Behold a New Buzzword – Introducing ARPA

Most people agree that the term ARPU needs a makeover. Many will promote ARMU as a more useful metric. ARPU – Average Revenue per User – has no relation to costs. Without factoring in costs, you could earn $ 1,000 per year from a customer but if it costs you $900 to serve him, it not as great as it might look. Average Margin per User factors in (or at least has a stab at factoring in) the cost to serve. Therefore it can tell you whether a customer is actually valuable or not. Other industries are very good at doing this and have been doing it for years. Some years ago Sears in New York trained their customer service teams to imagine $50,000 floating over the heads of every customer that walked through the door. That, they had calculated, was the lifetime value of the average Sears customer. Chrysler did a similar thing and every salesman greeted every customer knowing he was potentially worth $157,000.

Margin and value are becoming (slowly) part of the language of telecoms. Now, though, with data plans becoming the focus of Marketing Men, as they try and translate them into value, we see the rise of ARPA – Average Revenue per Account. Shared data plans, whether family, business or community are becoming commonplace. As such, calculating the value of the account becomes more important than the value of individuals. With the rise of self service (not just care) and the first examples of the ‘bartering’ of value within an account, calculating the value of the whole becomes important.

The focus of those Marketing Men will shift to working out how to offer value to dynamic units. It will involve much more than launching price wars based on commodities such as voice and texts. It will now focus on the needs of communities, what they do and when. They will need to understand the dynamics of groups that hitherto were interesting but not crucial to the next campaign. Just as Utilities are investing in finding the individuals behind the front door, so now telcos are looking at the connected home from the point of view of how families fit within it and how they interact with each other.

It will be fascinating to see what those Marketing Men come up with over the next few months and years, but at least with ARPA we have a term ready to measure it with – albeit if once again it is the wrong one.

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About Alex Leslie 400 Articles
Alex was Founder and CEO of the Global Billing Association (GBA), a trade body focused on the communications sector. He is a sought after speaker and chairman at leading industry conferences, and is widely published in communications magazines around the world. Until it closed, he was Contributing Editor, OSS/BSS for Connected Planet.

1 Comment

  1. Alex — If I recall right, you come from the industry (publishing) that arguably defined all the metrics that telcos (and utilities) are now struggling over. Top publishing house circulation departments (and their behemoth fulfilment houses — think Neodata, etc.) as well as the auditing bureaux (ABC, BPA, etc.) more or less defined, and then used these sorts of metrics as the basis of fierce competition in the 70s and 80s. The great newsmagazine subscriber wars in the US to cite one example (Time vs. Newsweek vs. US News & WR) were more or less determined not so much by the quality and effectiveness of pure subscriber marketing campaigns as by the quality of circulation department response analysis. It was thus that one magazine might claim an advantage in total reader numbers, but another in reader spend or demographic profile of the subscriber base. Tactics like renewal-at-birth might increase immediate returns, but do nothing to improve long-term conversion. I can remember hours poring over the granular details of circ reports the authors of which were the real stars of the marketing team. Defining success was highly nuanced. Anyway, there is nothing at all new here…industry in general, if not telco, provides plenty of role models for how to successfully build and develop a subscriber base. It’s really quite surprising this conversation remains at such an embryonic stage in telco. Cheers.

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