The 10 Changes a CEO needs to make to win young consumers
#2 Customer service is your key marketing strategy
(don’t position it as a cost center)
We as an industry like technology more than anything
Looking down the list of technology conference schedules for 2008 you’ll see the main issues dominating the industry’s internal agenda – web 2.0, social networking, mobile handsets, wi-fi hotspots, security and so on. Not one conference mentions customer service. Why?
From an obvious perspective, customer service does not capture the imagination of tech companies. When press releases position vendors as the “leading provider of X”, surely it’s the X factor they should be focusing on because so few of them claim to be “the leader in servicing their customer”?
Simple changes in our focus can have remarkable results
Interesting to see industry challenger MVNO Blyk attempt to turn the tables. The youth focused invite-only MVNO has placed customer service high on its strategic list of priorities. Every new customer receives a follow up phone call after joining the service and (they claim) a call on their birthday to wish them well. As Harry Beckwith pointed out in “What Clients Love”, the simple act of phoning a customer within 48 hours of purchase to see if “everything was okay” equated to a 40% difference in retention rates between two comparable service providers. That’s 40% reduction in churn as a result of a simple phone call.
Young consumers aren’t particularly enamoured by our service
Needless to say, the CEO that ordered the phone call to be cut as an unnecessary cost would never know just what the alternative could be. The long term investment would stave the relentless churn rates experienced by his industry. The fact that 35% of young consumers leave their service provider ever year in the mobile industry is commonly accepted as “the norm” (mobileYouth report).
The 2006 Loyalty Guide’s survey of all service industries reported an average cross-industry defection rate of 19.1% per annum in 2005. By comparison, youth churn in the mobile industry varies between 30 and 55% (depending on market according to the mobileYouth report)
And our strategic choices reflect our industry’s situation. A 2006 Forrester Study ranked the telecom’s industry just ahead of banks in terms of customer satistifaction and overall level of service – both in the bottom half of all service industries. “But banks do okay – look how profitable they are!” could be our retort. Indeed, banks are profitable but their business operates on very different terms. Most importantly, banks operate with barriers to entry that operators could only dream of. Few could hope to set up a bank let alone create the financial infrastructure required to tap into this highly profitable industry. The mobile industry however operates from narrower margins and lower barriers to entry meaning churn between providers is significantly higher. It’s easier to switch operator than bank.
Our customer service should, therefore, reflect this tenuous position.
Young consumers don’t want technology, fun and cool – they want good customer service and to be treated with respect
Yet, what do young consumers want today? Our received wisdom alludes to the need for the “new” and in particular technological evolution that will capture the imagination of youth who are prone to explore and push the envelope of its possibility. How do we know this? We know this because… our focus groups tell us that it’s youth who use more technology than older consumers, therefore the hot button for market adoption lies in aiming at these segments.
Young people value service and are savvier than we tend to believe when it comes to exercising consumer choices. Youth queued up at our recent mobileYouth workout in London to tell the operators exactly what was important to them – to be respected and listened to. That, for them, was far better than a cheaper package or a 3G video service. YouGov’s 2005 survey of the mobile industry supported these findings – 41% complained of not being able to get through to the right person and 31% of being kept on the line for too long.
In many cases at the 2007 workout, they complained of being unable to reach their provider and fobbed off by an unresponsive call center. When handsets broke they complained about lack of responsiveness. Not only did they feel aggrieved, they each told 20 of their friends and so the word got around that certain providers – O2, Blyk and Meteor Ireland for example were “youth friendly” whereas the more established brands Vodafone and Orange weren’t.
Customer service is seen as a cost rather than a profit center
As with all opportunity cost decisions taken, something has to take a back seat in strategic planning. Our industry favours positioning the “customer service department” as a cost center as opposed to a critical success factor meaning the tighter we can squeeze it for cost reduction, the greater the operating margin and hence profit. No surprise then that the bulk of our customer service operations are heading offshore to India where human costs run at 10-20% of what you’d pay in a developed economy.
This is not an attempt to drive a wedge in the door of outsourcing. In many ways outsourcing is a blessing to high overhead technology companies. The issue here is one of prioritization. When customer service becomes a cost center, it is treated only in the light of how much can we save? When it becomes a marketing strategy, it becomes an investment.
The mobile industry would rather invest in managers who can develop partnerships around new technological developments as opposed to managers who care about consumers. Young consumers, we believe, don’t care about customer service because a) they are rarely treated with the respect other consumers are afforded and b) they are generally more interested in cheap deals and the coolest gadgets. Yet, this is a myth upheld by our lack of understanding about this consumer group.
Youth care about customer service because more than any other age group, they rank trust as a key determinant in their brand choice. Tech companies that look after their young consumers will soon grow consumer advocacy which in turn will create it’s own marketing momentum. Those that seek to cut back may save on today’s operating overhead but create higher account management costs in the long term because with few exceptions, loyal long term customers are cheaper, provide more revenues and ultimately more profitable.
Loyalty means profitability
5% increases in loyalty rates equate to 25-80% increases in profitability (mobileYouth 2007). Companies with fiercely loyal customers – Coutts Bank, Lexus, Harley Davidson are not loyal because of plastic loyalty cards but because the company values customer service. As the Chinese say “the fish rots from the head” and a company that fails to prioritize customer service yet talks openly and publicly of being “customer centric” is merely paying lipservice to its own platitudes.
In 2005, O2 hired 2000 staff to deal directly with consumers and funded the move by culling 500 (expensive) managers who were focused primarily on non-customer related activities. By focusing these new staff on the needs of the consumer and challenging them to improve loyalty rates within the operator, O2 successfully reduced its pre-pay churn rate (normally the highest of all churn rates in the operator portfolio) from 37 to 30%. In short, O2 lost 20% fewer consumers (or nearly 1 million subscribers) in a year as a result of its customer service initiative without impinging on its core activities.
Prioritizing customer service is a revenue generator. O2′s annual revenues are £150-£200 million higher as a result. By comparison, how much does the average operator hope to accrue through introducing new data service
So the question reverts back to why the tech industry invests so heavily in sending its staff to expensive technology focused conferences when the money would be better spent on getting them closer to the customer. In part the answer lies in the prelude to this strategy “#1 change the metrics” – our industry is charged with finding the new to create the growth story the investors want to hear – net additions, 3G potential etc etc.
Yet, we have outgrown that now and time to start selling the financial benefits of looking after our customers.
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