Customer Projection – Marketing Myopia – Costs Telcos $63Bn in Losses to VoIP Alone
In cases of projection, the enterprise substitutes a self-serving ‘idealised‘ view of the customer for one based on an honest and objective understanding of what the customer wants to achieve. The perception of met and un-met needs is based on what is currently, or could be offered. The supplier responds to competitive threats and opportunities based on an understanding that has little or nothing to do with the real customer, but is mostly driven by the supplier’s own aspirations plus how the customer has responded in the past.
An example of how this failure of vision can influence the enterprise is demonstrated by the Telco sector’s response to the emergence of VoIP as a threat to circuit-switched voice. For many years VoIP was dismissed by Telcos, due to the poor quality and reliability of early VoIP products. They did not believe their customers would accept lower quality calls (or more dropped calls) even if they were free (or at a lower price). In practice, customers were very tolerant of the increase in dropped connections and periodic scrambling they experienced, because they were saving significant amounts of money for their additional inconvenience). Telcos had inflated the value of what they delivered beyond the level which the customer considered fair value. The lack of competitive alternatives in a regulated sector had hidden this reality for many years.
This is an extreme example of a whole sector that is inward-looking and loses contact with its customers. As a result, if focuses on improving operational efficiency and is content to retain an idealized vision of the customer based on what it offers, rather than what the customer truly needs.
Customer Insight lacking in capital intensive sector such as Utilities, Telcos & Finance
Research shows that the more capital intensive an industry sector, the more likely that the players will be operationally focused. As capital intensiveness increases so customer awareness and insight naturally decline.
Telcos were blinded to the reality of customer acceptance of quality issues in free calls by their belief and investment in their own networks. International metered calls before VoIP were an expensive and relatively little-used product for most customers, so it seemed to make sense to aim high and prioritise availability and quality commensurate with high pricing. But pricing was a result of high equipment and operating costs and low utilization, not the value customers received. Their view of the customer was a projection based on this false understanding and not the reality of their customers. The projection also did not identify the latent demand that lower pricing (free calls) would unlock.
Operational excellence trumps customer need?
The focus on quality even extended to the so called ‘five nines’ which demanded that 99.999% of the time the customer would hear a dial tone when the receiver was lifted! This target had no basis in customer need or perception. It didn’t even make sense to a customer, who would judge quality on the basis of whether the call connected and was completed satisfactorily – the presence of a dial-tone followed by a failed call was absolutely no better than the absence of a dial-tone. The metric was actually based on a desire to perfect the engineering and operational excellence in a way that had industry (but no customer) significance.
The competitive blindness brought about by the projection of customer attitudes and motivations allowed OTT VoIP providers to establish themselves and improve quality to compete more effectively (ultimately outperforming the Telco propositions by adding video, for example). According to Ovum, in 2018, Telcos will lose $63Bn of revenues to OTT VoIP providers – an expensive lesson in the risks of building a view of customers based on a self-serving short-term view of what you have always done
Customer Refraction – Customer Through the Looking Glass
Where companies employ mechanisms to have dialogue with their customers (through processes administered by sales, marketing or service departments) there is a significant risk that the interpretation of that dialogue will be self-serving and idealized, resulting in a view of the customer that is significantly different from reality.
For example, when cable companies began offering telephony services, BT (the incumbent operator) suffered churn losses up to 20,000 customers a week. In order to stem those losses, the company decided to enter the market as a retailer of satellite dishes. The reasoning was that the purchase of a dish would satisfy the content aspirations of viewers and make them less likely to want cable TV and, consequently less likely to switch their telephony supplier. At the heart of this logic is a belief that the customers being offered a TV and telephony service by a cable provider would not want to “waste” the money they had recently invested in BT’s dish solution.
Unfortunately for BT, the customers in the high-density urban areas where cable networks were first deployed, did not take amortisation of investment into account when considering their spend. Their decision, once cable was an available option, was based purely on the relative perceived benefits and current affordability – historic spend with BT was not a factor. This was not something BT strategists and marketers, schooled in classical economics and rational utility, had even considered.
Exposure to satellite TV content through a dish actually increased the perception of value of that content, to the extent that companies marketing cable TV came to know that their biggest single indicator for sales success was an existing dish installation.
As a result of only seeing customers through the refracted lens of the misconceived beliefs and attitudes of its own marketing department, BT spent a substantial sum to enter a business that actually helped to pre-sell the concept of cable TV and actively encouraged churn to new competitive service providers.
Idealised Customers – Always Unreliable, and Sometimes Dangerous
Whether Projected or Refracted, both types of idealised customer are at best misleading and worse, dangerous, especially in times of disruption and rapid change.
There is no substitute for direct, objective and continuous customer engagement and the understanding and insights that result. If customers remain idealised through either projection or refraction, their behaviour, when faced with choices, is unpredictable. If nothing disturbs the status-quo, companies can continue with a misplaced perception of their customers. The longer there is no disruption, the more the perception will be held as true, so that when a disruption does arrive, established players can be surprised and even feel betrayed and unappreciated by their base.
Companies that fail to engage directly and regularly with customers, and those that filter their engagement based on their internal values and beliefs, are increasingly likely to face ‘disruptive divergence’ – a widening gap between them and their previously loyal customer base.
To avoid expensive customer losses at times of technical or market disruption, companies must implement processes that make sure the real voice of the customer is present in all planning and strategy development, rather than relying on what they already “know” based on self-serving internal perceptions and so-called expertise. The price of failure is now too high.
We have previously stated that Telcos will waste $15Bn in analytics and Big Data this year. The issue here is that if the initial view of the customer is idealised, implementing tools to measure and analyse may result in an expensive “validation” of the constructed and virtual customer – the proxy for the real customer will become more detailed and believable and drive disruptive divergence to even more extreme levels.
In a later post, we will look at how enterprises can first recognise whether their view of the customer is idealised and (as in most cases it will be) how to begin to develop a more objective understanding that will enable them to build marketing programs and product and service strategies that meet real needs based on the aspirations and beliefs of those customers.