Customer-specific: The art and science behind Amdocs’ market segmentation

Customer-specific: The art and science behind Amdocs’ market segmentation

Tim McElligott

Byline: Tim McElligott

Though better suited for a local pizza parlor than a global software provider, the slogan, “Amdocs delivers,” is nonetheless a succinct explanation for the St. Louis-based company’s success. It isn’t always pretty, analysts say, but when Amdocs gets in a bind, it somehow always pulls itself through.

It is that stick-to-itiveness as much as the company’s new focus on market segmentation that may help Amdocs help its customers out of the bind they find themselves in today. You already know about the bind: high operational expenses, too many low-margin customers, the outrageous cost of customer acquisition, high churn rates about to go higher, anorexic marketing and advertising budgets, ill-fitting bundled services and, of course, interminably long time-to-market intervals.

Last month, at his company’s user group conference in Miami, Amdocs CEO Dov Baharav promised his customers he would help lead the way. He stressed Amdocs’ commitment to operational excellence, its renewed commitment to partnering, a more generous lending of its ear to customers and their needs, enhanced training, better integration, an adherence to quality that will bring his company into full capability maturity model compliance in North America in 2004, and its ability to provide a road map for the future.

“The market will look different in three to five years, and we are committed to bringing you the products that will help you target that market,” Baharav told customers.

The challenge of targeting the right market segments with the right products at the right time and at the right price for both Amdocs and its customers will fall to Wayne Purboo, vice president of research and development at Amdocs and leader of the company’s Strategic Vision Group.

The SVG does primary market research not just on OSS, but also on general business and technology trends. Its research is used internally for product development and strategic direction and externally to help current and potential customers better understand the markets they are trying to address. It comprises only eight people, but carries the weight of the company’s future on its shoulders. “The group is a key element for us to support customers because segmentation is not just a strategy, it is their strategy,” Purboo said.

Purboo’s team, together with Ovum, a U.K.-based research firm, shared the results of a recent market segmentation study at last month’s user group meeting. Purboo said the study is the first of many designed to help Amdocs and its customers develop more targeted solutions and make better business decisions.

Because of its global presence and its place in the customer management space among a variety of carriers and operators, Purboo and company is uniquely qualified to help their customers better understand the market. “We are not a third party looking in at the industry; we are the industry, so we can offer a different perspective [from independent research firms],” Purboo said.

With penetration beginning to peak globally, Purboo’s goal is to help operators focus not on customer acquisition, but on a greater share of their customers’ wallets. “The concept of treating a customer like a 10-digit number is going away,” he said. “When you look at telecom consumers, it really boils down to market segments and understanding that they tend to buy things in certain ways.”

Segmentation is a given in most industries, and it is crucial for communications companies to get it right, said Michael Doherty, vice president of the telecoms practice for Ovum.

The study identified the ways wireless service providers segment their markets today and suggested ways of better matching a service to a user.

Amdocs and Ovum surveyed nine operators in Europe, North America and the Asia-Pacific region over a six-month period. They identified four basic consumer market segments: demographic, which contains the usual categories including age, sex, family size, income, occupation, education, religion, race and nationality; geographic, which includes regional, citywide and climate distinctions; psychographics, which includes social class, lifestyle and personality; and behavioral, which looks at loyalty status, attitude toward a product, benefits and usage.

Despite significant geographic segmentation, the study found that 63% of operators segmented on a national basis while only 13% broke it down into regional segments. Almost all, 89%, said they plan to increase spending on customer segmentation.

Doherty said domestic operators are trying to get away from their one-size-fits-all approach. “Gone are the days when an operator can go after corporate road warriors, 15-year-olds and the Hispanic segment all at once,” he said.

Martha Rogers, founder of Peppers & Rogers Consulting, said segmentation is part of building a relationship with individual customers that over time allows a provider to know something about a customer that its competition doesn’t. With this information a provider can adjust its approach to those customers.

“Traditional marketing was to go out and find customers for a product and to win market share,” Rogers said. “But now, instead of focusing on a product, companies need to focus on the customer and find products for them.”

In other words, said Doherty, “If I know who you are and what rings your bell, I can find a way to get it to you.”

Current segmentation practices around the world differ greatly. From the fairly homogenous demographics of the 33 million users in South Korea to the diverse regional, cultural and economic customer base of North America’s 133 million, segmentation provides a more personal look into not only what group a customer belongs to, but how that customer behaves.

One operator – excelcom of Jakarta, Indonesia (an Amdocs customer) – warned of the dangers of relying on traditional demographics, which puts customers in a box rather than focusing on individual customer behavior. “You don’t want to write off a low [average revenue per user] customer when segmentation shows he will be a high-ARPU user after he graduates,” said Werner Noz, director of network operations at excelcom.

The ultimate goal is to match the service with the user, but taking segmentation too far can be counterproductive. “You have to be careful not to segment too much, or it will descend into chaos,” Noz said. His company settled on seven different segments ranging from those users who track their usage and load up on the last day of a pay period to the lucky few 13- to 18-year-olds with rich parents who are simply mad for SMS.

Noz also said he and his company knew that proper segmentation was the answer for increasing the average revenue per user, but until its implementation of Amdocs’ Clarify solution recently it meant nothing because their systems would not let them do anything customer-specific with the data. “If you have an ARPU of $9 per customer and that customer calls into the call center one time, there goes your ARPU, so you have to be able change the customer’s behavior,” he said.

One U.S. operator that participated in the survey had more than 45 different segmentation schemes before ultimately narrowing it to three based on traditional demographics, customer value and needs-based attitudinal analysis.

Judging attitude and customer behavior can be done only through a data collection that can be both unintuitive and sporadic. Often, that requires the customers’ cooperation and leads to operators resorting to incentives to get customers to share their opinions, habits and experiences. “Therefore, segmentation is a long-term commitment, you can’t just do it for a short time and stop,” Doherty said.

Because of that long-term commitment, the logistics of gathering behavior data, the resources to make sense of it and the need to weigh that knowledge against developing business trends, Amdocs is applying the resources of its Strategic Vision Group to help operators reap the benefits of segmentation.

The company is focusing on wireless data because it offers the greatest variety of services and devices and consequently a better opportunity for identifying preferences and behavior and designing solutions around it. “We have to stay 18 to 24 months ahead of our customers because that’s generally how long it takes to build a product,” Purboo said.

Although the outlook for wireless data in North America remains bleak, the segmentation strategy is still sound, said Rob Rich, executive vice president at The Yankee Group. “One of the keys to success is targeting key segments. It is a step forward in focusing on the customer,” Rich said.

A separate study by The Yankee Group released in August identified three dominant categories of segmentation used by European mobile network operators: a classic model that distinguishes between prepaid and postpaid consumers and business customers; a value-based model that segments customers according to the value they represent, generally measured by ARPU; and the behavioral model, which segments customers by their traits over time and is used primarily with mobile data users.

The behavioral model, which Amdocs is developing, is the most complex and the most customer-focused. “Amdocs is a company that enables what we have been preaching for 10 years: building better relationships with our customers,” consultant Rogers said.

The focus on segmentation also seems to have affected how Amdocs treats its own customers by changing the way it approaches product development. “We are trying to be easy to do business with – we are not famous for that,” Baharav told customers at the meeting. “Now, there will be no decisions on the development of products without discussing it with our customers.”

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