Churn and the Future of Loyalty with Jay Cary and Dave Whetstone

Full Transcript

Don Kellogg 0m10s

Hello all, and welcome to the two hundred and ninety first episode of the Week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Brett Clark, with us as always is Roger Etner. How's it going, Roger?

Roger Entner 0m23s

It's a great day today.

Don Kellogg 0m25s

Good to hear. And this week we have two guests, Jay Carey, the CEO of TLC Worldwide, and Dave Whetstone, the CEO of Connect Studio. Jay and Dave, welcome to the podcast.

Guest Speaker 0m35s

Thanks for having us.

Roger Entner 0m36s

Glad to be here. Hey, it's really awesome to have you, Jay and Dave. You know, I met you both. Jay, you were at AT&T. Dave, you were at Verizon.

Roger Entner 0m46s

Thank you for making it on the show. So let me ask you a question. And I think you have a particularly great perspective on this now that you are out of the carriers, but you're still in the ecosphere. The providers are spending billions of dollars on networks, loyalty plans, yet we have persistent churn. Actually, churn is going up.

Roger Entner 1m8s

Where's the disconnect?

Guest Speaker 1m10s

If it's okay, I'll jump in on that. And that's kind of the irony, right? Is I think if I'm a telco, I've done what I've always done. I've built really great networks and I think they are really great, right? Their coverage is better than it's ever been.

Guest Speaker 1m22s

Reliability is high. Speed is amazing. Having been on the other side of that, that investment was very material, like $150,000,000,000 I think on five gs across The US alone. And then the problem the other chuckers had is once one of them moved, you kind of all had to remain competitive. But I think there was a point and we crossed that point in my mind when five gs launched, where all the networks were kind of good enough.

Guest Speaker 1m45s

You've crossed that threshold, right? And so I think the network stopped becoming the reason why people stayed with a carrier. Maybe it's a reason why I didn't need to leave now, but it wasn't what it used to be. And I think what happened is customers also kind of shifted in that. Their minds changed.

Guest Speaker 2m1s

They weren't making decisions on bars and download speeds. And I think they were more kind of where the credit cards are, right? How does this brand make me feel? Does that brand value my business? Do I trust them?

Guest Speaker 2m12s

Do I feel like they're investing back into me? I felt like maybe telcos aren't as well prepared as that. They're really great at building networks. They're maybe not from such a marketing kind of background of mindset. And therefore the investment dollars haven't always followed, right?

Guest Speaker 2m28s

You've invested billions in network, you've invested in acquisition, your billions, billions and billions and billions go into device motions, right? Because they really care about the new. You've called that the loyalty penalty in the past, Roger, on one of your previous podcasts. I think it's true, right? It's like, you're valuing new more than existing.

Roger Entner 2m47s

Yeah, and by the way, there are two things in our data that's really, really interesting. And one is, you know, we ask people reasons for leaving. Yeah. And dropped calls has dropped from one of the top reasons over the last three years to one of the least important reasons. Which means to me, dropped calls is no longer a problem.

Roger Entner 3m8s

The other one is a lot of the loyalty plans are actually not loyalty plans, the way they're constructed. They're customer acquisition tools, right?

Guest Speaker 3m16s

Yeah, you see that a lot, right? Whether it's sports sponsorships or kind of network guarantees or whatever it happens to be, it feels a lot more about attracting than it is about kind of trying to really promote loyalty. Loyalty is a difficult word, right? Because it's not really a program like it kind of is dressed up to be in many places. It's really a feeling you get when you have a really great experience with a brand.

Guest Speaker 3m40s

And to me, what you're trying to seek to do as a telco is build up that trust, that attachment to the brand such that things are going go wrong in the relationship, right? I'm going to have a service issue that drags on or telcos are going to have to increase prices at some point. And so have I built enough equity with you as a customer though? Do you feel like I've invested enough in that relationship that you allow me to make those mistakes in the relationship? What's really interesting to me and something I kind of believe quite strongly is that you do get this kind of slow erosion of trust as you go through a relationship, right?

Guest Speaker 4m14s

And then you start to see that the customer starts to disconnect, kind of emotionally disconnect from the brand. And there's this window that I think is underserved and under, there's a lack of focus on that is when someone starts feeling disengaged, they haven't made the decision to leave, that's what a good loyalty kind of initiative should be aiming at. And I just don't even think that many telcos are really kind of watching.

Roger Entner 4m36s

Yeah, and one of the things we're looking at is, for example, Comcast created a loyalty plan that got better over time and the more you spend, which is different to like T Mobile. Yeah. And we're watching very closely of what works better for what. Do both work for different cases because they're built for different cases. So if the current model fails, how does a better model look like in practice?

Guest Speaker 5m1s

For me, it starts with kind of a mindset shift, right? I think you need to get, in my mind, your head around the fact that network isn't the only answer. Has to be great, right? But it already is, as we talked about. Price can't be the kind of answer.

Guest Speaker 5m13s

I think you need to look at the customer life cycle. You need to look at the things that happen in the life of a customer and there are certain moments that will disproportionately influence whether that customer decides to stay or whether they choose to go when something goes wrong, right? So therefore, I think you need to design programs and initiatives around those moments, whether it's an upgrade cycle, a bill change, a service event of some kind, and you need to get to the customer both proactively and reactively before and while they feel frustrated. You kind of avoid that term risk. Timo, a great example, right, of where they didn't do the layering and the tiering or the kind of over time it gets better, but you did get a degree of consistency and it wasn't always massive thing, right?

Guest Speaker 5m57s

A free pizza or a discount of free slushie or a coffee or something that was relatively minor, but customers knew it was coming on a Tuesday, right? At predictability builds habit. I'm going to keep giving back to you in the context of Un carrier, which I think a genius move, frankly. Now they've lost their way a bit lately. They've wobbled.

Guest Speaker 6m16s

The churn has gone up. I think 1.3% nearly at the end of Q4, so pretty high. But that's almost the lesson, right? Is the counter argument to that is like keep the consistency, keep giving back, don't kind of change your model. And I do think they kind of broke trust a little bit, but I felt like they were in a really good place before they started doing that.

Roger Entner 6m35s

Yeah, our friend Ronan Dunn, used to run Verizon Consumer, and before that was running O2 in The UK, likes to point out that he actually came up with that idea when he was in The UK. Yeah. I haven't asked him, but maybe I should. Well, if it was such a great idea in The UK, why didn't you bring it to The US with Verizon?

Guest Speaker 6m57s

Yes.

Roger Entner 6m57s

And Ronan is a great guy, I love Ronan. What's really interesting with T Mobile is also trying to do there is to change the mindset from, oh, the only time I'm interacting with T Mobile is when I have a problem, right? It's like going to the dentist. Whereas they want the consumer now to interact with their brand when they get something positive, so that you have warm vibes when you go to the T Mobile app or the T Life app, especially now that they're pushing all the upgrades into this as well. So it's a very, very interesting exercise in trying to change people's mindsets, changing the feeling that they have about interacting with the brand, and then also push a lot of the cost savings through it that allowed them with the switching made easy and all the other things.

Guest Speaker 7m50s

Yeah. There's also something to be said for just thanking people for being a customer, right? Like if you feel like your operator only reaches out when they're trying to sell something to you, that's not really a warm relationship with your carrier. And so the rewards programs can give you opportunities as an operator to just thank people for being subscribers, which then inherently makes them feel better about the brand and the relationship.

Roger Entner 8m15s

Yeah, and especially if the other brands are paying for it, right? There may be a few of them where T Mobile is actually footing the bill, but the DoorDash is on DoorDash, right? The free gas for Hertz is on Hertz. And the free Frosty is on Wendy's. It's not on T Mobile.

Roger Entner 8m32s

That's actually the genius in this thing. But coming back to the loyalty plan, so how do you make the business case that investing in loyalty infrastructure is worth it, especially when it moves relatively slowly? You can directly draw the line if this is an acquisition model, because do you get more people in the door or not? Loyalty is ultimately a lot more powerful because it affects your 5,100,000,000 customers and a 0.01% change in churn is a material number, but it's slow moving.

Guest Speaker 9m9s

Yeah, completely. And I face this, I mean, having spent ten years in a telco, right, it's like, it is much better if you do something on a Friday and you see the result on a Monday, which you can sometimes see in acquisition, right? And that isn't loyalty, but you said it, Roger, and you've also said that churn is going up, right? And I think to the degree of about 10 basis points year on year for most of the big carriers, it's not immaterial. That's 700,000 lost customers a year if I'm looking at one of the bigger three, right?

Guest Speaker 9m36s

And what's an LTV? $6,000 maybe on a telco, that's over $4,000,000,000 of lost LTV value from that. So you've got a lot of money to kind of play with if you can get the equation right. And that's even before you kind of look at what you spent to acquire them, which don't I know what it is now, it's gotta be above a thousand dollars to acquire a new customer with some of the device deals.

Roger Entner 9m55s

700 or so. Not everybody gets the top of the line iPhone.

Guest Speaker 10m0s

Yeah, that's a lot of money.

Roger Entner 10m2s

It's still a massive number. Yeah. When I got into the industry, it was like $200

Guest Speaker 10m8s

Yeah.

Roger Entner 10m8s

And people were like freaking out. When they took away the CPGA metric, that was so that they didn't scare investors anymore.

Guest Speaker 10m16s

Right, right.

Roger Entner 10m17s

Not to protect the innocent.

Guest Speaker 10m19s

But that's a lot of money, right, you got to play with. So should you not be focused on, you know, the revolving door, right, closing that door where I'm like spending a lot on bringing people in, but instead I should be spending on saving them and closing that door?

Roger Entner 10m32s

Yeah, and it's because they raised prices on people, right? Yeah, yeah. And then they have now the two out of the three carriers have a price lock. I always say like, these things are like warning signs. Every warning sign comes with a story behind it.

Roger Entner 10m47s

And when you see a traffic sign that says don't feed the crocodile, guess what? Somebody fed the crocodile. In the same way here, there's a five year price lock. Well, I guess somebody raised prices and bad things happened, like churn went up. So Dave, you built Visible inside Verizon.

Roger Entner 11m6s

So how was that journey? How do you see how all this involves both the network operators, their fighter brands, the MVNOs, and how does that impact choice? Because sometimes I feel like especially the smaller MVNOs are becoming fewer and fewer.

Guest Speaker 11m24s

Right, I mean, I think the good MVNOs really have a differentiated value proposition and something unique. And if you look at NPS scores of some of the successful MVNOs, they're much higher than the MNOs. And honestly, should be because they're all about focusing on the needs of a specific customer, whereas an MNO, you have to serve a broad array of different types of customers. They should have higher NPS scores as successful MVNOs. Unfortunately, too many people are getting into the MVNO world thinking that they can just come out with a price based value proposition.

Guest Speaker 11m58s

And that just really is not a recipe for success. You're buying airtime at wholesale rates or data at wholesale rates. You really can't play in the price game successfully over the long term. But I think if you're successful and you can really focus on the needs of a specific segment, that's where the opportunities are. I think those are the successful MVNOs.

Guest Speaker 12m19s

Visible was created out of a desire to serve the value seeking customer. Verizon was a premium brand. If you look at the industry at that time, everybody except Verizon had a brand to play in the value segment. Metro, Cricket, in the case of Sprint, was Virgin Mobile and Boost. And Verizon didn't have anything there.

Guest Speaker 12m38s

So our goal was to really figure out how do we play in the value segment. And there wasn't really a model for a digital operator at that point, but when we saw eSIM and the fact that you could now complete the entire purchase journey via a digital channel, we thought that's gonna be the future and we wanna build for that. And part of the effort there was also what lessons can we learn from a pure digital carrier that could apply more broadly to the mothership?

Roger Entner 13m5s

And Visible has been, well, sometimes I derided them as being invisible because they should be a lot more successful because it's such an amazing value proposition. They have in our data, the third highest NPS, Net Promoter Score, after consumer, cellular and mobile. So they're doing a lot of things right. It's like, man, they should be a lot more successful.

Guest Speaker 13m35s

Well, I agree with that. If I were running marketing there, there are probably a few things I'd be doing differently about what they're doing. I think they've really missed the whole acquisition side of things. They sort of ran a traditional carrier playbook, advertising in airports and out of home and things like that. And really, I think still have some room for improvement in how they're doing their digital market.

Roger Entner 13m57s

Yeah. If you're a non traditional brand, you shouldn't run a traditional playbook, right?

Guest Speaker 14m2s

Totally, yes. And we kind of

Roger Entner 14m4s

see this with Mint too. Before the close, when Aaron North, also a good friend, was the commercial owner of Mint. Oh my god, they kicked butt and took names and signed them all up. And since they joined the T Mobile mothership, they slowed down dramatically. But if we look at this, both Dave and Jay, you both ran retention at telcos.

Roger Entner 14m28s

What's that one thing that they should do now?

Guest Speaker 14m31s

I'd say don't play the sea of sameness game, right? Everyone's got basically the same network and the same pricing, so be different. And then what I would say is, if you are directly monetizing loyalty, that's more about you than it is about the customer, make it about the customer.

Guest Speaker 14m46s

For me, I would say start a conversation with your customers. Let me explain what I mean by that. You know, carriers, when they do CRM, they blast out text messages, they send emails, they've got very low open rates, they've got high opt out rates. And I think RCS has been rolled out by all the carriers now. Many of them are thinking about it really just as a richer form of SMS.

Guest Speaker 15m10s

The way I look at it is RCS plus Gen AI really open up a conversational interface with customers, And why not take advantage of that to better understand who your customers are, what they need, and deliver products and services that are more tailored around what they want? That would be the thing I'd be focused on, and that can feed into the rewards program. If I know more about you, I can deliver more tailored rewards offers to you as well.

Roger Entner 15m38s

Well, Jay, Dave, this was awesome. Thank you for coming on the show. This was terrific.

Guest Speaker 15m44s

Yeah, thanks for having us. It was great.

Guest Speaker 15m46s

Thanks for having us.

Don Kellogg 15m47s

All right, fantastic. Thank you again, Jay and Dave, for the great conversation, and thank you all for listening.