I read with interest in a recent blog posting that CSPs can do themselves a big favour by offering a tariff optimization service to their customers, but what does that mean to their bottom line? There is a perception that suggesting a more suitable tariff to customers, based on their usage patterns, is directly related to offering cheaper plans. And cheaper plans translate to less profitable plans, but do they really?
Simply determining the profitability of a tariff plan is a major headache for most operators. Sure, one can determine very easily what the ARPU (Average Revenue Per User) is at a tariff level, but that does not help when it comes to determining what tariffs are actually worth offering as an alternative to customers. Well-crafted tariffs may provide better value to customers and also deliver better returns to the operator.
To do this with any level of accuracy would require a breakdown of all costs, including SG&A (Selling, General and Administrative expenses), percentage of network and IT resources needed to deliver the service, staff costs, etc. I doubt anybody goes to this level but how can a tariff plan’s real worth be determined and how can a decision be reached whether to retire a plan, shift people away from one or even modify it to generate better returns (where regulation allows this).
Where a plan includes products or services acquired from third parties, the cost element here is much easier to determine.
We can see the benefits of tariff optimization to improve profitability but by far its most common use is as a service to promote customer loyalty. Some CSPs run the process for all or selected customers on a periodic basis. Reaching out through the bill cycle or by calling the customer and suggesting a more suitable tariff is widely regarded as positive customer engagement, but direct contact is also a costly option.
Making the service available to customers to run at any time via their smartphones or PCs is a good alternative but most people need to be reminded or prompted to run their own optimization exercise.
A more aggressive method is to provide potential churn customers with a comparative tariff analysis against those of competitors. Even more aggressive is the targeting of competitors’ customers with tariff comparisons that highlight their own plans.
Can you imagine the marketing department getting hold of this and sending out messages like “if you would have selected provider B, you would have paid $X more every month”…. even if it’s true. It raises the question, is “automated cross-provider tariff comparison” the next step in customer relationship improvement?
If we stick to the definition of tariff optimization as the process to: ‘calculate the best available tariff offer for customers based on their current bill and future needs’ it must be the most effective way to keep customers, acquire customers and quickly build compelling new tariff propositions. It provides positive proof for customers of the best available deal for their current and future needs, based on highly accurate and credible matching of alternatives.
Not offering a service like this opens the industry to ‘outsiders’ only too happy to provide tariff comparison services and advise enterprise customers, in particular, where they would make the best savings by changing operators. One such company in the USA proudly offers Rate Plan Analysis, Optimization, Recommendation & Implementation services for Wireless and promises to reduce monthly costs by up to 35 percent.
“Our analysis looks at voice, data, messaging, optional features along with contract and individual term issues. Through years of experience, we know where the savings are hidden. Upon your approval of our recommendations we then proceed directly with the carrier to implement the approved changes,” they claim.
These ‘service providers’ usually charge a fee based on a percentage of the savings they can make for the enterprise, but having them act as brokers to negotiate deals on behalf of their customers makes them quite a threat. It highlights the need for all CSPs to ensure they can provide the service themselves and avoid the growth of these loose cannon ‘middlemen’.