PDF of this tutorialThe Strategy
The business landscape of the telecommunications industry is quickly evolving. The previous model, shaped by a handful of competitors in each country, is being replaced by a model shaped by hundreds of competitors vying for a global presence. How do companies survive in this environment? There are two basic strategies that can be pursued.
Product Strategy
Companies can continue marketing their products to the masses. This market-share strategy has been very popular in the telecommunications industry in the past. To compete, companies are driven to increase advertising and marketing costs aggressively while discounting their products. Unfortunately, this strategy has driven customer loyalty to an all-time low. For example, it is not unusual for a consumer to switch from Company A to Company B to Company C and back to Company A in the period of a single year. This may be why companies can report a 40 percent disconnect rate over the period of a year and still show an increase in market-share. Clearly, this model for doing business presents significant challenges and over time threatens to drive profit margins unacceptably low. The ultimate evolution may be similar to what has been seen in the retail industry, where a good year produces profit margins in the two to three percent range.
Customer Strategy
Companies can focus on tailoring products to the individual customer. In this "share of customer" environment, customers are differentiated in addition to products.1 Corporate resources are efficiently allocated to customer care in relation to the customer’s lifetime value. Those customers whose loyalty can be earned and whose lifetime value to the company is high will receive a majority of the attention. In contrast, customers who are not loyal or whose lifetime value is low will receive a lower degree of attention. The result will be an environment that optimizes profits by nurturing valued customer relationships. Essential to this strategy will be the ability to leverage evolving technologies to accomplish the following:
- understand the customers’ needs and behaviors
- leverage this understanding to identify, develop, and deliver relevant products and services
Choosing or integrating these strategies and migrating to this new environment is one of the most profound decisions facing telecommunications companies across the globe.
1. The One to One Future, Don Peppers and Martha Rogers, Doubleday Publishing.
