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How would you like to have the job of being a product manager at a wireless service provider? Admittedly, it would be an exciting job. Wireless services bring in a great deal of money so there would be no questions about your product being a success, the real question would be what could you do to your product development definition to make it more of a success? Over at AT&T wireless the product managers appear to be successful because they are adding more and more customers. However, are they really going about this in the right way?
All New Customers Are Not The Same
In the world of wireless service providers, it’s all about having the most subscribers. Since this business is a subscription business, once you get a customer, you’ll get a check from them each month for as long as they stay with you. In the wireless business, pretty much everyone has a wireless phone by now so if you are going to get a new customer that means that you are going to have to take them away from you competition. Get good at doing this and you’ll have something else that you can add to your product manager resume.
The AT&T product managers have been doing a pretty good job of getting new customers. They believe that they are on track to add 800,000 of the most valuable type of customers: post-paid. In the world of wireless there are two primary types of customers: pre-paid and post-paid. Pre-paid are those customers who give the wireless provider cash and then proceed to spend it until it’s all gone and their service gets put on hold until they pay more money. The post-paid customers use the service for a month and are then presented with a bill that they pay. Post-paid customers are more valuable because they spend more and are less price sensitive.
AT&T’s product managers are locked in a fierce battle with T-Mobile. T-Mobile has been offering to pay termination fees and dropping international data roaming fees. This has caused existing AT&T customers to switch over to T-Mobile. Clearly bringing more customers back to AT&T is a critical goal for its product managers.
What Long Term Customer Value Really Means
The problem with how the AT&T wireless product managers are going about adding new customers has to do with something that is called “long-term customer value”. In the world of wireless, it turns out that your best customers join up for what is called a subsidized plan. Under this plan, customers get fancy phones for either free or very low prices. The company picks up the additional cost of the phones and then makes it back in the form of higher monthly rates for the service.
AT&T’s product manager’s current problem is that a lot of the new customers that they are picking up are ones in which they decide to pay for their phones upfront or pay for them in installments instead of opting for the subsidized plans.. When they do this, they get lower monthly rates and faster access to future phone upgrades.
It turns out that this is a big deal. What it means for AT&T is that their future value for each of the new customers that they are picking up today is lower than what it used to be. The lifetime value of a customer goes down when they pick a non-subsidy plan. What the AT&T product managers need to do is to stop focusing on the number of new customers that they’ve been able to attract and start focusing on the type of new customers that they can acquire. More valuable customers are always better!
What All Of This Means For You
As product managers we are always looking for ways to measure how successful our product is. In the world of wireless service providers, the product manager job description for product managers tells them to measure their success by the number of new customers they have been able to steal away from the competition. However, perhaps this is the wrong measure to be using.
All wireless customers are not created the same. Some are more valuable than others. Post-paid customers who sign up for a subsidized plan have a greater lifetime value to AT&T than customers who purchase their phone and signup for a lower rate plan. The AT&T product managers need to find a way to get more of the high value customers to sign up.
The lifetime value of each of our customers is something that we need to take a careful look at. It may turn out that our efforts to get anyone and everyone to purchase our product is not the right thing for us to be doing. Instead, we should be focusing our efforts on attracting the right kind of customers. Take the time to know who you best customers are and you can make your product even more successful.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: Do you think that product managers should work to convert low value customers into high value customers?
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What We’ll Be Talking About Next Time
I must confess that I’m not that much into women’s handbags; however, even I recognize what brands are the most desirable in this category. Prada has always been in the lead. What woman wouldn’t kill for this season’s Prada bag? This is just the way that it’s always been. However, lately even the Prada product managers have run into some problems. Can they recover from their stumble?