Page 505 - Handbook of Modern Telecommunications

4-36 CRC Handbook of Modern Telecommunications, Second Edition

at various points in their lives. For example, a customer using basic services may opt for mobile services
and then DSL services in the future. Using this hypothesis, it is possible to segment customers in the
data warehouse based on their demographics: age, location, annual income, occupation, usage, and the
like. Such analysis is primarily based on a customer’s position within the life cycle and the products that
are applicable to that stage. This model is one of the critical factors that determine the telecommunica-
tions company’s marketing campaign efforts. Every telecommunications company must have such a
model and efforts should be made to integrate this model within the data warehouse analytical efforts.

4.3.3.2.3 Customer Financial Portfolio
Customer data can be enhanced by purchasing data from credit bureaus. Although only credit-related
products are available from credit bureaus, it does provide the telecommunications company with cru-
cial details on a customer’s credit worthiness.

4.3.3.2.4 Customer Profitability
This is a standard analysis that any telecommunications company can carry out using a data warehouse.
Analysis of a customer’s profitability to the telecommunications company is crucial for campaign effec-
tiveness. Customer profitability can be calculated in different ways. Whichever method is chosen, it
should incorporate the telecommunications company’s transfer-pricing mechanism at the account level.
The accuracy of the profitability numbers is dependent on one factor: where will these numbers be used?
If it is only for determining the type of products to be marketed to a customer, then the profitability
numbers can incorporate some level of acceptable deviations.
Profitability should ideally be at the contribution level, as this number defines the net revenues that
are a direct reflection of the customer’s transaction behavior. Fixed costs, although allocable, are depen-
dent on the allocation methods and can impinge on a customer’s profitability.

4.3.3.2.5 Diversification Indicator
This strategy should accompany the customer profitability analysis. Customer profitability by itself does
not signify much. First, the profitability numbers need to be compared with those of other customers.
Assuming a customer’s profitability is high, the telecommunications company must make the decision
to either up-sell or cross-sell its products. The diversification indictor specifies the diversity of a cus-
tomer’s product portfolio.
The basic premise is that a customer with stable but average profitability is preferable in the long run
to a customer who has high profitability but carries a less stable profitability. This indicator will have to
be constructed using the product lines under which a customer holds specific products. A string field
can be used to depict such holdings and a model needs to be created that assigns a specific ranking based
on product-holding combinations. The ranking is based on the profitability that each distinct combina-
tion will accrue to the telecommunications company.

4.3.3.2.6 Product Profitability
This can be calculated as an extension to the customer profitability exercise. The idea is to determine
the profitability of various products offered by the telecommunications company and to make product
decisions based on such profitability. The process followed is very similar to that used for customer prof-
itability. Again, specific focus should be placed on direct revenues and expenses. Fixed costs are impor-
tant here (unlike with customer profitability) as a telecommunications company’s ability to market its
products is based significantly on its infrastructure, which is not a direct product expense.

4.3.3.2.7 Channel Profitability
This is another important aspect of the profitability exercise. A telecommunications company needs to
determine which of its delivery channels are more profitable or cost-effective and should try to move its
customers to the more profitable channels.