can be applied to existing contact centers to help drive loyalty in everyday customer interactions.

Clever loyalty tactics are more common among European providers than U.S. providers, and it’s not always about giveaway offers and points. Skoczkowski says his company has seen successful tactics like tiered rating, where rates become lower the longer a call lasts. Similar plans have been instituted with messaging during a monthly plan, where each message costs less to send as more messages are sent.

In the prepaid market, top-up vouchers have been successful in encouraging more top-ups and more spending overall. Subscribers receive extra money or minutes with each top-up. For example, Skoczkowski’s company has seen 20 percent increases in top-up activity where this specific strategy has been implemented.

Operators tend to see points-based programs as a liability, says Amyn Samji, vice president of product line management for Redknee, because they have to give away merchandise from third-party providers. Samji says operators “haven’t figured out how to deal with this, but they have figured out how to use [points] to give more minutes or top off an account or upgrade a phone. They see points as a valid way to create a loyalty program for a subscriber when it comes to their own services.” He says most operators simply aren’t mature when it comes to this kind of loyalty offering, but he expects to see more work in this area as operators build out their partnerships with retailers and other businesses and begin to compete for new revenue streams.

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