October 7

Telcos and customer relationships: double or quits?

Telecoms

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Do you think telcos should reinvent themselves as consumer brands, or go the other way and delegate all their customer-facing activities to big Internet players? The answers lie buried in the economics of ‘Face’: the customer management business.

telecom customer relationship fasp4

We have almost completed our systematic review of the economic underpinnings of each layer of the FASP4 framework.  This may have felt somewhat laborious, but unless we get the differences between the different layers clear, it will be very hard to think about the complexities of the businesses that span these different layers.  Having addressed the Space, Place and ACE layers, we now turn our attention to the telecom customer relationship business: the different brands that propose digital products and services to consumers and businesses.

In my FASP4 framework of the telecoms industry, I call this the “Face” layer. This post is an introduction to the main economic and business characteristics of that layer.

Face fundamentals in FASP4

At its heart, this business is about building trust and communicating value. It is about articulating how customers can benefit from the different products and services available, and providing the necessary support to enable them to make the most of their purchases. At the ACE level of FASP4, we are developing products and services.  At the Face level, we are selecting and bundling them, packaging and customising them, marketing and supporting them so as to be the trusted partner of our customers.

It’s a scope business. Both revenues and investments will be often be measured in per-customer terms. Customers tend to be expensive to acquire, and trust takes a while to build, so it makes sense to provide a wide variety of services to those customers who already know and trust you.  Welcome, in the world of telecoms, to the triple (or quad) play; to telcos moving into TV and MSOs moving into telecoms.  Welcome to online book companies expanding into toys, cosmetics and apparel.  Face businesses inevitably widen their product selection.

Value comes from customer relevance. The Face layer is full of competing providers; many brands vying for your attention. In this context, competitive advantage comes from customer access and trust: being able to get a convincing message in front of the right buying centre in your customer.

It’s a medium-high innovation business.  Customer life cycles, often ranging in the 1-3 year period, mean that investments often need to be paid back in the short term.

It’s a medium risk business.  On one hand, when trust and customer intimacy is established, it is pretty ‘sticky’ and durable (unless you mess up!) The main risk is that customers start to perceive your offering or core competence is less relevant to their future than it was to their past. In a rapidly changing world, this is not to be under-estimated.

The cost driver is generally the number of customers served. For example, customer acquisition costs and commissions, account managers, customer service and support costs all tend to be driven primarily from the size and growth of the customer base.

You are selling products & services that deliver specific and valuable outcomes to your customers.  This happens at the intersection of product functionality and customer knowledge, as shown in the diagram above.

So success can be measured in revenue per customer.  Clearly, more customers are welcome, but revenue per customer (and, perhaps more importantly, revenue growth per customer) is the measure par excellence of your overall relevance to your customer base.

Questions raised at the Face layer

So, overall, “Face” is a scope business, where value comes from relevance build on customer access and trust.

The above summary of FASP4 Face layer characteristics might cause us to raise a number of questions. For example,

  • Telecoms operators have strong assets in this area. They have long seen telecom customer relationship management as a key part of their business.  Assets include trusted brands, local retail outlets and customer support options. Are these assets being sufficiently used in the cross-selling of third-part products and services?
  • How should the “Face” parts of telcos relate to the more infrastructure-centric layers, who are relying on them to drive demand for these platforms?
  • If telecoms ARPUs continue to decline, do we get to a point where the whole customer-management side of telecoms businesses becomes too much headache (high subscriber acquisition costs and customer support costs) for too little reward?

Does this make sense to you? What else would you add to this summary of the Face (telecom customer relationship) layer of the FASP4 framework? Please leave your comment below!


 

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About the author 

Richard Medcalf

Strategist, consultant and business leader with 15 years experience in helping companies thrive in an Internet world. Formerly a partner in strategy consultancy Analysys Mason; now at Cisco Systems, developing new strategic partnerships with leading telecoms players.

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