TMNG Global Develops Product Packaging Guidelines and Sample Packages Challenge

Challenge

The client, like other local exchange carriers, was seeing a dramatic reduction in access line growth, driven by several forces:

• Economic factors: the business downturn was leading to business closures and stalled growth, as well as decreased willingness to spend among consumers.
• Competitive bypass: CLECs offered alternatives to the client’s access lines, especially in several major urban markets where these companies continued to be viable. 
• Wireless substitution effects: customers relied more and more on their cell phones, cutting into the need for second lines and, in some cases, even primary lines.
• Broadband substitution effects: as customers signed up for broadband services (either cable modem or DSL), they dropped second landlines whose main function had been Internet access.

In addition, cable TV companies’ plans to enter the voice market posed a significant threat.

Revenue growth has traditionally been driven largely by the increase in access lines, so the drop off in growth posed a serious revenue challenge. Our client sought a packaging strategy for both the residence and small business markets that would mitigate line losses by taking full advantage of its broad range of offerings: local wireline, long distance wireline in some jurisdictions, wireless, business data and Internet products, and voice value-added services.

The client wanted to postpone concerns about important implementation issues until there was better information about the potential revenue improvement that such packages might deliver. TMNG Global was asked to develop comprehensive packaging guideposts, as well as some sample packages, and to assess the potential revenue and line loss impact of a comprehensive packaging strategy.

TMNG Global Solution

Our team began the engagement by defining current customer profiles and quantifying the average revenue by profile for year-end. We then built a “business as usual” (BAU) business case for year-end. The BAU analysis entailed assessing broadband take rates, the share going to DSL, long distance uptake, wireless substitution, and projected losses to cable telephony by using third-party industry forecasts. The BAU scenario assumed no introduction of package options, but did build in DSL deployment plans and likely long distance approval in additional states. Under this scenario, the client was facing a modest increase in average revenue per customer due to adoption of new services; however, there was significant opportunity to further increase revenue through packages that could increase DSL’s share of the broadband market.

The next step was to review existing packages and estimate their impact relative to the BAU scenario at year-end. Targeted industry interviews along with secondary research enabled us to provide a comprehensive competitor analysis showing what packaging approaches others were taking, and current data about increased revenue per customer, decreased churn levels, and improved customer satisfaction. Different structural approaches were in use by various competitors, and no one option appeared to be clearly superior to the others at this fairly early stage.

We used the competitor analysis as a touchstone in evolving specific packaging structures for the client team to consider. Packages might depend heavily on specific services, or might require one or two services as the package core, or might be made up simply of several different offerings that created the opportunity for a volume discount. The team believed strongly that simplicity in packaging was an essential virtue, and chose to develop packages that required core services, to which additional services could be added at increasing price discount levels.

Our team then built sample packages for both the residence and small business markets. Using the BAU model and internal data from the client, we proceeded to incorporate package alternatives into the model. The model outputs showed precisely what revenue impact specific packages were likely to have over the three-year time frame, allowing for a ranking of packaging options and development of a comprehensive corporate packaging strategy.

Benefits to the Client

A critical benefit for the client was a defensible estimate of the value of various package approaches in terms of market share and revenue increases along with decreases in line loss. Packaging generally represents an opportunity to decrease line loss by about 10 percent to 15 percent while delivering market share increases ranging from 5 percent to 20 percent for individual products. The client was now in a position to compare the potential revenue improvement with an assessment of costs – systems, methods and practices, etc. – so that a sound final packaging strategy could be deployed.

The client also learned that even at its best, packaging alone was not likely to address all the issues leading to access line loss. TMNG Global has since continued to work with the client in considering other strategic responses to these issues.