Real World Challenges in Implementing Customer...

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Real World Challenges in Implementing Customer Profitability

SolutionsBILL 8

Daniel KenyonPeopleSoft Communications Industry Solutions

14 October 2004


The Challenge for today’s Telecommunications Industry

• When customer costs outweigh the revenue they generate a revenue shortfall occurs which effects bottom-line profitability• CSPs must recognize that unprofitable customers are an ‘indirect’ but very expensive form of revenue leakage• To effect profitability over the long term, CSPs must first identify cost drivers and apply them beyond products and channels directly to users (customers). • CSPs should utilize profitability analytics, including Activity Based Management to generate ‘more’ accurate customer valuations for appropriate targeting


Customer Profitability Distribution

-400

-200

0200

400600

8001,000

1,2001,400

1,600

0% 20% 40% 60% 80% 100%

EB

ITD

A p

er a

nnum

(€)

% of customers ordered by profit contribution-400

-200

0200

400600

8001,000

1,2001,400

1,600

0% 20% 40% 60% 80% 100%

-400

-200

0200

400600

8001,000

1,2001,400

1,600

0% 20% 40% 60% 80% 100%

A few customers generate most of the profits

Many customers are unprofitable andneed to be converted to profitability or divested

Customer profitability breakdown (wireless service provider)

… and yet most operators treat all customers equally


Which customer is the most profitable?

• Include All Costs•Call Center•Acquisition•Payment, etc.

• COGS, etc.

Customer A Customer BMonthly Revenue 40.00$ 75.00$ Network Cost (4.80) (43.35) Marketing and Customer Care Cost (0.35) (37.25)

Contribution differences?Customer B uses phone for "free" long distance, customer A for receiving calls 1.20$ (26.35)$

Cost of Acquisition recouped on Customer A - (25.00)

Customer A does not call customer service, customer B calls twice during the month - (8.00)

Customer A Demands no service credits, customer B demands $3 during the month - (3.00)

Customer A views the bill via the web, Customer B BOTH Web & Paper (0.25) (0.75)

Customer Contribution 34.85$ (5.60)$

Rethinking Customer Value


Managing Customers for Profitability


Actual Value

Customer Profitability Management Aligning the Organization

Non-ProfitableCustomers

DevelopCustomers

Retain Customers

Basic Cost of ServicePotential Value

Platinum

Gold

Bronze


Each Customer Segment Must be Managed Accordingly

-400

-200

0

200

400

600

800

1,000

1,200

1,400

1,600

0% 20%

% of customers ordered by profit contribution

EBIT

DA

Significant effort to retain and acquire more with the same profile

Improving profitability by reducing cost to serve

Change offer / product Remove subsidy on handset

Grow usage throughcross-sell

Reduce handset subsidy and cost to serve

Customer profitability breakdown (wireless service provider)

40% 60% 80% 100%


Platinum(Retain)Platinum(Retain)

Gold(Develop)Gold(Develop)

Bronze(Profitable)Bronze(Profitable)

Loyalty Loyalty marketingmarketing

Targeted Targeted crosscross--sellsell

UpUp--sellsell

EscalatedEscalatedserviceservice

Strategic Strategic account account

managementmanagement

PersonalizedPersonalizedserviceservice

Proactive Proactive outbound outbound

salessales

SelfSelf--serviceservice AutomatedAutomatedchannelschannels

CustomerPortfolio MarketingMarketingSalesSalesServiceService

Drive Application BehaviorDrive Application Behavior

Customer Interaction through CRM Drives Profitability


Customer Profitability Measurement and Process


•CSPs need the capability to monitor profitability in near real time

•CSPs have disparate systems•Financial Systems - revenue and cost data•Customer Relationship Management

•Customer contact•Customer Loyalty and Retention - customer churn data

•Network Inventory Systems - network cost data

•Systems may be primitive (spreadsheets), arcane or sophisticated

•Problem is how do you implement business processes that enable you to collect data and implement systems that extract data thatresides in the disparate systems

Creating a Customer Profitability Determination Process


Revenue Assurance & Recovery

• Hand-offs between systems/processes• Key processing within systems/processes

• Points of focus are typically called “control points”

• Revenue flows through this stream as either: • Recurring revenue (i.e., flat fee services) or• Usage based revenue (e.g., services based on per minute or

per second increments)

• Experience has shown leakage at any given control point to rangefrom 1% to 15+%. Overall, leakage tends to be 3%-5%.

• Service Providers are seeking automated, scalable solutions.

CRM

Revenue Life Cycle

ERPRating Credit &Collect

ProvisionActivate

Network Fraud Mediation Invoicing



Measurement

Your biggest customer may not necessarily be your best. A profitability determination process requires metrics to identify trends, perform comparisons and highlight opportunities to help you assess profitability across your organization, examples include:

•Gross Margin

•Revenues

•Net Income or loss

•Total Expenses

•Revenue Variance

•Order Quantities

•Direct Costs


Retain Your Most Profitable Customers

• Align all customer interactions with your CRM strategy

Platinum(Retain)Platinum(Retain)

Gold(Develop)Gold(Develop)

Bronze(Profitable)Bronze(Profitable)

Loyalty Loyalty marketingmarketing

Targeted Targeted crosscross--sellsell

UpUp--sellsell

EscalatedEscalatedserviceservice

Strategic Strategic account account

managementmanagement

PersonalizedPersonalizedserviceservice

Proactive Proactive outbound outbound

salessales

SelfSelf--serviceservice AutomatedAutomatedchannelschannels

CustomerPortfolio MarketingMarketingSalesSalesServiceService

Drive Application BehaviorDrive Application Behavior

• Segment and manage customer “portfolios”

• Develop actionable business strategy

• Measure and track key customer metrics

Pre-built KPIs


• Segment and manage customers based on value

Segmentation

Action Plan

• Drive profitable action based on customer value

Key customer metrics

• Track key customer value metrics

Manage Customer Segments for Greater Profitability



Critical Dimensions

Identify and tracks costs, profit and ultimately the value your organizations across multiple dimensions including:

•Time

•Customer

•Product

•Channel

•Department

•Business Unit



Analyze and understand the factors that drive profitability. Identify which customers are carrying your bottom line and which are costing you. Answer such questions as:

•What is your profitability by customer, product and channel?

•What is your cost-to-serve by customer, product and channel?

•What products and services are your customers purchasing?

•What is your product and service mix?

•Which customers produce the greatest margins?

Key Performance Indicators


Customer Relationship Management

The Solution: Customer Profitability Management

Customer Value Analytics Contracts

Operations and Business Support Systems

• Integrated process for rapid implementation

• Customer cost activities combine with revenue detail to drive profit calculation

• Realize true ROI from CRM on the incremental increase in customer profits

Receivables Financials

Communications Warehouse & Enterprise Warehouse

Analytic Applications Activity Based Costing


Methodology

• Identify products and services• Identify customer specific data• CRM Data• Customer Loyalty &

Retention Costs• Credits• Subsidies• Usage Detail

• Define metrics for profitability management

• Segment Customer Base• Implement dashboards for

monitoring near real time data

Identify Customer Segments

Evaluate CustomerFinancial Performance

Drive optimizedproduct offers

Calculate Customer

Profitability

Closed LoopAnalysis

Control product

and support

costsManage the Customer Interaction ‘Moment’

Determine Customer

Value


What Needs to be Measured?


•Pre-Paid•Clearing House e.g. (www.bcgi.com)•Advice of Charge•Hot Billing •Service Node •Wireless Intelligent Network

•Postpaid•BSS/OSS, Mediation and Billing Systems

•Interconnections•Wireless/Wireline•Interconnection Billing Systems, CABS (US)

•Roaming•MACH (International), Cibernet (US)

•Industry standards for data elements•Billing - AMA, BAF•Roaming - CIBER and TAP records•Ordering - Customer Service Records (CSRs) , Acess Service Records (ASRs)•Other - Telcordia COMMON LANGUAGE codes

•Proprietary standards for data elements•Call Detail Records (CDRs) - Ericsson, Siemens, Nokia, Motorola, Nortel, etc.

Source Data - Voice Services


•Short Message Service (SMS)•Overlay Architecture with SMS Center•Uses SS7 Mobile Application Part (MAP)•Log files and vendor specific records from SMSC

•Multimedia Message Service (MMS)•Overlay Architectures with MMS Center (MMSC)•Uses GPRS network•Log files and vendor specific records from MMSC

•Wireless Email and Messaging Services•Wireless Internet Access and Content Services•2.5G and 3G Data Connectivity Services•802.11b/WLANS/WiFi Service

•Comprise primarily of proprietary standards and vendor specific data records, though Internet Protocol Data Records (IPDRs) being promoted by IPDR organization (www.ipdr.org) for most data services

Source Data - Data Services


Challenges to Accurately Identifying Profitability

• Too many customers, too much detail by customer

• Non-rationalized data stores

• Too much detail in the aggregate

• Too many data stores (customer databases, warehouse)

• Multiple Channels

• Data Integrity

• Network cost determination and allocation

• Interconnect and other costs


Activity Based Costing


Identify Methods and Metrics

• Activity Based Costing•Customer Contribution

Statement• Net Sales• Gross Profit• Direct Expense • Contribution

• Performance Measures• Gross Margin• Contribution Margin

Cost Development

ABC

• Resources• Activities• Cost Objects• Unit Costs

Customer A Customer BMonthly Revenue 40.00$ 75.00$ Network Cost (4.80) (43.35) Marketing and Customer Care Cost (0.35) (37.25) Customer Contribution 34.85$ (5.60)$

Contribution differences?Customer B uses phone for "free" long distance, customer A for receiving calls 1.20$ (26.35)$

Cost of Acquisition recouped on Customer A - (25.00)

Customer A does not call customer service, customer B calls twice during the month - (8.00)

Customer A Demands no service credits, customer B demands $3 during the month - (3.00) Customer A views the bill via the web, Customer B BOTH Web & Paper (0.25) (0.75)


Activity Based Costing for Communications

PRODUCT / CUSTOMER / CHANNEL

COST

RESOURCE DRIVERS

COST DRIVERS

ACTIVITYPOOLS POOLS

GENERAL

DIRECT COSTSRoaming, X-Carrier, etc

INDIRECT COSTSNetwork, Support, etc.

•Transform tactical data into strategic information

•Identify and quantify

•Analyze

•Make decisions available to decision makers & take action

•Create strategic information to measure and manage

•Key profit drivers

•Pricing Decisions

•Revenue Assurance


Change the drop down box from”Trunk_Cost_Obj” to “Trunk Resources”Screen will refresh automatically and will display:


Summary



•Profitability Measurement

•Description

•Metrics

•Critical Dimensions

•Key Performance Indicators

•Implement dashboards for monitoring near real time data


Thank You

PeopleSoft for Communications

Daniel [email protected]

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