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Do We Already Know Whether You’re Going To Read This Article?

Written By: D. Geller
Published On: May 24 2000

Do We Already Know Whether You're Going To Read This Article?
D. Geller - May 24, 2000

Event Summary

CRM these days is about what a customer is likely to do. Most solutions focus on sales opportunities - what up-sells or cross-sells might be good candidates for a particular customer. SLP InfoWare does address those problems, but its early roots at solving churn problems in the wireless industry, particularly in Europe but also with Cell One of Puerto Rico, give it a handle on predicting which customers are likely to leave. This is a well-known problem in the cellular phone industry, where consumers are always being lured by competing offers. It is also a problem for ISPs, especially as free ISP's come on the scene.

SLP InfoWare's ISP/CPS product uses statistical and machine-learning techniques to analyze past customer behaviors and predict which current customers behave like customers that, in the past, have decided to accept another offer. Such customers can then be targeted for special promotional offers.

Market Impact

Predicting churn is somewhat different from finding cross-sell opportunities - although only the statistical wizards know how different - because it requires discovering ill-defined patterns in long-term behavior. According to SLP InfoWare, an ISP's acquisition costs for a new customer can be as high as $400 each.

A recent report from the Strategis Group, says that almost one in four users of ISPs in France and the UK are likely to move between providers over the next year. Although the rate in the United States has been traditionally much lower than in Europe, with millions of dollars riding on small reductions in churn a successful product should be snapped up by profit focused ISPs.

User Recommendations

An ISP should certainly give SLP InfoWare a call. However, we caution that almost any intervention is likely to cause some improvement in whatever statistic you measure. We therefore believe that for any product that proposes to improve performance, testing the efficacy of the model is necessary.

In essence, to test a product objectively you could randomly split your user population into two groups; new users should be assigned randomly to one of the groups. In the case of a churn-prediction product, record the product's predictions for members of both groups, but only attempt to intervene with one of the groups. At the end of a four to six month period you will be able to evaluate the success of the product (and of your interventions) and decide whether to extend it across your customer base.

SLP Infoware offers a version of this test as a part of its sales effort, through a program they call Proof of Value (POV). According to Jerome Nagel, VP for Marketing Worldwide at SLP Infoware, "The POV goes through the cycle of preparing data, creating an initial set of predictive models, designing a set of targeted campaigns and executing these campaigns on a subset of the identified campaign candidates. From this we assess the 'lift' of our modeling and/or the performance of the overall system. This initiates the detailed discussion on pricing."

We think that almost all vendors will have to offer a similar pre-sale tryout. Our only caution is that you should continue testing after the sale, perhaps with a test of longer duration than is reasonable in a pre-sales environment, and periodically thereafter.

We believe that with this or any tool that promises to reduce losses or improve sales there should be an option to make your payment at least partially dependent on success. The model that would be fair for both sides would be one in which your losses are minimized if the product doesn't perform well, and the vendor stands to share if the product is very successful. SLP Infoware does offer such a pricing model, as an alternative to a straight license, although given that the customer has a chance to test the product before the sale there will be less concern about risk.

Mr. Nagel says that after the POV essentially all customers prefer the license price over a plan where both partners share the risk, "quickly acknowledging that the business case makes the license fee the way to go in terms of TCO (total cost of ownership)."

 
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