CASE STUDY

INCREASING CUSTOMER-CENTRICITY THROUGH EFFECTIVE LIFE-CYCLE

MANAGEMENT
T-MOBILE

Name of the Company: T-Mobile

Type of Company: Telecom

The Business Case:

Facing a maturing and competitive market in Europe, T-Mobile International began to see the
importance of nurturing ongoing customer relationships to ensure higher retention rates and
boost revenues. “As it is a maturing market and saturated, we have to get our revenue growth
from our current customers, and that’s how CRM got more and more important”, Andras
Kondor, Vice President of CRM at T-Mobile International, told CustomerThink Executive
Summit attendees last November in Monterey.

T-Mobile is the second largest international mobile operator in the world with around 50
million customers worldwide – 40 million of which are in Europe doing business with the
five operators the company manages. “They represent around 16 billion Euros or dollars
revenue, so it’s quite a large company”, said Kondor.

Two years age the company had to start differentiating itself “through customer centricity,
brand and the one-company approach”, Kondor said, because “we were beaten up by trying
to differentiate in products and innovation. It didn’t work”.

In some cases T-Mobile was more innovative than the competitors, bringing products out two
or three months before competitors but quickly found out “no one cared”, said Kondor. “We
asked the customers, and they said they don’t choose or switch mobile operator because of
product, because they assume [competitors] either have very similar ones, or will have very
similar ones, so we found out we can’t differentiate in product”. T-Mobile also wasn’t price
leader.

“So what that left are three things—customer-centricity, brand, and one company”, said
Kondor. The company set a goal to “be at the most highly regarded service company in the
industry”. They defined new brand messages, soon to be made public”. We want to have the
same brand message across the world”, he explained. T-Mobile also wanted to bring its
various European operating companies together under one umbrella. “We believe that one
company in mobile can be the only winning strategy”.

Now the marketing directors of the different countries don’t report to their managing
directors, they report to the CMO of T-Mobile International. “It was, as you can imagine, a
difficult transition, not a very popular one”, said Kondor. “But we believe that even large
operators like Germany with something like 20 million customers, still can’t compete alone.”
Kondor works closely with these companies regarding CRM for consumers, who make up 80
percent of T-Mobile’s customer base. “The countries are responsible still for the
implementation”.
The Solution:

Seven points toward actionable customer centricity:

1. Create vision and lead toward it

“I think this is very important to have a vision”, said Kondor, particularly for an
international company with numerous units used to operating independently in different
countries. Round Ltd. helped T-Mobile develop its vision. Kondor noted that Round’s
involvement was a key because T-Mobile basically “created this whole CRM thing, CRM
department 2 years ago. There was no CRM internationally two years ago. Part of the
problem was that “senior management thought there was no synergy, so we don’t need
international CRM”, said Kondor. “They were half right, there’s no synergy. It’s not about
synergy, it’s about direction”.

Kondor has a small team – 8 people – and rely on a lot of countries. “How can I possible run
CRM in 5 different countries?” said Kondor. “So, we focus on the vision. And that is, I
think, extremely important that to be aligned, all these 5 countries behind this vision”.

2. Plan and measure capability development

“We believe that it is only through capabilities that we can achieve our results”, said Kondor.
“These customer management capabilities are complex and therefore, they need to be
planned and measured on a regular basis”.

That means company will not focus on product or even on customer satisfaction, but rather
on customer value. Round’s methodology uses a baseball metaphor to determine where a
company is on the path to customer-centricity (first base, second base, etc.). “T-Mobile has
now set this so-called third base vision for all its subsidiaries, and we regularly plan and
measure customer management capabilities, how they get here, because to set a vision is nice,
but what is important, that we plan and measure”, said Kondor.

3. Segment your customer base by need and value

Why are need and value so important? According to Kondor, T-Mobile had to determine
what the customer wanted so it could “know how valuable they are for us, what we can
afford”.

One of the company’s projects was segmentation because “we said we want to go to a
customer value focus, but we realized we didn’t know how valuable each of our customers is
in each country. Value doesn’t equal billed revenue. We analyzed that billed revenue
explains roughly 70% of value, which is, by far, not good enough”.

Instead, T-Mobile was looking for “outdoing, which is billed revenue, and terminated
revenue. You know, in Europe, you don’t pay for the terminated calls, so you don’t see it on
your bill if you receive a call, so that’s an important factor”.

It was important to identify and distinguish among customer-driven costs and company-
driven costs. “The distinction is very different and very important. If you throw out stupid
things on the good customer that cost us money, we shouldn’t disadvantage the customer
before that”, said Kondor.

The company had to determine acquisition and retention costs “because we consider them
investments into the customer, because of this contract life cycle”, said Kondor. “So, now we
have for each customer a value, and then we segment these customers, based on their value”.

While that’s a step in the right directions, T-Mobile still didn’t know what customers want.
“We know what we get out of them, but we don’t know what they want, and then we try to
implement a need-based segmentation at the moment. What we managed to do is to look at
what needs, what group of needs the customers have on the market. We define four need
segments, and we translated them into usage. Is it right? No. That’s inherently wrong because
needs are for about future, whereas usage is about past”.

The company has CRM data for each customer in the data warehouse and needed to say
which segment they belonged to. “It’s extremely and prohibitively expensive to do market
research on each of 40 million customers”, said Kondor. “So what we did, we went for usage.
We tried to replicate usage, usage clusters. Statistically significant usage clusters, based on
voice usage, SMS usage, MMS usage, data content usage, hand-set type, very, very
sophisticated, and then we found the need segments, and we implemented in all the countries
for the need. I’d rather call them usage, and four value segments, and they are harmonized
across the group.

4. Develop segment focus and priorities

As soon as customers are segmented, the company tried to develop segment focus and
priorities, Kondor said. The company set four value segments. “You have to manageable”,
said Kondor, noting that the company actually has 10 segments but focuses on four. “The top
is the top 2%, the high is the either a 10 or 20, usually, we use 20, then the next 30% and the
low is the 50% of customers by delivering value”, he said. T-Mobile’s marketing plan, for
example, segment four low value. What do we do with that? Nothing, because segment, for
instance, is low, they’re low value, they’re trying to get rid of them, give it to the
competition”. So, while the company’s goal is to be the most highly regarded service
company, we should align service levels, based on value, and this value segmentation is the
key for that”, said Kondor. “And, also, look at customer needs because customers have
different needs in servicing them, as well”.

5. Apply customer information and segment priorities at each stage of the contract
life cycle

Kondor believes that as soon as the company has segment focus and priorities, we should
apply this information. We have the segments, we have the need and value segments, and we
set the priorities, and then apply these customer information segment priorities at each stage
of the contract life cycle.

Kondor noted that there are three questions that must be addressed in the contract life cycle:
How to manage retention, how to manage acquisition And for me, probably the most
important and mostly neglected, is how to increase the gap between T-Mobile and its
competitors”. At acquisition, we have an advantage, we have a gap between us and the
competitors because the customer, for some reason, we sometimes don’t know, have joined
us”, said Kondor. “We are very happy that we have a gap, but then we tend to forget and
realize that at retention, here we don’t do anything basically, and then at retention, we realize
that this gap is either smaller, same or larger, and that means that we are losing a great
opportunity to manage the increase of this gap between acquisition and retention”.

6. Align acquisition, customer life-cycle management and retention

The company then has a contract life cycle “and we should increase loyalty along this life
cycle. Then, this life cycle is our life cycle. It’s a contract life cycle. We should look at what
the customer life cycle is, like teenagers, students and so on, and align acquisition, customer
life style co-management and retention, and manage the value of the whole customer life
cycle”.

While managing contract life cycle is the “most important task” the company must
implement in the coming year, the company has to look beyond the contract as well. T-
Mobile wants “to retain the customer not only for the contract life cycle, but longer. We’re
nowhere near here, though”, said Kondor. “Our expected customer lifetime is between 30
and 50 months, again, depending on need and value segment”. He pointed out that South
Korea telecom has had success on building brands around customer life cycle, a best practice
that Kondor called “very interesting”.

7. Leverage the Group

Kondor noted that “there is a company contribution, how much a company contributes to the
whole, and there is a strategic importance. “Strategic importance encompasses size and
importance of market for each of T-Mobile’s operating companies. “What we do is we don’t
want to let anyone become a black hole, that’s disastrous”, he said. “A large company with
no contribution, that’s very bad. And we don’t want to have implementers, either. We want
to have contributors and strategic leaders and common directions, shared targets and focus
areas, best practice and knowledge sharing, and involvement and co-operation through
international projects”.