Telecom service providers in the United States face a sea of troubles. In wireless, the days of double-digit market growth are over, leaving competitors to fight for one another’s customers. In wireline, real revenues for local and long-distance calls are falling while competition from new entrants is taking market share from incumbents. Cable operators are suffering from weak balance sheets, tough competition from direct-broadcast-satellite services, and sharply rising programming costs. Not surprisingly, share prices in the sector have tumbled from their highs in 2000, but even today’s depressed prices are hard to justify without much-improved margins.
Unfortunately, most industry CEOs are focusing on margin-improving techniques that are either hard to pull off (such as consolidation and truly differentiated products) or difficult to convert into a sustainable advantage (such as cost reductions). But the service providers have so far underappreciated an alternative: maximizing their new and existing customers’ lifetime value.
The value of this approach, known as customer lifetime management (CLM), has been proved by several leading financial-services players.1 CLM involves capturing and analyzing data about customers for the purpose of marketing to and serving them on the basis of the value they are expected to create during their...