Identifying and profiling High Value

Business Customer to develop

targeted proposition to further

increase ARPU and profitability

Stefano de’ Rossi - Paola Mandoloni

Agenda:

Shifting the definition: it’s all about Customer

Assessing the key CRM systems used to collect and process Customer data to determine Customer value

Examining examples of tailored promotions developed forhigh value business customer

Choosing divers to set business customers’ value

Drivers shaping the market

Customers are our most valuable asset

ARPU

Average costper minute

Trafficdistribution

Averageusage

Customers are our most valuable asset

Shifting the definition: it’s all about Customer

Marketing is the process of planning and executing conception, pricing, promotion and distribution of goods,

ideas and services to create exchanges that satisfy individual and organizational goals

Marketing is an organizational function and a set of processes for creating, communicating and

delivering value to customers and for managing customer relationships in ways that benefit the

organization and its stakeholders.

Source: American Marketing Association

Today Italian mobile market is approaching saturation. The consequence is a radical shift in operators customer strategy. The purely quantitative growth of the past years must be replaced by the focused acquisition of profitable customers and the push to maximize profits from existing customer

Addressing the loyalty challenge

Accomplishing this strategic shift away from the sheer number ofcustomer to attracting and retaining the most profitable ones, goes through a systematic customer interaction and insight strategy

• increasing loyalty

• enhancing value

The importance of increasing loyalty

Increased loyalty of existing customers creates:

• Reduced dependence on “low price” as a marketing strategy

• Decreased costs incurred acquiring new business customers

• Increased efficiency created by familiarity with customer needs

• Increased margins, higher profits and a greater market share

Loyalty is a behaviour,not an intention

When profitability and loyalty are considered at the same time it becomes clear that different customers need to be treated in different ways

• increase loyalty

• enhance value

Addressing the loyalty challenge

CRM approach

A “Customer Centric” approach

Identifyyour

customer

Differentiateyour

customer

Interact withyour customer

Customizesome aspect

Source: Peppers & Rogers121 Field Book

Agenda:

Shifting the definition: it’s all about Customer

Assessing the key CRM systems used to collect and process Customer data to determine Customer value

Examining examples of tailored promotions developed forhigh value business customer

Choosing divers to set business customers’ value

Identify your customers

The fundamental goal of market segmentation is to identify groups,

segments or clusters of customers that, from a marketing perspective, are

meaningfully different from each other. The purpose of such segmentation is

to create targeted messages that will trigger the desired response of

these customer (either actual or potential) in a more efficient and consistent way

Developing a deepKnowledge of our

customer

Different CRM Strategies for

different Customer

Supporting ourchannels, sales & post-sales, with a unique “vision” of

the customer

Dimension & Valuesegmentation

S O H O P M I

P L A T IN U M

P R IV IL E G E

PE

RS

ON

AL

S T A N D A R D

S O H O P M I

P L A T IN U M

P R IV IL E G E

PE

RS

ON

AL

S T A N D A R D

S O H O P M I

P L A T IN U M

P R IV IL E G E

PE

RS

ON

AL

S T A N D A R D Line

e m

edie

Evoluti -VAS Aziendali

Tradizionali Ricchi

Internazionali

VAS Personali

IntercomAOM

Fissi Reperibili

Tradizionali Accorti

ARPU/customer Penetrazione

M arg inali A m bascia tori

S fide Diam anti

Pot

enzi

ale

Sotto la m edia Sopra la m edia

Sot

to la

med

iaS

opra

la m

edia

Potential growth

• High Level caring service

for High Value Customer

• Building more profitable

customer experience

• Different retention

policies

• Tailored offering

• Developing specific

loyalty policies and

campaign for specific

segment

Behaviour analysis

• Improving revenue

opportunities with

specific 121

marketing actions

(cross selling and up

selling)

Strategic CRM framework

1 2 3

Segmenting by dimension & value …

1 Customers are grouped by DIMENSION and then by VALUE (value segmentation)

People use mobile services mainly forbusiness porpouse

People who buy may not be the one whouse

People who use may not be the one whopays for mobile services (vas warning)

Different dimension…different issues

Strong competitive pressure

Margin or Revenue ?

Both Margin and Revenue curveshave the samecustomer concentration

Furthermore, revenue has beenverified to be more stable than marginwhich is highlyaffected by costcomponents

understanding the value drivers

such differentiation allows tailoring the organization behaviour to each customer based on that customer’s individual needs.

Ave

rage

lines

avg4,3

avg 303€

Alfa users -Business VAS

Rich & Traditional

International

Personal VAS

OLOTraditional & Safe

Fixed users

Intercom

ARPU

…. & behaviour

2

….. than by behaviour (traffic and vas clustering) in order to identify different clusters that reflects different customer needs.

Three main drivers of “potential” have been developed: number of lines, Voiceusage and Vas usage

3…. & potential capabilities

• Identification of the main variables linked to the key driver whose potential will be evaluated

(activity field, revenues, number of employees)

• Identification of groups of customers with the same characteristics in terms of behaviours,

activity field, revenues, number of employees.

• Selection of the “Benchmark Customers” (best 15%)

• Evaluation of the coefficients that link the variables to the key driver (numeric evaluation)

• Extending the coefficients to all other customer behaving the same group as of “benchmark”

CLIENTI BENCHMARK

ALTRI CLIENTI

Stima delle linee potenziali

Regressione logaritmica

log(driver b)log(linee) = ααααιιιι ββββιιιι γγγγ* log (driver a) + * +i * log(driver n)κκκκ +

Evoluti -VAS Aziendali

Tradizionali Ricchi

Internazionali

VAS Personali

IntercomAOM

Fissi Reperibili

Tradizionali Accorti

Marginal Ambassador

Challenge Diamonds

CUSTOMER RANKING

Potential value

Actu

alV

alu

e

+-

+-

Different Customers…different strategies….

• ARPU monitoring

• Churn monitoring

• Consolidate ARPU

• Reduce Churn

• Increase ARPU

• Consolidate Churn

• Increase ARPU

• Prevent & MinimizeCHURN

…& level of service

differentiating caring services & levels according to customer value

Setting the “benchmark” Customer

Benchmark Customersdon’t seem to be much“bigger” than non-benchmark but show off because of theirhigh annualexpenditure level and the avg number of lines

Benchmark Customersdon’t seem to be much“bigger” than non-benchmark but show off because of theirhigh annualexpenditure level and the avg number of lines

Source: Busacca & Associati

7,3 3,9

0,5 0,3

592 € 310 €

Basic KPI

Avg lines/customer:

Avg lines/employee:

Avg expense/ customer:

Dimensional KPI

Avg number of empl.:

Avg Revenues:

Avg number of locations:

Benchmark Customer

Non benchmark Customer

14 13

1,75 € mln 2,18 € mln

2 2

Benchmark Customer vs non benchmark: example

Name:

Activity Field:

Employess:

Revenues:

Locations:

Number of Lines:

Lines/Employees:

Lines/Revenue:

Lines/Locations:

Edilizia Frappoli

Construction

15

1 mln €

1

5

0,3

5 E-6

5

MEI Sas

Transport

20

1,7 mln €

2

9

0,4

5,2 E-6

4,5

EDIL Srl

Construction

15

0,7 mln €

1

7

0,5

1 E-5

7

Source: Busacca & Associati

Non benchmark Customer

Non benchmark Customer

Benchmark Customer

…integrated multichannel approach

Every interaction with a customer should take place in the context of all previous

interactions with that customer. One goal of every interaction with a customer

should be to acquire additional information about that customer that can help you

make decisions or implement new strategies.

Making every customer interaction a chance to strenghten loyalty and maximizing

arpu

Outbound calls

Inbound calls

Web/e-mail

Point of Sale

SMS-MMS

Mailing

….different campaign channel

Interact withyour customer

“Make Every Customer Interaction a Great One “

SalesForce

Agenda:

Shifting the definition: it’s all about Customer

Assessing the key CRM systems used to collect and process Customer data to determine Customer value

Examining examples of tailored promotions developed forhigh value business customer

Choosing divers to set business customers’ value

Understand customers’ needs

StatisticalKnowledge

Market researches

Feed-Back from the Front

End

Customer Profiling

Customer Profiling Systems

Information

system Index Calculation

0

2 0

4 0

6 0

8 0

1 0 0

Est

Ove st

N or d

Datawarehouse

DWH

UserInterface

Customer Profiling Application

Segmentation Clustering

Cluster 1

Cluster 2

Cluster 3

Data Mining

Reporting

0,3 0,6 0,8 1,2 2,23,9

6,4

11,7

20,5

30,3

42,2

51,1

9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1

Customer Profiling in TIM

KPI IndicatorsOffers performances monitoring

and trends

Target for the New Voice offering

Analysis One to One

CRM Strategy: Loyalty and Retention

Customer Profiling is a tool for…

Churn prediction (Lock In)

Achieving segmentation &

Cluster modelling

Bus

ines

s K

now

ledg

e

Dat

a U

nder

stan

ding

Dat

a P

repa

ratio

n

Descriptive& Clusteranalysis

CustomerValue

ModellingSeg

men

tatio

n

CustomerQuality

Bus

ines

s

Und

erst

andi

ng

Setting up the knowledge

TIM success is built on Customer knowledge

To understand and forecast their NEEDS

To achieve a SEGMENTATION

To differentiate SERVICE & OFFERING

VAS

• PC Card

• Byte Blackberry

• MMS (Trad-Interatt)

• WAP navigation

• Unitim-Intranet

• SMS

DEMOGRAPHICSTRAFFIC

Understanding the value drivers

Customers are different … one size doesn’t fit all

Segmentation to identify like-minded customers: based on behaviour first, then demographics

• Call statistics

• International

• Other Mobile operator

• Roaming

• Intercom

• Incoming/Outgoing

• Mobile/Fixes

• Employees

• # of lines

• Corporate Revenues

• Location

• Industry

• Billing information

• Credit history

Complex utilisation of Customer Data

Integrationof

models

Customer X

Target Client

Customer X

Target Client

Optimal offer

Customer X

Target ClientOptimal offer

Optimal channel

Customer X

Target Client

Optimal offer

Optimal channel

Optimal time

Customer targeting

Customer profiling

Channeloptimization

Contact optimization

…………………

…………………

……………………………………

…………………

………………

………..……..…………………

………………………………

…………………

Right offer To the right people With the right communication channel At the right time

Customer Contact Sequence

AcquisitionAcquisition

TimeTime

Valu

eV

alu

e

•Selectiveacquisitionpolicy

•Welcome•actions

•one2one campaigns•tailored offers•cross-selling•up-selling• loyalty program

Loyalty &Loyalty &

DevelopmentDevelopment

LockLock in & in &

RetentionRetention

•Value Based renewal activities•Needs & value based retention•“risk index based”• lock in program

Prepare Program Campaign

Target group ChannelOffer

Offer C

Not-respondersCall A

Specific

group of

Customer

High Value

Low Value

Control group

Offer A

Offer B

Offer D

Control group

Responders

Not-responders

Responders

Not-responders

Responders

Not-responders

Responders

Call B

Mail C

Mail D

Mail A

Mail B

Calll C

Call D

DESIGN CRITERIA

• Cluster Value• Churn Risk

Behaviourcharacteristics

• Cost• Effectiveness• Behaviour

• Propensity to accept• Alternative channel• Time period

ex-ante ex-postSeasonal effect

ARPU (euro/customer)

+-+ 8%

+ %20

+ %12

Con

trol C

luste

r

T-1 T0 T1

EX-ANTE EX-POST

LOCK INCAMPAIGN

Targ

et

Clu

ste

r

Methodology

Monitoring: Ex Ante vs Ex Post analysis

Outgoing Voice (min.)

Vas Usage

Note: all data are just for examples

ProPro--activeactive

ReactiveReactive

Lock – In plan

Pre-Exit Call

Exit Call

@

Results and Feedback analysis

Lista Clienti

Targetsetting

Potential ofreference

Lista Clienti

Outboundcall

Direct appointment

Complaintsor request for churn

Lock incampaign

Outbound calls

Direct appointment

request for churn

Outbound calls

Retention: churn management

Customers at risk

Retention offer to keep

profitable customers

Potential of reference

Monitoring

Lines with

considerable

monthly

expenditure for

several months

in succession

Warning Indicators: Differentiated offerings based on customer risk profile

• Expenditure level

• Outgoing traffic

reduction with

steady incoming

traffic

• MNP request

• Customer

Satisfaction level

Dynamic management

• effectiveness measurement of implemented actions

• dynamic analysis of customers at risk

• monthly update of customers database

Retention: Lock-in plan

Customers that generate the highest value are constantly kept under observation

and their behaviour is analyzed in depth to intercept any possible signal of risk

In search for loyalty ?….Get a dog