To compete effectively with new entrants and sidestep commoditization, telcos and banks need to provide individual customers with tailored solutions at tailored price points. This article considers how service providers can employ new digital technologies to enable cost-effective mass customization.
In both the financial services and telecoms sector, incumbents are facing intensifying competition from Internet-based companies. As well as offering lower prices, new entrants are using digital technologies to provide consumers and businesses with tailored and flexible offerings.
Amazon Web Services, for example, is providing highly configurable cloud services, while Netflix enables consumers to watch exactly what they want when they want. In the financial service sector, new intermediaries, such as Mint.com, are helping consumers manage their money and sift through thousands of offers to find the best deals for them.
These players are changing customers’ expectations of what a service provider should deliver. In a fast moving and increasingly transparent digital economy, customers are looking for flexible solutions that can be configured to precisely meet their needs. To survive and thrive in this new environment, incumbent service providers need to move towards mass customization -the cost-effective provision of personalized solutions and prices to large numbers of customers.
If customers can buy a product or service that exactly meets their needs, they are likely to pay more, buy again and recommend the supplier to other potential customers. And by enabling customers to choose the exact configuration they want, the supplier gains valuable insights into how markets and customers’ requirements are changing. In this way, incumbents can sidestep excessive price competition and escape commoditization.
Understanding individual customers’ wants and needs
With the right ICT systems and processes in place, incumbent service providers can rise to this challenge. By combining data on a specific customer with data on similar customers, advanced analytical software can enable a service provider to make precisely targeted offers. For example, such software might detect that a bank’s customer travels to the U.S.
approximately ten times a year, but doesn’t purchase any U.S. dollars from the bank. After analysing the spending patterns of similar customers, the software might recommend that the bank offers the customer up to $5,000 each year at an attractive exchange rate.
Similarly, data analytics can help a telco identify customers starting up their own businesses and the likelihood that they will need a faster Internet connection, cloud services, security software, mobile roaming services and other small business products. By analysing what other entrepreneurs have bought, when and at what price, the software could send out a series of carefully timed offers that should appeal to the startup. As customers respond to targeted offers, the service provider gains a better understanding of that customer, enabling them to further improve targeting (see graphic).
Putting the customer in control
Self-service is another key trend in telecoms and financial services. Consumers and businesses increasingly expect to be able to use online product configurators to buy at their own pace and exercise direct control over the service they receive.
A hotel, for example, may decide that, it needs more internet capacity between 7pm and midnight when many of its guests want to be online. To address this need, a telco could enable hotels and other small businesses to configure how much bandwidth they want at different times of the day. To use online configurators effectively, customers need information. For example, a hotel should be able to see how much data its guests are using each day, how much that data costs and how much traffic is generated by each hotel room – all in clear charts and graphs. Well-informed customers are better placed to select the services they actually need and are, therefore, less likely to be dissatisfied and disloyal.
Conversely, service providers need to be able to dynamically adjust their pricing according to supply and demand, just as airlines do. If a communications service provider’s systems are seeing strong demand for bandwidth in a certain neighbourhood between 7pm and 9pm, it could increase the price of connectivity in that time slot and the locality to keep traffic at a manageable level and avoid congestion.
The concept of mass customization won extensive backing from the telecoms and banking executives attending the recent Juliet Media Leadership Summits, hosted by SunTec, in Atlanta and Amsterdam.
At the European event, delegates, on average, estimated mass customization’s impact on service provider’s profitability will be 7.9 on a scale of 1-10, where 10 is a major impact and 0 is no impact. In Atlanta, the equivalent score was even higher at 8.1.
The barriers to mass customization
But many attendees at the two events felt progress towards customization will be slow. In Atlanta, only 45% of delegates predicted that North American communications service providers will make major progress in the next three years. In Amsterdam, delegates were even more pessimistic: Only 30% of delegates predicted major progress for European communications service providers, while the equivalent figure for financial service providers was 19%.
Delegates identified a short-sighted organizational culture as one of the biggest obstacles. In the telecoms and banking sectors, where complex tariffs and hidden charges are commonplace, giving consumers control and transparency requires a new mindset underpinned by training and an appropriate rewards system. Inadequate and outdated ICT is also an issue. Many service providers are hobbled by legacy back-end systems that prevent them from gaining a single view of each customer.
Another barrier is many service providers’ fixation with cutting costs, rather than refining their propositions. Some service providers may worry that customization is too expensive to implement and will have a negative impact on revenue, as customers no longer buy services they don’t need. This view is shortsighted: If existing service providers don’t offer customers exactly what they are looking for, customers will gravitate to new players that do.
Customize carefully and cost-effectively
However, mass customization needs to be implemented carefully and incrementally. Rather than attempting to overhaul their entire IT architecture at great expense, service providers should simplify their core infrastructure as much as possible and then build a layer of flexible systems on top. Ideally, a service provider should have a stable core IT platform that can interact with other software via application programming interfaces (APIs).
To avoid making major missteps, service providers should experiment and iterate. A telco, for example, could start by providing customers with smartphone apps containing real-time information on their network usage. As customers become accustomed to using the app, the telco could then use this channel to make proactive recommendations to the customer based on their usage information.
They also need to avoid offering customers too much choice, creating a la carte menus with dozens of options. Instead, they should cut through the complexity by narrowing the menu down to the three to five options tailored to that specific customer.
But they need to start the journey now. Service providers that offer personalized propositions early are Likely to gain a competitive edge, particularly in the business market. As customers optimise the service proposition and the price, they will generate valuable data that a service provider can then use to guide its investment in its networks, IT systems and talent.
In future, there will be a continuous flow of data and value between suppliers and customers. Implemented well, mass customization will be a win-win, enabling both service providers and their customers to prosper.