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Billing, CRM, Churn and Profits

"All kinds of new business models are possible" said Tomi Ahonen The Economist 13 Oct 2001. Billing, CRM, Churn and Profits. Tomi T Ahonen, M.B.A. 3G Author and Strategy Consultant Mobile Billing Systems IIR, Budapest Hungary September 27-30, 2004. Your customer revenues.

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Billing, CRM, Churn and Profits

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  1. "All kinds of new business models are possible" said Tomi AhonenThe Economist13 Oct 2001 Billing, CRM, Churn and Profits Tomi T Ahonen, M.B.A. 3G Author and Strategy Consultant Mobile Billing Systems IIR, Budapest HungarySeptember 27-30, 2004 www.tomiahonen.com

  2. Your customer revenues www.tomiahonen.com

  3. What happened in January 2004? ? www.tomiahonen.com

  4. Marketing Reality of 2nd Phone • The first 10-20% to get second phone are • YOUNG • ADDICTED • HEAVY USERS • HAVE A JOB • They are your MOST DESIRABLE customers • But if they have another (or 3 or 4) subscriptions, you will not get all of their traffic • They are much more knowledgable and they are among the first to know what marketing efforts your competitors are doing • Here is a tip - put each of your subordinates to different competitor network www.tomiahonen.com

  5. Free prepaid balance via SMS • Clever direct marketing tool with O2 Ireland • Prepaid customers can have free requests of their remaining balance, via SMS • Service is totally funded by advertising, the balance report SMS includes space at bottom used for advertising third party commercial messages, and also for O2 targetted customer messages • Customers love getting valuable info for free, as ads are on bottom of SMS, are no-intrusive in nature Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  6. This is how a social network looks like... Slide courtesy Xtract circles = people lines = friendships Example real-world social network of U.S. schoolchildren (Newman, 2003) www.tomiahonen.com

  7. Lets define Alpha User. An Alpha User is an Early Adopter who is also a socially active network hub of some community. The Alpha User is both an Early Adopter by technology orientation, and an activist in a community dimensionThe Alpha User is the optimal new service launch target. www.tomiahonen.com

  8. The Alpha User tells his immediate contacts Slide courtesy Xtract penetration www.tomiahonen.com

  9. They then spread the word Slide courtesy Xtract penetration www.tomiahonen.com

  10. Much more slowly the innovation spreads to the Alpha User Slide courtesy Xtract penetration [Red node indicates a person who’s adopted your product!] www.tomiahonen.com

  11. Only after Alpha User has discovered it, can service spread fast Slide courtesy Xtract penetration www.tomiahonen.com

  12. The business impacts are huge... At 1 Euro / subscriber / month equals 69 million Euro in direct revenue increase -- not counting related effects like winning market dominance etc. www.tomiahonen.com

  13. Formula: how much money lost? X = A x B x 5.75 where X = opportunity cost of suboptimal launch vs Alpha User launchA = price of new service tariff per monthB = total subscribers at saturation of service adoption ie 2 Euros x 2 million customers x 5.75 = 23 million Euros lost because suboptimal launch www.tomiahonen.com

  14. Alpha User impacts • Was a theoretical concept for many years • Data mining has tried to identify and isolate • Was impossible as counting most connections yields massive amounts of false positives and misses many of the true Alpha Users • Now we can identify them • It will drive all future service launches within telecoms • BUT it will ALSO drive future launch of most other consumer industries www.tomiahonen.com

  15. The sheer power of communities • Peaceful revolution.. A mobile swarm appeared in minutes and grew to over a million peacefully on the streets in the Philippines, over four days, forcing Joseph Estrada from government after charges of corruption in 2001 • Protestors communicated via SMS, including coordinations for food, etc Source: Embracing the Digital Age, Spring 2004 Pearls: Real Mobile Servicescollected by Tomi T Ahonenc www.tomiahonen.com

  16. SMS kills Popular Movies • Movies such as the Hulk, Charlies Angels 2, and Gigli have suffered greatly at the box office because the youth is now using SMS text messaging to tell each other of movies not worth seeing • This is an example of the power of SMS in word-of-mouthSource: The Independent 20 August, 2003 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  17. Member get Member, m-Banking • If you let users send money via mobile phone to others, this is good way to get receiving person to sign up to the m-Banking service • Receive message "You have received money from Mr X, you can retrieve it directly on your mobile phone if.." • Make sure sign-up is easy, few steps, and initial acceptance is click-to-order Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  18. Pay money to recruit friends • Finnish newcomer mobile network Saunalahti is cashing in on its market visibilty and the new number portability • Latest gimmick is to promise 10 Euros (about 7 UKP) for any subscriber who brings in a friend who stays as a paying customer with Saunalahti for three months or moresource: Kauppalehti Nov 13, 2003 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  19. A few words on Churn www.tomiahonen.com

  20. Churners • Four main types of customers relating to churn: • Joiners • Leavers • Changers • Stayers • Good churn vs Bad churn • Hidden churn www.tomiahonen.com

  21. Churn Insights.. • Artificial Sense of Security: "Customer Satisfaction" • Actually if a customer says he is satisfied with your service, he may still leave you very soon • Mercer Management Consulting reports that 80% of telecoms customers who churned said they had been satisfied with their service! Source: Swisscom Presentation at Telecoms Forecasting conference, Prague June 29-30, 2004 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  22. UK Churn findings 2003 • UK Regulator OFTEL has found lots of interesting statistics and facts over the years. In 2003 it says: • 25% of mobile phone users in the UK have switched networks • 10% switch annually • A 34% savings would be needed on average to entice a switch of network providersSource: OFTEL Mobile Services Market Report Sept 15, 2003 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  23. Role of Price in Commodity Biz • Telecoms industry has recently identified about 10%-15% of all customers being "price shoppers" in various studies • Telecoms is not as intensely competitive as for example the airline business • In airlines, SAS says today 45% of all customers make the purchase decision solely on the basis of price • This is likely to be near future direction of price shoppers also in telecoms services Source: Kauppalehti Aug 24, 2004 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  24. MVNO Cut-Throat Competition • The Orange group is pulling out of Denmark • It cited the local competitiveness - Denmark has 19 operators including MVNOs - as the primary reason for selling its operation which was third largest in Denmark behind TDC and Sonofon • The operation was sold to TeliaSonera which now has 1.1 million subs in Denmark Source:Financial Times July 9, 2004 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  25. Omega Customers - Hidden Profits www.tomiahonen.com

  26. Look at Traffic Balance Originating (green) Traffic billed to caller on your network Terminating (red) Trafficbilled to caller, and termination revenue generated if it comes outside your network www.tomiahonen.com

  27. Extreme Case: Same SME Typical Tech Support Typical Salesrep Traffic shows up on phone bill: High ARPU preferred customer Traffic accumulated onto interconnect revenue only: Stealth Omega.. www.tomiahonen.com

  28. Calls from fixed networks Fixed Network Other Mobile Network Our Mobile Network Fixed Network www.tomiahonen.com

  29. Look at Traffic Balance Originating (green) Traffic billed to caller on your network Terminating (red) Trafficbilled to caller, and termination revenue generated if it comes outside your network Actually any traffic terminated outside your network pays termination fees to your competitor Is most profitable if traffic arrives from fixed network www.tomiahonen.com

  30. Bring in 80:20 Rule • Assume 20% of customers generate 80% of traffic, and equally 20% of customers receive 80% of traffic.. High originate calls, high phone bill High monthly bill, yes but not always highly profitable as disproportionate payments of outgoing termination Highest Profit Customers Low originate calls, low phone bill Stealthiest Omegas, profitable but hidden High receive calls, high Termin. fees Low receive calls, low Termin. fees www.tomiahonen.com

  31. High originate calls, high phone bill Low originate calls, low phone bill High receive calls, high Termin. fees Low receive calls, low Termin. fees Assume 1/3 is "real" termination • Assuming of total traffic revenue accounting, 2/3 based on billed outgoing traffic, and 1/3 on both own network terminated own traffic, and accounted for termination into other mobile and fixed networks • All Omegas would deliver33% of total revenues • 20% of Omega revenueswould be totally hidden with low-phone bill customers • 4% of all customers wouldbe both low billing and highOmega, delivering 16% ofall Omega revenues (red box) • These hidden and forgotten 4% would deliver thus 5% of total revenues • They currently get no targetted marketing and are not billed for terminated traffic, almost no costs. Very high profit on this traffic • Assume 2x normal profitability, 4% hidden customers -> 10% of profits www.tomiahonen.com

  32. If you are interested... • Contact Xtract Limited • at www.xtract.info • They have solution already in production with major banks and leading mobile operators • They isolate Alpha Users, Omega Customers, Multiple subscriptions, Churn candidates etc etc etc www.tomiahonen.com

  33. Flat Rate tariffs coming • Competitive pressures working.. • Since KDDI introduced flat rate pricing to its CDMA 2000 1x RTT network in Japan, now NTT DoCoMo is copying the idea • NTT DoCoMo's flat rate on its 3G FOMA network on W-CDMA, is priced at 3900 Yen per month (36 USD) • Service will be available from June 2004 Source: Global Mobile Daily March 17, 2004 Pearls: Real Mobile Servicescollected by Tomi T Ahonen www.tomiahonen.com

  34. But wait - There is still More Info ”In a connected age sharing information is power.”Tomi T Ahonen in Services for UMTS 2002 www.tomiahonen.com

  35. Crystal Balls.. • Fixed telecoms competition USA • Mobile telecoms Finland, Sweden, Italy, Israel • Mobile competition UK, Hong Kong, Denmark • Fixed Internet USA, Canada, Finland, Sweden, Korea • Mobile network compatibility Israel • Advanced telecoms segmentation Finland, Sweden • Fixed-mobile convergence Finland, Sweden, Denmark • Mobile Internet Finland, Japan, Philippines • 3G Japan, Korea, UK, Italy, Austria • Developing economies: Czech Rep, Chile, Philippin. www.tomiahonen.com

  36. Good sources of information • Biggest free 3G info site - www.the3Gportal.com sign up for their free daily 3G newsletter ! • Free on-line experts community - www.ecademy.com • Disruptive and engagement marketing - www.smlxlarge.com • 3G and 2.5G training, Oxford - www.conted.ox.ac.uk/electronics • SOMs and Advanced Segmentation - www.xtract.info • Tariffing, Revenue assurance - www.compwise.com • Partnerships knowhow & tools - www.metaccord.com • Business applications - www.verista.com • Mobile Data Association - www.mda-mobiledata.org • UMTS Forum Reports - www.umts-forum.org • More free service idea “Pearls” - www.tomiahonen.com More information send e-mail to tomi@tomiahonen.com www.tomiahonen.com

  37. Good Books • 3G Marketing, Tomi T Ahonen, Timo Kasper & Sara Melkko 333 pages, John Wiley & Sons, 2004 • Mobile Commerce, Paul May, 302 pages, Cambridge 2001 • M-Profits, Tomi T Ahonen, 380 pages hardcover, John Wiley & Sons 2002 • I-Mode: A Primer, Nik Frengle, 483 pages, M&T Books • Services for UMTS, Tomi T Ahonen & Joe Barrett, 378 pages hardcover, John Wiley & Sons 2002 • Economist Guide to Business Modelling, John Tennent & Graham Friend, 266p hardcover, Economist/Profile books 2001 • The City in Your Pocket, Timo Kopomaa, 143 pages, Gaudeamus, 2000 • Ultimate Telecoms Futures, Stephen McClelland, 232 pages, Horizon House, 2002 • ...And of course The Dilbert Future by Scott Adams.. www.tomiahonen.com

  38. Tomi T Ahonen, 3G Strategy ConsultantCompetitiveness, Business Case, Marketing, and Profitability "Service creation and marketing will be key to 3G," Ahonen said.Total Telecom12 October 2000 • Provides 3G business case audits and 3G service marketing plan workshops for mobile operators, and value chain analysis for content providers, bankers etc. • Provides general business case presentations to isolate profit opportunities for interested parties. • The world's most prolific new mobile service evangelist, has introduced over 500 new service concepts at public conferences; his books include 300 service ideas. • Quoted in over 100 press stories in a dozen languages expressly on 3G/mobile services topics, presented/ chaired at over 90 major conferences on six continents. • Lectures at Oxford University on 3G Business • Available as a motivational speaker in telecoms marketing, sales, product development and innovation. • You can buy his books “m-Profits", "Services for UMTS” and "3G Marketing" at all major bookstores and Amazon website: www.tomiahonen.come-mail: tomi@tomiahonen.com Earlier Tomi Ahonen has set up & run Nokia’s 3G Business Consultancy. Previously he worked for 3 operators where he created the world’s first fixed-mobile service bundle and set a world record for taking market share from the incumbent www.tomiahonen.com

  39. Selected TomiAhonen Workshops • Changing Customer Needs in Mobile Most requested workshop currently, includes “steps” to addiction, “split” personalities, time to change.. • Revenue Sharing and Profitability of PartnershipsNew workshop incorporating latest research and knowhow, can include building a model • New Mobile Service CreationFrom ideas to money-making, for mobile and fixed, for operators, vendors, content partners etc, includes 5 M’s and Early 8 • Business of Mobile Telecoms (2G, 2.5G and/or 3G) Popular workshop over several years now also adopted for Oxford University • Forecasting and Business Modelling in Telecoms Popular workshop featured at numerous forecasting and modelling conferences • Segmentation and Customer Understanding Ahonen’s most popular workshop held already on 6 continents since 1997; may be run with Xtract • Pricing for Profit in TelecomsAnother of Ahonen’s long-standing workshops, run since 1996; may be run with Tariffing specialists Compwise • Launch Marketing for 2.5G and 3G New workshop on how to achieve market success in saturated conditions; also adopted for Oxford University • Competitiveness in Telecoms Workshop either based on lectures or for groups of 16-25 using Nokia’s Equilibrium telecom competition simulation: • Workshops are very cost-effective !Write tomi@tomiahonen.com for more. www.tomiahonen.com

  40. JUST RELEASED 2004 3G Marketing: Communities and Strategic Relationships by Tomi T Ahonen, Timo Kasper and Sara Melkko, with foreword by Mike Short of O2 (333 pages, softcover, John Wiley & Sons, 2004) World’s first book on the marketing and sales of 3G and other advanced wireless services. Covers Market Intelligence, Segmentation, Service Creation, Distribution Channels, Promotion, Bundling, Tariffing, Billing, and Churn. With up-to-the-minute theories of cellular telecoms including Reachability, the 5 M’s and the Early Eight, this book covers the “how” of new wirless services. Available at major bookstores and Amazon.com in the Summer of 2004. "Insightful look into capitalising on customer data and developing targetted marketing propositions." - Jan-Anders Dalenstam, Ericsson "Packed with useful and practical techniques to achieve success in competitive marketplace" - Steven S K Chan, MobileOne Singapore www.tomiahonen.com

  41. M-Profits: Making Money from 3G Services by Tomi T Ahonen (360 pages, hardcover, John Wiley & Sons, 2002) World’s first book on the money side of 3G became world's bestselling 3G book Oct & Dec 2003. Covers revenues, revenue-sharing, pricing, profits of mobile services. m-Profits includes 170 service ideas and 50 real services in use around the world. Written with a clear money focus, m-Profits includes mobile industry issues as Money Migration, Hockey Sticks, and the 5 M’s theory. The book covers service creation, revenue sharing, content partnerships, telecoms economics, and includes contrasts among all major wireless technologies. Available now at all major bookstores and at Amazon.com “Good read for industry professionals, operators, bankers and analysts.” - Voytek Siewierski NTT DoCoMo “Only book to give comprehensive view of marketing and revenue.” - Sophie Ghnassia France Telecom “Great guide to making money in mobile services.” - Joao Baptista Mercer Management Consulting “Makes complex theories easy to understand.” - Mark Weisleder Bell Canada www.tomiahonen.com

  42. Services for UMTS: Creating Killer Applications in 3G Edited by Tomi T Ahonen and Joe Barrett (373 pages, hardcover, John Wiley & Sons, 2002) World’s first book on 3G services is also the world's bestselling 3G book in Oct 2002. Covers 200 service ideas with lots of illustrations, statistics, charts. Written by 14 leading 3G experts, for the non-technical reader. Includes the 5 M’s theory, service creation, content partnerships, revenue sharing, marketing and competition in 3G. Covers all major service groupings such as SMS, MMS, m-commerce, mobile adver- tising, video, music, gaming, infotainment, B2B, B2C, B2E... - also translated to Chinese - Available now at all major bookstores and at Amazon.com “This book provivdes a framework for launching UMTS.” - Mike Short mmO2 “A must read.” - Dr Roberto Saracco Telecom Italia Future Lab “Welcome change from technology led literature.” - Dr Didier Bonnet Cap Gemini Ernst & Young “Explains some of the compelling services.” Jeff Lawrence Intel www.tomiahonen.com

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