This Is Not a Football Story: Managing Customer Profitability in the Telecommunications Industry

Like millions of other college football fans I watched Ohio State beat Michigan on Nov. 18 to win a spot in the national championship.¹ With both teams passing the ball more than running, this high-scoring game had all the excitement one could ask for. The announcers frequently contrasted today’s pass-oriented game to the way the game was played in the 1960s and ‘70s. In those days, the pass was used sparingly by both these teams. They dominated the Big 10 conference by simply running over the opposition. Ohio State’s legendary coach Woody Hayes is credited with the old adage “there are three things that can happen when you throw a pass, and two of them are bad.”² 

Those poor odds remind me of how communications service providers compute customer lifetime value. Two years ago I co-authored a white paper called  Managing Customer Profitability and Economic Value in the Telecommunications Industry . That project gave me the opportunity to work with Gary Cokins, one of the best-known experts in this field. In researching the topic, we found an interesting paper published by McKinsey Consulting.³  The authors identified 11 drivers of costs and revenues that determine the lifetime value of customers.  Of the 11, eight of them are bad. These odds are even worse than for passing the football. 

To make matters worse, assessing a customer’s lifetime value is getting more complex all the time. The number of transactions to consider in a customer profitability model is growing dramatically as new content-based services proliferate. Many operators are focused on the revenue potential of these new services, while overlooking the costs and the potential to anger or annoy customers.

At SAS, we are working closely with communications service providers to improve the odds of delivering a high-quality customer experience.  For example, we have a new approach to managing profitability. For service providers who have large numbers of customers executing multiple transactions to access a complex mix of content services, SAS® Profitability Management provides critical insight into what drives profitability. With SAS, decision makers can investigate issues and develop corrective actions. By better understanding profitability drivers, they can make quick improvements in the areas that have the greatest impact on the bottom line.

Woody Hayes won more than three of every four games his teams played during 28 years as head coach at Ohio State.  He beat the poor odds against throwing a pass because he usually had bigger, stronger players who could just run over the opposition. Communications service providers will need a more subtle approach. Effective profitability management in the age of convergence requires the ability to understand how services impact those 11 determinates of customer lifetime value.