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1

PhoneSafe

Situation

Complication

Key Question

PhoneSafe provides handset insurance to themajor Canadian wireless phone companies

In turn, the wireless companies offer theinsurance as an option to their subscribers

(mobile phone users) by charging an extra feeon their monthly statements

PhoneSafe has been losing many end users The CEO is considering launching a campaign

to win back these lost subscribers

Should PhoneSafe launch such a campaign?

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Monthly customer loss rates

0

1

2

3

4

5%

User segment

Proportion who drop PhoneSafe

Family plan

3.33

Corporate

2.00

Teen

5.00

Young

professional

4.00

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Monthly revenues by segment

0

1

2

3

4

5

$6

User segment

Revenue per user

Family plan

4.25

Corporate

3.25

Teen

4.75

Youngprofessional

3.75

Gross margin

Cost

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DMF benchmarks

Billing insert $0.005 to $0.02 0.005%

Text message $0.01 to $0.03 0.05%

Postcard $0.20 to $0.40 0.5%

Phone call $3 to $5 5%

Method Cost per contact Response rate

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Answer Guide: Case Overview

Model Solution

1. The plan could make money2. PhoneSafe must focus on high margin customers who have

longer lifetimes; calculating the Customer Lifetime Value

enables apples-to-apples comparison

3. Corporate customers and text messages represent the mostdesirable segment + medium

4. PhoneSafe should consider alternative actions to improve thecustomer retention in advance

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Calculation ANSWERS Corporate andtext message represent best approach

% drop 3.33% 2.00% 5.00% 4.00%

Averagemonths of life

30 50 20 25

Gross margin $0.50 $1.50 $2.00 $1.00

Margin overlifetime

$15 $75 $40 $25

Billing insert 0.005% 20,000 $0.01 $200

Textmessage

0.050% 2,000 $0.02 $40

Post card 0.500% 200 $0.30 $60

Phone call 5.000% 20 $4.00 $80

Calculation Family plan Corporate TeenYoung

professional

MediumResponse

rateContactsper save

Cost percontact

Average costper save

Plan

Medium

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Answers (1 of 2)

Show Handout 1:Situation, Complication,

Key Question

How should they think aboutevaluating such a program?

Should they do it? The key concern is whether the

operation will make them money

Establish the key items needed toknow in order to make anassessment (customer duration,profitability, and cost of program)

Show Handout 2:Monthly Customer

Loss Rate

Walk the candidate throughthe slides

Does this seem significant? Yes! That could be huge!

What are the implications forthe program?

The amounts of time a customerwill remain varies widely. Winningback a customer who sticksaround longer is more valuable

Show Handout 3:Monthly revenues

Does margin or revenuematter more for this analysis?

What are the implications forthis program?

How does this relate to theprior slides?

Margin. That represents the valueto us of a won customer. Revenuethat is not pocketed is lessrelevant

Higher $ margin customers are amore appealing segment

Knowing the average customerduration and GM lets you calculatemargin over a customers lifetime

[calculates] Corporate is best (seeanswer slide)

Set-up Key questions Model answer

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Answers (2 of 2)

Show Handout 4: DMFBenchmarks

Do these figures seemreasonable?

What are the implications tothe question?

Calculate the cost per save basedupon response rates and cost percontact

Put these costs in perspective ofCustomer Lifetime Value

Text messages to corporateaccounts provide the best return--$35 in incremental margin persaved customer

Other combinations aremostly negative

Having gone through themath, what are some otherfactors PhoneSafe shouldconsider?

How will the phone usersrespond?

Should they barrel ahead withthis plan?

What else could the companydo to enhance retention?

Does this change bysegment?

How do you better aligninterests with the wirelessguys to have them help youretain customers?

Do you think it would bebetter to invest in retentionrather than winning back?

They might be annoyed by gettingthose texts. Make it value-add.

It might make more sense to do apilot first, just to ensure thoseresponse rates are in-line

Bundling, data backup, otherfeatures

Perhaps share more revenue withthem, but get them to removePhoneSafe as a separate line item,rather bundled into plan

You can perform similarcalculations based on cost ofinitiative and how much extra lifeyou get out of each customer

Set-up Key questions Model answer