Dialing in on profitability

Fido Solutions Inc. uses SAS® to connect with high-margin customers and products

In an industry marked by intense competition and rapid expansion, Fido Solutions Inc. has been at the forefront of the development of wireless telecommunications and fast mobile data connectivity in Canada. The only telecommunications operator in Canada devoted exclusively to wireless activities, the company has made wireless services an integral part of most Canadians' daily lives.

As the market expanded, Fido's business boomed. "We took on a great variety of new customers," says Karim Salabi, Fido's director of marketing, market and customer management. "But we didn't know which customers were profitable or how best to serve their needs. And while we were gaining new customers, we were losing others as competition increased."

Needing a way to analyze and segment its customer base, the company turned to SAS.

Keeping the right callers on the line
Founded in 1996, Fido now has more than 1.2 million customers across Canada and leads the way in providing state-of-the-art wireless products and services. Fido was the first Canadian carrier to deploy Global System for Mobile communications (GSM) technology, the most widely deployed wireless standard in the world. And Fido was the first wireless service provider in North America with a General Packet Radio Service (GPRS) data network, ensuring fast, always-on wireless connectivity to the Internet and corporate intranets.

Using SAS, Fido measures the value and profitability of each customer to determine which departing customers it should try to retain. "Our short-term objective was to build a predictive model to show which customers were likely to churn," says Salabi. "We then built a customer lifetime value (LTV) model that would answer two questions: How do we evaluate our customers – have we made or lost money with them – and how do we retain customers at a cost we can accept?"

Salabi's database marketing team used SAS Enterprise Miner to develop an LTV model that divided customers into five segments based on profitability. The top three segments identified profitable customers; the bottom two contained customers who were not profitable and likely never would be.

Re-evaluating high-cost customers
"Previously, we assumed that customers who spent a lot on services in the first three or four months should be retained at any cost," Salabi explains. "But if these customers had a low LTV, then we weren't spending our budget wisely." They may be high users of the network, resulting in high network costs. They may contact the call center frequently, requesting credits and discounts. "Customers who spend $100 a month may actually be costing us $200 a month," says Salabi. "This was a significant finding – that some customers who spend less are actually more profitable."

Over nine months, Fido saw results. "It was incredible," says Salabi. "Using SAS, we reduced the number of low-LTV customers by about half, from 25 percent to 12 or 13 percent, while retaining high-LTV customers. We have a fixed budget – we stopped spending it on customers that did not warrant the investment and redirected funds to areas that better serve our best customers and our customer base as a whole."

Managing customer LTV
During this period, Fido conducted some change management in its operations to ensure effective linkage between analytical and operational units. "The key success factor was to integrate our knowledge of the profitability and defection risk of our customers in our daily operations" Salabi explains. "Now, all of this customer intelligence is routed to our automated systems and front-line servicing, and we manage customer relationships accordingly."

Focus on profitable products
Fido has also used SAS Activity-Based Management to analyze the costs and profitability of its products. "In some cases, it has shown that a product was not profitable despite significant volume," says Salabi. "This allows us to make product changes, find options that better serve customers or simply withdraw a product from the market."

The combined use of SAS Enterprise Miner and the activity-based costing solution has given Fido a complete picture of its customer and product values and profitability. It has clearly identified its unprofitable customers and products, enabling the company to use its resources more effectively to serve customer needs, retain its higher-value customers and sell Fido's higher-margin products.

"We've had some customers who, while unprofitable because of excessive network usage, we wanted to keep," says Salabi. "We have begun to encourage them to use other products such as long distance, voice mail, caller ID and text messaging, which have higher profit margins. Basically, we move them up from being unprofitable to being profitable."

A foundation for the future
Fido chose SAS Enterprise Miner for its diversity and value. "We didn't want a ‘black box' type of solution where we throw in our data and it spits out some recommendations," says Salabi. "We very quickly realized that we needed a powerful modeling tool that could be used in every aspect of our marketing and financial management."

Salabi says the next step for his database marketing team will be to build a non-voluntary churn model to predict which customers are most likely not to default on their bills. He believes SAS has the capacity and scope to grow with Fido and his department. "Realizing how quickly things change in this industry, what works today won't necessarily work tomorrow," Salabi says. "SAS is a great foundation that we can add to and that can evolve with us."

Salabi's work in customer segmentation and profitability has been recognized at the company's executive level for helping to develop Fido's business and brand recognition during a period of intense growth and competition. "We've managed to keep our best customers through this whole process," Salabi says. "I think it shows a great deal of trust and confidence on our customers' part that they've stayed with us."