Customer Value Management

Martin Reitenspiess
Jos Antonio Tortosa

Jess de la Herrn
Andreas Putz
Perspective
Customer Value
Management
The Path to Proftable
Growth in Telecom
Booz & Company
Contact Information
Amsterdam
Steven Pattheeuws
Senior Executive Advisor
+31-62-279-1964
steven.pattheeuws@booz.com
Beirut
Bahjat El-Darwiche
Partner
+961-1-985-655
bahjat.eldarwiche@booz.com
Dubai
Karim Sabbagh
Senior Partner
+971-4-390-0260
karim.sabbagh@booz.com
Houston
Kenny Kurtzman
Senior Partner
+1-713-650-4175
kenny.kurtzman@booz.com
Madrid
Jos Arias
Partner
+34-91-411-5121
jose.arias@booz.com
Jos Antonio Tortosa
Partner
+34-91-563-7693
joseantonio.tortosa@booz.com
Jess de la Herrn
Principal
+34-91-411-8624
Jesus.delaherran@booz.com
Melbourne
Simon Gillies
Partner
+61-3-9221-1903
simon.gillies@booz.com
Milan
Luigi Pugliese
Managing Partner
+39-02-72-50-9303
luigi.pugliese@booz.com
Moscow
Steffen Leistner
Partner
+7-985-368-7888
steffen.leistner@booz.com
Mumbai
Ashish Sharma
Principal
+91-98-9997-8128
ashish.sharma2@booz.com
Munich
Martin Reitenspiess
Partner
+49-89-54525-522
martin.reitenspiess@booz.com
New York
Christopher Vollmer
Partner
+1-212-551-6794
christopher.vollmer@booz.com
Paris
Pierre Pladeau
Partner
+33-1-44-34-3074
pierre.peladeau@booz.com
Tokyo
Toshiya Imai
Partner
+81-3-6757-8600
toshiya.imai@booz.com
Vienna
Andreas Putz
Principal
+43-664-5152-908
andreas.putz@booz.com
Also contributing to this Perspective was Booz & Company partner Jos Arias.
1 Booz & Company
EXECUTIVE
SUMMARY
As the telecommunications industry becomes even more
competitive, operators are struggling to fnd paths to
proftable growth. Markets are saturated, new subscribers are
getting more expensive to acquire, and current subscribers are
apt to leave (churn out) in their search for a better deal.
In this business environment, operators need to stop
depending solely on metrics such as gross adds and market
share to measure growth. Instead, they need to develop a
capability we call customer value management (CVM)
a holistic way of evaluating individual subscribers in
terms of their overall proftability, now and in the future.
This capability covers subscribers at every stage of their
relationship with their operator, and should be considered
by mobile, fxed, and integrated telecom companies.
Relying on a combination of tactics, including customer
payback period, budget rebalancing, tailored customer
rewards, and cross- and up-selling campaigns, CVM has the
potential to boost EBITDA (earnings before interest, taxes,
depreciation, and amortization) as much as 5 percentage
points among certain customer segments, which is no small
amount for operators determined to boost earnings.
2 Booz & Company
Most telecom operators in devel-
oped economies around the world
continue to struggle to maintain
proftability. Their markets are
almost entirely saturated, especially
in mobile telephony, where intense
competition has led to penetration
rates as high as 150 percent. As
a result, average revenue per user
(ARPU) is declining, and churn is
on the rise. Yet the need for capital
investments remains high, and the
cost of acquiring and retaining
customers keeps increasing.
Thus, few operators are increasing
their customer base, and fewer
still have been able to boost the
proftability of the customers they
do have. Spending the money to
replace customers churning out of
the base only results in lower ARPU
overall and thus further delays the
time it takes to recapture the cost of
acquiring them.
Clearly, the industrys long-
standing orientation toward
boosting market share, increasing
the number of subscribers, and
thus focusing on gross adds is no
longer working. If operators want
to keep growing profts, they will
have to focus not just on market
share but on the value of each and
every customer in their current
base. To do so, they will need to
take a page from online retailers,
which have already signifcantly
advanced what we call customer
value management, or CVM.
CVM techniques help companies
analyze which customers are the
most valuable, and why. Indeed,
this approach will soon become a
key capability in a world where the
potential customer base simply isnt
getting any bigger.
COMPETITIVE
PRESSURES
If operators want to keep growing
profts, they will have to focus not
just on market share but on the
value of each and every customer
in their current base.
3 Booz & Company
Most telecom operators have
already set up business intelligence
(BI) units and analytical teams.
Their goal is to leverage the
large sets of operational and
customer data at their disposal
in order to derive reports and
recommendations on traditional
measures, such as gross adds, while
ensuring that legal requirements
for data security and privacy are
met. Most BI initiatives, however,
have not succeeded in analyzing
the mountains of data at the level
of depth and breadth required,
or at the speed required, to help
in extracting the maximum value
from customers. CVM, on the
other hand, is a methodology that
looks at customers from a holistic
point of view, weaving together
technology and business processes
to develop a complete view of every
individual customer.
Thus, CVM is designed to address
the major activities that bear on
the revenue and profitability
potential of telecom customers:
(1) the effort to acquire new
customers, (2) the challenge of
retaining them, and (3) the various
means of increasing their value.
At the same time, the program
should operate sequentially. That
is, when the level of saturation
increases in a particular market,
shrinking the potential for adding
new customers, operators should
switch to an emphasis on the
A VALUE
ORIENTATION
4 Booz & Company
second and third elementsand the
resources in terms of both people
and money devoted to each element
should be shifted accordingly.
The financial impact of each of
the three areas will vary depending
on the current state of the
operators CVM effort and the
nature of the operators business,
whether fixed-line, mobile, or both
(see Exhibit 1).
Source: Booz & Company analysis
Exhibit 1
CVM Improvement Areas and Trigger Points
Turnover 2012 Existing Customer
Base Changes
Churn & Retention Gross Adds Turnover 2011
Turnover
- Tariffs and bundles
- Subsidy and
portfolio for devices
- Dealer commission
and incentives
- One-time credits
and monthly recurring
charge reductions
- Activation of options
Trigger
Points
Upside Downside
- Subsidy and
portfolio for device
replacement
- Dealer commission
and incentives
- One-time credits and
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
- Tariff migration logic
and migration fee
- Cross- and up-selling
- Activation and
deactivation
- Provision of credits
- Top-up frequency
- Terms & conditions
- Service fee adjustment
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
11.0 million = Subheads or highlighted text
in Subheads
Guidelines:
alkdflka = Plain text / Body copy in Content
Bullet points as dashes with tab position
32.8% = numbers in Data (Black)
30.1% = just white text on
100 % color
TABLE HEADINGS
A4 format:
- width for 3 columns: 169 mm = 6.654 in
Letter format:
- width for 3 columns: 167,64 mm = 6.6 in
Lines: 0,5 pt
Lines for legend: 0,5 pt dotted, black
Note:
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Market Segment
Electronic Components
Electronic Products
Software & IT Services
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
Here, revenues derive from companies producing the silicon parts,
cabling, and other individual components that are then assembled by
electronic products players to create a final product.
Revenues come from assembling hardware products, including
telecommunications equipment, computers and peripherals, mobile
handsets, and other consumer electronics.
Revenues come from developing enterprise and consumer software and
applications, and from providing telecom and IT services.
This segment is made up of companies that derive revenue by providing
access to fixed and mobile voice and data networks, and from operating
cable and satellite TV broadcasting networks.
Revenues stem from Internet players that intermediate between people,
information, services, and merchants, including revenues generated from
online advertising.
Revenues come from direct-to-consumer retail such as newsstand and
DVD sales), subscriptions, and advertising.
Examples of Industry Players with Primary Focus in Segment
Hon Hai (Foxconn), Intel, Panasonic
Alcatel-Lucent, Apple, Ericsson, Lenovo, Nokia, Sony
Infosys, Microsoft, NTT Data, Oracle, SAP
AT&T, Comcast, Deutsche Telekom, Orange, Telefnica, Verizon,
Vodafone
AOL, eBay, Google, IAC/InterActiveCorp, Yahoo
News Corp., Thomson Reuters, Time Warner, Viacom, Walt Disney
REVENUE VS. ENTERPRISE VALUE
(FY 11 VS. 31/12/2011 ENTERPRISE VALUE)
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
TMT REVENUES BY MARKET SEGMENT
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

5 Booz & Company
* This EBITDA improvement was achieved within three years.
Exhibit 2
Improvement in EBIDTA as a Result of Selected CVM Programs
Base Changes
Turnover
- Subsidy and
- Dealer commission
and incentives
- One-time credits
charge reductions
Trigger
Points
Upside Downside
- Subsidy and
replacement
- Dealer commission
and incentives
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
and migration fee
- Activation and
deactivation
- Top-up frequency
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
3.1
4.8
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EBITDA Improvement
(percentage points)
3%
5%
Latin American
Mobile Operator
(ARPU Increase)
European
Fixed/Mobile
Operator
(Retention Cost)
European Operator
CVM Mobile
European
Fixed/Mobile
Operator Cross-
and Up-Selling Only
4.9*
European Operator
CVM Mobile
in Subheads
Guidelines:
100 % color
TABLE HEADINGS
A4 format:
Letter format:
Lines: 0,5 pt
Note:
file.
Market Segment
Electronic Products
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
online advertising.
Vodafone
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

Any of these elements can be
applied by mobile, fixed, or
integrated operators, although the
impact of each trigger will differ
depending on the nature of the
business. Deriving greater value
by optimizing mobile subscriber
acquisition costs (SAC) with a
focus on the devices offered, for
example, is far more complex than
sorting out offers of a limited
number of set-top boxes in the
fixed-line business.
Once a CVM program is imple-
mented, it typically yields an
improvement in EBITDA of at
least 3 percentage points, and in
some cases as much as 5 percentage
points (see Exhibit 2). And as the
exhibit makes clear, these results
are for targeted CVM customer
segments only. A holistic program
addressing all the possible levers
will likely yield significantly higher
returns.
6 Booz & Company
No matter which of the three target
areas the CVM program is aimed at,
development of the program should
begin with a thorough response to
several key questions regarding the
number and nature of the customers
to be considered as part of the project,
and the value considerations driving
the investment levels required to
deliver the desired results.
Customers:
What selection mechanism should
be used to qualify customers
and customer segments for each
campaign?
How many customers and customer
segments should be addressed by
the programs initiatives and cam-
paigns, and how often should they
be tapped?
How should the customers and
customer segments to be excluded
from various campaigns be deter-
mined? Might certain customers
whose loyalty is doubtful not yield
suffcient payback?
How do you distinguish between
loyal and disloyal groups of
customers?
What causes different customers to
become loyal or disloyal?
Value:
How much money should be
invested in each trigger area per
customer and segment in order to
boost ARPU?
How much money should be
invested in each customer in order
to yield a return within the custom-
ers life cycle?
How should the payback from
multiple investments in the same
customer be measured?
Can the program determine
whether the amounts invested in
each customer support the overall
objective, rather than simply lower-
ing ARPU?
How easily can customers lower
their costs by manipulating service
offers? Are there barriers in place to
minimize such losses?
THE INITIAL
ANALYSIS
Development of a CVM program
should begin with a thorough
response to several key questions
regarding the number and
nature of the customers to be
considered as part of the project.
7 Booz & Company
The goal of asking the initial ques-
tions discussed above is to set the
terms for the breadth and depth of
the overall CVM program. The pro-
grams benefts, however, will
be a function of the analysis itself,
as the following fve value levers
make clear.
Payback period: The time it takes
to restore a customer to proftabil-
ity given the subsidies provided for
the devices he or she chooses, and
the commissions paid to dealers to
attract and retain customers, has a
real effect on the bottom line. Thus,
determining the appropriate length
of time before payback begins is key.
Results will vary, but in one case,
the operator was able to save 15
percent of the cost of acquiring new
subscribers by avoiding payback
times longer than eight months.
Even cutting off the long tail of
payback periods beyond 12 months
resulted in substantial savings (see
Exhibit 3).
FIVE
LEVERS
Base Changes
Turnover
- Subsidy and
- Dealer commission
and incentives
- One-time credits
charge reductions
Trigger
Points
Upside Downside
- Subsidy and
replacement
- Dealer commission
and incentives
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
and migration fee
- Activation and
deactivation
- Top-up frequency
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
3.1
4.8
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EBITDA Improvement
(percentage points)
3%
5%
Latin American
Mobile Operator
(ARPU Increase)
European Operator
CVM Mobile
European
Fixed/Mobile
Operator Cross-
and Up-Selling Only
4.9*
European Operator
CVM Mobile
Millions of *
Payback (months) 5 10 15 20 25
Cutting off the payback period
at eight months yields greater
than 40 percent savings on
subscriber acquisition costs.
at 12 months yields greater
in Subheads
Guidelines:
100 % color
TABLE HEADINGS
A4 format:
Letter format:
Lines: 0,5 pt
Note:
file.
Market Segment
Electronic Products
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
online advertising.
Vodafone
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

*Note: The actual amount of savings depends on the size of the operator and its budget for acquiring new subscribers.
Exhibit 3
The Effect of Different Payback Periods on Proftability (An Example From One Company)
8 Booz & Company
In order to ensure that they get
the greatest return from this lever,
operators need to regularly review
the payback times of their custom-
ers, and work both to shorten them
and to rebalance new-customer cred-
its and the subsidies they provide
for devices. To do so, they need to
regularly test the price elasticity of
certain customers and customer seg-
ments with regard to subsidies and
credits. Dealer commissions, too,
have an effect on payback, so they
must be carefully set to ensure prof-
itability. The process of managing
the payback period must be strictly
governed, and the necessary payback
calculations must be included in the
business case for every segment.
Budget rebalancing: As noted earlier,
as operators refocus their atten-
tion from a concern with market
share to a concentration on their
existing customer base, they must
rebalance their budgets accordingly.
Too often, operators have made the
strategic shift yet kept their high
subscriber acquisition costs, and
they have made little effort to spend
similar sums on retaining existing
customers.
In highly competitive markets, the
ARPU of new customers is usually
lower than that of churners. This is
because the cost of acquiring new
customers is usually higher than the
cost of retaining customers, and new
customers typically have the latest,
most competitive tariffs. So in these
markets, where the churn rate is
increasing and the rate of gross adds
is declining, a rebalancing of the
budget is required. We recommend
testing customer reactions to various
fees and subsidies by running pilots
with small samples of customers in
the most important segments.
Tariff migration logic: When cus-
tomers want to upgrade or down-
grade their subscription plans, it
has long been common practice for
operators to allow them to migrate
at no cost to plans with higher
monthly fees, while either prohibit-
ing them from moving to plans with
lower monthly fees or charging them
for the change. This approach, how-
ever, is simply not proftable. Our
analysis shows that 50 percent of
customers who upgraded at no cost
actually generated less revenue than
customers who didnt upgrade.
If operators are to turn this situation
around, they must assess each indi-
vidual customers eligibility to move
to a different plan, by simulating
their ARPU under all the available
plans. At the same time, they must
ban all ARPU downgrades during a
fxed contract period.
Tailored customer rewards: Giving
out credits and other rewards to
entice customers to return or to stay
is a common practice among opera-
tors, and particularly among inde-
pendent dealers. Clearly, it is critical
to keep customers from receiving
double and even multiple rewards,
but doing so requires a holistic
understanding of each customers
past behavior and the implementa-
tion of strict rules governing who
can and cannot receive rewards,
and under what circumstances.
Dedicated campaigns must be imple-
mented for each individual customer
retention and win-back effort, which
must include the rules determining
when additional rewards are permit-
ted. The IT systems controlling these
campaigns must be able to track
double rewards in order to iden-
tify potential misusenot just by
customers but by dealers and agents
as well.
Cross- and up-selling campaigns:
Many operators approach the
process of cross- and up-selling to
existing customers by frst defn-
ing a campaign and then selecting
customers who appear to more or
less ft it. If such campaigns are to
9 Booz & Company
Exhibit 4
Cross-Selling and Up-Selling Campaigns Should Be Focused on the Customer, Not the Product or Device
Base Changes
Turnover
- Subsidy and
- Dealer commission
and incentives
- One-time credits
charge reductions
Trigger
Points
Upside Downside
- Subsidy and
replacement
- Dealer commission
and incentives
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
and migration fee
- Activation and
deactivation
- Top-up frequency
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
3.1
4.8
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EBITDA Improvement
(percentage points)
3%
5%
Latin American
Mobile Operator
(ARPU Increase)
European Operator
CVM Mobile
European
Fixed/Mobile
Operator Cross-
and Up-Selling Only
4.9*
European Operator
CVM Mobile
Millions of *
Criterion: Which customers will
buy offering with ARPU lift?
CUSTOMERS
CUSTOMERS
"New School" Campaign Approach,
Focused on Customers
"Old School" Campaign Approach,
Focused on Products and Devices
PRODUCTS AND DEVICES
Outbound & Inbound Calls
SMS Point of Service
E-Mail/Web Mailing
CUSTOMERS
Criterion: Which offering and channel
best fits individual customers?
Devices
SMS
E-Mail/Web
Mailing Point of Service
Device #1 Device #2 Device #3
in Subheads
Guidelines:
100 % color
TABLE HEADINGS
A4 format:
Letter format:
Lines: 0,5 pt
Note:
file.
Market Segment
Electronic Products
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
online advertising.
Vodafone
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

yield higher returns, operators must
defne a tailored offer for each indi-
vidual customer, based on his or her
individual affnities and value, that
includes several options, perhaps
from the frst to the third best. This
approach can improve the success
rate of such campaigns signifcantly
(see Exhibit 4).
In addition to ensuring that cam-
paigns are individualized, sev-
eral other key levers can further
boost the proftability of existing
customers:
Alignment of channel activities:
How many different touch points
do you have with customers, and
are they aligned with one another?
Optimization of customer con-
tacts: Are your contacts with cus-
tomers as productive as possible,
through every channel?
Improvement of product portfo-
lio: Are the products and services
you offer customers suffciently
appealing to attract and keep
them?
10 Booz & Company
The effort to launch and run a
competitive CVM program requires
a systematic approach that begins
with building the proper analytical
capabilities, and putting together a
team with the necessary expertise
and talent to ensure that it works.
Adjustments to both business
processes and IT systems will also
be necessary as the operator shifts
over to the new approach. Managing
CVM successfully will require that the
company budgeting and reporting are
focused more on what drives value
rather than on market-share numbers
such as gross adds or average ARPU.
Operators must also concentrate their
measurement and reporting efforts
on value drivers such as the value
of each retained customer and the
value lost when a customer churns
away. Finally, the entire company
must be converted to the new way
of doing business, through training,
a change management program, and
appropriate incentives (see Exhibit 5).
KEY
CAPABILITIES
Exhibit 5
Key Elements of a CVM Program
Base Changes
Turnover
- Subsidy and
- Dealer commission
and incentives
- One-time credits
charge reductions
Trigger
Points
Upside Downside
- Subsidy and
replacement
- Dealer commission
and incentives
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
and migration fee
- Activation and
deactivation
- Top-up frequency
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
3.1
4.8
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EBITDA Improvement
(percentage points)
3%
5%
Latin American
Mobile Operator
(ARPU Increase)
European Operator
CVM Mobile
European
Fixed/Mobile
Operator Cross-
and Up-Selling Only
4.9*
European Operator
CVM Mobile
Millions of *
CUSTOMERS
CUSTOMERS
New School Customer-Focused
Campaign Approach
Old School Product-Focused
Campaign Approach
DEVICES
E-Mail/Web Mailing
CUSTOMER
Devices
SMS
E-Mail/Web
Systems
Budgeting/
KPI Dashboard
Behavioral
Change
CUSTOMER
VALUE
MANAGEMENT
Training
People &
Know-How
Incentive &
Performance
Management
Data
Analysis
Capabilities
in Subheads
Guidelines:
100 % color
TABLE HEADINGS
A4 format:
Letter format:
Lines: 0,5 pt
Note:
file.
Market Segment
Electronic Products
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
online advertising.
Vodafone
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

11 Booz & Company
When operators are implementing
this core capability, our experience
shows that a three-phase approach
is most effcient (see Exhibit 6,
page 12).
Analysis: Before performing any
analysis, it is critical to make sure
that the applicable data is structured
in such a way that it can be easily
analyzed in all relevant dimensions.
In conducting the analysis itself, the
initial hypothesis and how the data
will be cut must be defned, whether
it be channel split, tariff breakdown,
customer segmentation, or another
form. Once these are defned, the
system must be able to extract the
necessary data from various sources,
including the data warehouse, billing
systems, and data marts, and then
segregated in a data cube for fnal
analysis and interpretation of the
results. All of these steps are highly
interdependent, and the entire
process requires multiple iterations
to ensure that the data is consistent,
stable, and accurate.
Pilots and implementation: Using
the results of the analysis, the
CVM team must defne the CVM
improvement measures to be applied
company-wide, all of which must
be fully quantifed and understood
in relation to the possible losses the
CVM measures might generate. Pilot
programs should be conducted in
order to test hypotheses and readjust
as necessary, before implementing
the measures company-wide.
These pilots should aim for quick
wins to validate the system before
implementing the full-fedged
solution.
Institutionalization: As soon as
all the above elements are in place,
three more steps should be taken.
A training program must be set up
to ensure that all those using the
new system understand its goals
and operating details, a change
management program must be
implemented in order to cement the
cultural changes necessary, and an
incentive program must be designed
that matches incentives more closely
to the value-driven goals of CVM.
PROGRAM
APPROACH
12 Booz & Company
Exhibit 6
Creating a CVM Program: Three Stages
Base Changes
Turnover
- Subsidy and
- Dealer commission
and incentives
- One-time credits
charge reductions
Trigger
Points
Upside Downside
- Subsidy and
replacement
- Dealer commission
and incentives
monthly recurring
charge reductions
- Commitment logic
- Rotational churn
and migration fee
- Activation and
deactivation
- Top-up frequency
- Collections
- Subscriber
acquisition
costs
- Number of
new customers
- Value
- Subscriber
retention costs
- Number of
lost customers
- Value
- Positive and
negative
transactions
- Number of
retained
customers
- Value
3.1
4.8
3.0
3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
EBITDA Improvement
(percentage points)
3%
5%
Latin American
Mobile Operator
(ARPU Increase)
European Operator
CVM Mobile
European
Fixed/Mobile
Operator Cross-
and Up-Selling Only
4.9*
European Operator
CVM Mobile
Millions of *
CUSTOMERS
CUSTOMERS
New School Customer-Focused
Campaign Approach
Old School Product-Focused
Campaign Approach
DEVICES
E-Mail/Web Mailing
CUSTOMER
Devices
SMS
E-Mail/Web
PHASE 1 - ANALYSIS PHASE 2 PILOTS & IMPLEMENTATION
PHASE 3 INSTITUTIONALIZATION
Systems
Budgeting/
KPI Dashboard
Behavioral
Change
CUSTOMER
VALUE
MANAGEMENT
Training
People &
Know-How
Incentive &
Performance
Management
Data
Analysis
Capabilities
Interpret analysis
and define
measures
Test
measures
by pilots
Implement
in Subheads
Guidelines:
100 % color
TABLE HEADINGS
A4 format:
Letter format:
Lines: 0,5 pt
Note:
file.
Market Segment
Electronic Products
Network Operations
Intermediation
Media & Content
Line Weights:
0,5 pt
0,75 pt
1 pt
Arrows:
Line Textures:
solid
dashed
dotted
Description
online advertising.
Vodafone
EV/Revenues Ratio
1.1
0.7
35%
43%
10%
14%
32%
18%
15%
12%
7%
Player Revenues
2%
Enterprise Value
8%
5%
Network Operations
Intermediation
100%
Media & Content
Electronic Products
1.9
1.6
3.8
1.6
(BILLIONS OF US$)
+8.1%
+11%
-3% +8%
Media & Content
Intermediation
Network Operations
Electronic Products
FY11
5,851
364
(6.2%)
122
(2.1%) 1,904
(32.5%)
997
(17.0%)
1,429
(24.4%)
1,035
(17.7%)
FY10
5,411
318
100
1,740
935
1,285
1,033
FY09
4,873
308
85
1,638
891
1,142
808
FY08
5,031
322
84
1,621
859
1,295
850
FY07
4,664
285
75
1,515
762
1,198
830
CAGR
0711
5.8%
Absolute
Difference
1,187
205
79
5.7%
6.3%
4.5%
389 5.9%
47 13.1%
235 6.9%
232
Growth
1011
8.1%
0.2%
14.4%
9.4%
22.6%
6.7%
11.2%

Define Hypotheses
Develop Data Cube
Define Data Request
Iterations
Extract Data Perform Analysis
Transactional Systems
Internal Reports
Data Marts Data Warehouse
1 4
2
3 5
13 Booz & Company
A complete CVM system has
many advantages. It can provide
an in-depth understanding of the
behavior and needs of customers
based on a carefully tailored
analysis of each individual. This
in turn enables operators to use
clearly defned, executable value
improvement levers that can deliver
short-term, measurable results,
and ultimately offer a way to
consistently improve value and
proftability under changing market
circumstances.
Given the increasing saturation of
markets in the developed world,
the rising pressure to retain existing
customers, and the need to improve
contributions to the bottom line,
every operator should view CVM as
more than a nice addition to their
analytical skills. It can be
a true competitive capability in
the race to increase profts in the
years ahead.
CONCLUSION
About the Authors
Martin Reitenspiess is a partner with
Booz & Company based in Munich. He
specializes in strategy, marketing, and
technology in the telecommunications
industry.
Jos Antonio Tortosa is a partner with
Booz & Company based in Madrid. He
specializes in strategy, sales, and marketing
in the telecommunications industry.
Jess de la Herrn is a principal with
Booz & Company based in Madrid.
He specializes in pricing and customer
analytics in the telecommunications
industry.
Andreas Putz is a principal with
Booz & Company based in Vienna.
He specializes in customer value
management, sales, and marketing in the
telecommunications industry.
Booz & Company is a leading global management
consulting frm focused on serving and shaping the
senior agenda of the worlds leading institutions.
Our founder, Edwin Booz, launched the profession
when he established the frst management consulting
frm in Chicago in 1914. Today, we operate globally
with more than 3,000 people in 58 offces around
the world.
We believe passionately that essential advantage lies
within and that a few differentiating capabilities
drive any organizations identity and success. We
work with our clients to discover and build those
capabilities that give them the right to win their
chosen markets.
We are a frm of practical strategists known for our
functional expertise, industry foresight, and sleeves
rolled up approach to working with our clients.
To learn more about Booz & Company or to access
its thought leadership, visit booz.com. Our award-
winning management magazine, strategy+business,
is available at strategy-business.com.
The most recent
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and affliates, with
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2012 Booz & Company Inc.

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