Serving Cable's Upper Crust

High-end customers-those folks who pay a lot of money each month for telecommunications services and are happy to do so-are gold to providers. The trick is to gain as many of them as possible before the competition gets them. With telephone companies and DBS providers teaming up to provide their own versions of bundled products, providing quality customer service and learning exactly what customers want have both become essential in the fight to lure and keep those subscribers. "The game has changed," says Bruce Leichtman of Leichtman Research Group. "It’s the 20/80 rule-20% of your customers are producing 80% of your revenues. You better be fighting for those high-end subscribers every time, or you might end up losing the race." Attracting the best customers requires the right combination of a number of factors. While products and packages are obviously big parts of the equation, customer service and branding are equally important, says Michael Goodman, an analyst with the Yankee Group. "Cable’s brand is the big, bad monopoly," he says. "You can’t have a positive brand image if you keep raising your rates." Cable operators have begun highlighting their products’ value in an effort to burnish their image. For instance, Cox Communications customers who take all of the company’s products receive a discount on their bill, says Joe Rooney, Cox’s SVP, marketing. But there’s more to it than mere discounting. "We’ve always walked the talk with customer service," he says. "People don’t mind buying into our services deeper because they know us and know we will follow through with our promises." Early adopters of new services initially chose satellite for their video needs because it seemed new and cool, Rooney says. Cable was behind the eight ball when it came to delivering digital signals, and the DBS providers were successful in convincing consumers they had a better product. But the tide has changed, Rooney asserts. There are now more high-end customers subscribing to cable services than to DBS. A little less than 25% of the total TV households in the country subscribe to a digital cable package, while about 18% of TV households have a dish on their roof, according to Howard Horowitz of Horowitz & Associates. And there are twice as many high-speed cable modem customers in the country as DSL customers. "Today, the high-tech, high-end customer is choosing cable," says Rooney. "The low-end, low-income, low-tech customers are choosing DBS or DSL over cable." And that’s fine with him. It’s not that Rooney doesn’t want the low-end, single-service customers, it’s just that the bundled customers who take more than one service end up being more satisfied and stay with the company longer. Moreover, the more high-end customers you have, the easier it is to convince the rest of your subscribers as well as non-subscribers to try the new services you’re offering, Rooney says. "The majority of customers don’t cross the line with new technology until the early adopters tell them it’s OK," he says. "The early adopters-or high-end customers-must like us for the majority to buy in. That’s why we make sure our bundles are valuable." As of Sept. 30, 61% of Cox’s homes passed subscribes to cable video services; about 9% of Cox’s homes passed subscribe to a satellite service. The company has a 29% penetration rate of high-speed data to basic homes, and 18% of the company’s homes passed take broadband from Cox. Additionally, 26% of Cox’s new high-definition subscribers are new Cox customers, meaning that Cox is gaining back subscribers who defected to satellite and getting new customers who have waited to sign up with either provider. Time Warner Cable, meanwhile, concentrates on giving customers what they want, when they want it. "We have tried to provide a multitude of choices on our customers’ terms," says Chuck Ellis, EVP and chief marketing officer, Time Warner Cable. "We think the opportunity to offer choice is really important to providing solutions for all our customers, regardless of whether they are at the high end or low end of the spectrum." Yankee’s Goodman believes that knowing your customer is one of the best ways to keep them. "Not all high-end customers are the same," he says. "You need to identify them and market to them appropriately because a household with two kids is going to have different needs than a single-person home. You have to have some flexibility with your products, services and marketing." Cox and Time Warner Cable are already spending millions of dollars to better understand the people who subscribe to their services. Cox is testing a new customer relationship software management tool that will give customer service agents more information on the customers who call in, which will hopefully result in better service and more selling opportunities, Rooney says. The database may tell the customer service agent that the person on the other end of the phone is a college student, giving the agent little incentive to sell a digital package of services with three months free in April, assuming the student is leaving town in May for the summer. "It’s all about selling the right bundle of services to the right customer at the right time," Rooney says. The new database and software system, which uses a recommendation engine to help prompt CSRs into asking the right questions to serve customers, is being tested in four systems, and if all goes well, Cox will roll out the product in all its markets next year. Time Warner is also spending heavily to improve its databases and get a clearer picture of what their customers look like and what they want, Ellis says. "We clearly need to know more about our customers to better serve their needs, and we’re spending the money to do that," he says. "We need to be more proactive with our outbound sales and just touch base with our customers on a regular basis to ask how satisfied they are with their service and ask what we can do to better serve them." That means knowing how a customer wants to be contacted and what that customer will want, says Christine Wright, VP of Convergys Knowledge Management Services. Unsurprisingly, she has found in her research that most customers prefer talking to a real customer service agent rather than an automated response unit, except when the wait to speak to a live agent is longer than two minutes. Also, the vast majority of consumers don’t want to interact with their service provider’s websites, mainly because most sites aren’t integrated with the customer service centers. As that connection becomes more prevalent and customers become more Internet-savvy, that will change, but most companies aren’t there yet, Wright says. Sunflower Broadband of Lawrence, Kan., has managed to get 4% of its 34,000 customers to take its highest-priced bundled tier-voice, video and data services for $142.95 a month-simply by understanding their needs, says Patrick Knorr, Sunflower’s general manager. The bundle saves customers about $30 off the a la carte rate of services, and that appealed to Lawrence residents. "It doesn’t sound like a big number [of customers], but it continues to grow, and we have a lot of other packages that can also fit people’s needs." About 45% of the operator’s 34,000 customers take at least two services from the broadband provider. The formula seems to be working in Lawrence-Sunflower has an 80% basic penetration rate and DBS has only a 10% penetration, about half the national average. Sunflower also considers its commercial customers to be high end, and markets heavily to that segment. Today, 15% of the company’s high-speed Internet revenue come from local businesses, although they account for only 6% of the company’s customer base. Commercial accounts comprise only 13% of Sunflower’s phone customers, but they contribute 25% of the revenue. It’s one thing to lure high-end customers with the perfect combo of services, packaging and support. Preventing churn is another matter. And while many telecommunications companies have used loyalty programs to reward their best customers, most operators have eschewed such tactics, Wright says, believing their products, customer care and overall value are enough to retain customers. There have been some stabs at launching loyalty programs. AT&T Broadband had one for its best customers, but it was difficult to maintain and customers eventually tired of receiving T-shirts and coffee mugs in exchange for keeping AT&T’s service. Rooney says Cox’s reward program gives customers a $10 discount when they take more than one service. Time Warner appears to have had decent success with loyalty programs. The company’s Columbus, Ohio, system, which is 100% overbuilt by WideOpenWest, sends biannual letters from the division president to digital customers thanking them for their patronage and offering value-added coupons for Time Warner services as well as products and services available in the local community, Ellis says. The coupons are valued at about $400, he notes. The direct mail piece also hypes a contest in which loyal customers can win, among other things, a trip for two to an Ohio State University football game, a Trek racing bicycle from Outdoor Life Network and a $1,000 gift certificate compliments of Starz. "It’s been quite successful for us in Columbus, and we’re examining whether a broad-based loyalty program is appropriate for the whole company," Ellis says. "It’s certainly an important strategy." Convergys’s Wright has seen cellular and long-distance companies make great strides at retaining customers with loyalty programs. "Customers that have been loyal to a company should be, and want to be, proactively contacted about special offers or new deals that they may not otherwise be aware of," she says. "They want to be rewarded for their loyalty." K