Monday, March 10, 2008

Righting the Wrong-Sizer

In order to fix this problem the company has to do some hard thinking about what kind of company they want to be and what kind of customers they want to have. Other things being equal companies want the customers to pay more for goods and services and the customers want to pay less; on the other hand companies want to attract customers and customers are willing to pay for goods and services they want. This means that in order to maximize the total return there is a real tension between maximizing the price (to get as much as possible from each customer) and minimizing the price (to attract customers and make sure they stay). How to resolve that tension is by no means trivial. One option is to assume that “our customers are stupid people and won't care that their bill just went up” but I don't think that's a good long-term strategy.

Ideally we want to find services that are cheap for the company but that customers like a lot. Standard customer surveys will just give us average tendencies when what we care about the preferences of each individual customer. Fortunately we have an excellent source of that customer's preferences: the rate plan they are on. Let's assume that the customers are in fact decently smart and are using roughly the best rate plan for them, but they might need some help fine tuning their plan.

Take the customer rate plans and divide them up into families. When a customer calls up, look at their actual usage and calculate their monthly bill in the different rate plans in their families. If a customer can save money by switching rate plans, move them but keeping them in their rate plan family. This method makes sure the customer is getting a good deal and sticking within their known preferences, and the company is still maintaining a profitable relationship with the customer.

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