To commodity hell and back

Providing products or services that are commodities, meaning things that used to be premium but are no more, is a tricky thing. There once was a company that spent a lot of time thinking about how to stay away from “commodity hell” as they put it. This company offered the same service as many others did. They had no obvious competitive benefits in delivery, sometimes delivering both at a lower standard and at a higher fee than direct competitors. That’s a very challenging spot to be in and certain to put you out of business eventually.

Looking at the mobile operator industry in mature markets today one finds a similarity: they in fact offer a commodity too. A mobile operator’s service is something that people use every day but do not care much about it except when it stops working and when the bill arrives. Telecom operators have become utility companies and offer a service that most people find essential but uninteresting, just like a water or electricity company. There are two reasons this is bad news for operators.

First, offering a commodity means that you’ll have a hard time making people pay premium fees – because there is no premium in the service itself when there are others offering the same thing. Like electricity or consumer banking services. That’s exactly why someone invented the notion of “commodity hell”: once something has become a commodity there is no going back.

Second, offering a commodity also means that customers do not care much who delivers it – because the product or service looks just the same. Electricity isn’t differentiated between suppliers; as long as the bulb lights up when you flicker the switch you’re good. Most mobile operator customers reason the same way: if you can make a call from where you are and browse the web at reasonably high speeds you’re good. Today all operators can make that happen. That means there are few reasons for a customer to stick to their current operator if someone else offers the same thing but at a lower price. The perceived value comes from the device or from services, content and applications not provided by the operators. Customers are therefore not very loyal or engaged which means that they are easily lost to competitors.

Most operators are nevertheless doing financially well because of their oligopoly-like situation (which we covered in the November 2011 blog post “It’s not all in the network”) and because voice and SMS still contributes so much to the overall profit. In their frantic search for new service pricing models, operators should also consider the customer experience. Customer experience is all the things surrounding the service delivery before, during and after sales. That includes things like personalized offers, excellent online self-service, friendly staff and other aspects that make people feel “wow, great service”. Think Starbucks, where people pay more and queue longer to be able to say “wow, great coffee”.

Being “customer centric”, as many claim to be, isn’t the same thing as providing great overall customer experience. Nor is it equal to the quality of the network itself. Customer experience is the sum of the interactions that a customer has with the company and requires a multi-level, cross-functional approach to be fulfilled. In addition to a good network it involves IT, sales, customer service, product development and essentially anyone that ever provides the end-customer with anything.

The beginning to the solution for operators is to acknowledge the importance of customer experience and dedicate resources to it. Like airline Virgin Atlantic – also in a commodity industry – where CEO Steve Ridgway announced that £100 millions will be invested to “retain and enhance […] leadership in customer service and experience”. I’m intrigued to see who the first telecom operator to announce a similar program in 2012 will be.

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It’s not all in the network

I recently attended a seminar where the research agency Swedish Quality Index (EPSI Rating) presented their customer satisfaction results from the telecom industry. The Quality Index is based on surveys with some 10,000 people rating individual and business consumer expectations and outcomes for Swedish operators, fixed and mobile. Results presented pointed to a major gap [...]
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