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A New Connection with Customers

A New Connection with Customers. TEAM BRUINGENUITY Jake Darby, Mark Glenn, Deepauk Murugesan. TWC losing to competitors, not cord cutters. Economy. Cord Cutting. Competition. 3Q’11 ∆ in Subscribers (1). California Unemployment Rate. + 131,000. + 176,000. + 327,000. Today. Tomorrow.

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A New Connection with Customers

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  1. A New Connection with Customers TEAM BRUINGENUITY Jake Darby, Mark Glenn, Deepauk Murugesan

  2. TWC losing to competitors, not cord cutters Economy Cord Cutting Competition 3Q’11 ∆ in Subscribers(1) California Unemployment Rate + 131,000 + 176,000 + 327,000 Today Tomorrow (128,000) Threat Neutralized Future Threat Immediate Threat! • TV Essentials plan developed for those affected most • Affects entire industry • Economy slowly stabilizing • Future unclear as Netflix & Hulu continue to face hurdles • Apple & Google actively searching for opportunities • Market disruption imminent, but uncertain as to means • Price war for lower customer tiers • Lack of differentiation in video subscriber services Source: (1) 3Q’11 subscriber numbers provided in respective 3Q investor reports and 10-Q’s

  3. Differentiation limited to secondary factors Infrastructure Signature Features Differentiating Factors Cable Fiberto Home Fiber to Node Satellite Availability iPad App Fiber-Optic HD Interactive TV Sports Packages Strong Penetration Slowed Expansion Continuing expansion Everywhere Parity in programming, pricing, and basic features Premium Package All Programming All Premium channels Multiple HD/DVR boxes Choice Package DVR and additional boxes Expanded Digital and HD Programming Premium movie/sports packages On-line Offerings (e.g. HBO Go, iPad app, etc.) ValuePackage 100+ Digital Channels Limited HD Programming Short-term promotional offerings (Premium channels and/or DVR/HD boxes) $30 $60 $90 Price

  4. TWC customers are unsatisfied ... JD Power 2011 Residential Television Customer Satisfaction Study Performance & Reliability Offerings & Promotions Customer Service Overall Satisfaction Programming Cost of Service Billing AT&T U-verse Scoring Legend Verizon FIOS DirecTV Time Warner Cable • Survey results reflect customer opinions, not objective performance data • Previously established parity in programming, pricing, and basic features • Conclude that reliability and customer service are driving poor overall customer satisfaction How do we increase customer satisfaction?

  5. Build satisfaction through improved connection to customers Issue: Low Customer Satisfaction Objectives Solutions Improve customer service and features Expanded SignatureHome services Increase customer involvement in brand New Loyalty Program Allow customers to share with friends New Referral Program

  6. It’s all about the customer … every customer SignatureHome... Improve and expand availability to all customer tiers SignatureHomeBenefits Execution Plan Priority Installation • 30 minute installation window • Satisfaction guarantee • Phased roll-out within Southern Cal. • Start with high income residents to gauge willingness to pay Premium Service Plan • Priority service line • 24/7 advisors, no holding time • 2X reimbursement for outages (minimal cost) • Increase customer service reps • Define metrics for customer satisfaction (e.g. call wait times, management referrals, JD Power survey, etc.) Pricing Strategy • Priority Installation: $25 (Covers cost of labor for additional window time) (1) • Annual Membership: $10-15/mo. (Revenue to support add’l customer service investment) (1) Support for installation calculation provided in appendix

  7. Boost loyalty and pride in current subscribers Loyalty Rewards* (Pick One) Year 1 Year 2 Year 3 • Free On-Demand (3) • Free Premium Channel • Free Pay Per View • 6 mo. Tier Upgrade • 6 mo. Sports Package • $50 off cable bill • 1 Year Tier Upgrade • 1 Year Sports Package • $75 off cable bill ~$10 Cost ~$30 Cost ~$75 Cost • Loyalty programs proven to boost pride, involvement in brand • Gain valuable customer insights, data through sign-up process • Customer value of rewards exceed cost to TWC Break even with 8% improvement in churn rate! $739 current CLV Churn Rate Improvement CLV calculation provided in appendix * Requires loyalty program sign-up for new and existing customers

  8. Target referral program to multi-family residences Referral Program 1ST Referral 2nd Referral 3rd Referral • Free box/DVR service for both parties (1 Year) • Referrer receives free package upgrade • Free DVR for sign-up • Referrer receives +$50 off current bill • Free DVR for sign-up ~$50 Cost ~$100 Cost ~$100 Cost • SoCal home prices continue to drive residents towards apartments with high turnover rates • Choice of cable TV provider often based on friend or neighbor • CLV much greater than cost of referral Number of Referrals CLV calculation provided in appendix

  9. Looking toward the future… The Industry The Customer Cable TV Forecasts (1) % of TV Subscribers who also subscribe to online video (2) +6.4% CAGR Revenue Cable Subscribers 40% +1.9% CAGR 40% 2002 2011 2016 • Higher-priced, valued added services driving future revenues • New technologies • Broadband • Higher margins cancelled out by new investment in technologies, infrastructure • TV still essential in everyday life, but prevalence of online video growing • Total TV- 2008: 4.2 hrs 2010: 4.4 hrs(2) • 80-90% awarenessof all online video(2) • 25% multitaskingdailyacrossmedia (3) Sources: (1) IBIS; (2) eMarketer, Dec 2010, (3) OfcomMedia Report, August 2010

  10. The two worlds are beginning to collide Connected TV Penetration(1) • Smart TV • WIFI + hard drive pre-installed • À la carte content via Apps available now • Large On-Demand Library (e.g. iTunes) • Steve Jobs: • “Integrated television … simplest interface … I finally cracked it” (1) Morgan Stanley, May 2011. • New MSO competition • Leading tech companies evaluating new infrastructure investment • Wireless and fiber-optic-based broadband currently in test and trial phases

  11. TWC in prime position to capitalize on industry trends and TV/Broadband convergence TV customers declining, Broadband increasing Online Video Popularity TV Viewer Multi-Tasking TWC should reposition Broadband as primary service • Promote Broadband’s competitive strength • vs. non-existent DBS • vs. slower AT&T • vs. unavailable FIOS • Develop new multi-platform technologies • Second Screen Apps • Wirelessly Connected and Personalized DVR • Investigate Strategic Partnerships with Tech • Combine cable and tech industry strengths • Share infrastructure expansion costs

  12. Summary Time Warner Cable losing subscribers primarily due to low customer satisfaction versus its competition • New dedication to premium customer service to associate TWC brand with quality and reliability • Loyalty and referral programs will also help to curb subscriber loss and boost involvement in brand While cord-cutting not significant issue, cable TV future is filled with uncertainty • Repositioning broadband as signature offering will ensure TWC brand maintains strong relevance in consumer’s minds

  13. Appendix

  14. Competitive Analysis # of Subscribers in Southern California Method of Content Delivery 2.7M ~.60M ~.24M 1.2M • Traditional Cable • Fiber-Optic direct to home • Fiber-Optic to node • Satellite Pricing and Incentives • TV: $30-$55 • TV/HSI: $40-$140 • Multi-room HD: free • HBO $15/mo for 3 months • TV: $65-$90 • TV/HSI: $75+ • No annual TV contract; 2 year for bundles • Multi-room HD: free • TV: $29-$92 • TV/HSI: $49-$74 • HD free for 6 months • DVR: $8 • TV: $25-$84 • Showtime free for 3 months • DVR: $7 • Multi-room HD: free Differentiating Features • IPTV • NBA TV and MLB packages • No contract required • Free WiFi • National hotspot network • 10,000 titles on-demand • Price Advantages • Whole-house DVR • iPad app with live TV, guide, and remote DVR programming • 24,000 titles on-demand • Superior HSI/TV Quality • Sports in 3D • Multi-Room DVR with remote programming • FlexView • NFL Sunday ticket availability for low tier • Extensive foreign-language programming Brand Perception • Mid-tier products • Quality/Service issues • Poor customer service • High quality products and services • Poor customer service • High quality • Good value and service • Limited availability • High quality programming • No HIS; Must bundle with competitors

  15. CLV Calculation – Current Estimate

  16. CLV Calculation – Loyalty Program

  17. SignatureHome Pricing

  18. Value Chain Content Networks Aggregators Consumers MSOs Broadcast Studios Cable Online

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