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The One That Nearly Got Away

The one that nearly got away

When de-regulation of New Zealand's telecommunications industry really took hold, multiple scrappy reseller challengers took up the mantle of bringing down the crazy high cost of fixed line calling for consumers. 

Those challengers relied on the mandated establishment of a wholesale division within the incumbent telcos that had their own networks. They got calling minutes at a wholesale rate, and a fixed cost for switching residential and business calling lines to their account, and could provide low-cost calling and service to their own customers.

For this to be successful, the networked telcos had to operate distinct silos, with their retail business actively competing with the resellers, while the wholesale business was there to support and work with their reseller customers.

Against this backdrop, an independent and privately owned reseller telco joined the fray.

The team already knew how to win. They had built by far and away the most successful long distance calling card business in New Zealand. They dominated every market niche there was, and then went after mainstream fixed line callers. The business was an outrageous success, and on the basis that the mainstream telcos couldn't beat it, one of them bought it.

The phone card business was carved off, leaving fixed line calling along home and business internet. For the business to survive, residential calling needed to grow, as quickly as possible.

The team went all in

Telemarketers got cranking and the calling rates were so incredibly attractive that convincing customers to switch from their incumbent supplier really wasn't difficult. The potential savings for the average household started at 30%, so the telemarketers had a compelling product to work with.

We dealt with over-zealous telemarketers, and we got good at adjusting commission structures so they encouraged and rewarded good behavior. As long as they behaved ethically, sales commissions were attractive and customers were delighted with their savings.

But something was going wrong. Sales — measured by consumer commitment to switch by way of recorded verbal agreement — were excellent. Excitingly so. For some reason though, customers were switching away from us as quickly as they switched in the first place.


It was a serious problem. There was a fixed cost to the reseller for every successful switch, and as a budget provider, they ran on margins that didn't have a lot of additional padding so it took at least  3 months to get to a break even point for most customers. 

We knew there was significant friction throughout the process though and for consumers who weren't familiar with the concept of switching a core provider, the slightest hiccup could cause a serious freak out 😱 Just as importantly, brand recognition for the incumbent telcos was very high, while few if any of the challengers had any brand recognition at all, unless they had budget for TV advertising.

After listening to hundreds of customers' questions, we had a very clear idea of what was confusing, and concerning. We knew exactly what would stop a deal on the call, as well as what would cause deals to be undone before the switch was complete, and after it had happened.

We removed as much friction as we possibly could. We rebranded the company to a look, feel and tone that conveyed credibility and reassurance. Our welcome pack was a work of art. It was beautiful, informative and detailed. Customers loved it.

But they still canceled accounts in their droves. We couldn't understand what was going on.

At this point, we were certain we had a solid sales and service process. We knew that customers, if they stuck with us, were likely to be absolutely delighted when they got their first bill and saw how much lower it was than what they had been paying. We knew there was nothing we were doing that would cause customer losses of this magnitude.

However, the switching process itself wasn't in our hands. We would submit the order, wait for a few days and get the confirmation in a daily report.

Switches away from us were notified in the same way and of course, when we asked the wholesaler where the customers were going, they cited privacy and complete silos as the reason they couldn't tell us anything about it.

Mastery is key to solving problems

This wasn't a marketing problem, so the operations team had been looking at it. In reality though, it was a whole-of-business problem, and it had to be fixed.

As it happened, we knew the switching process and once we started reviewing records, we realized there was a pattern.

You see, there were two networks available to wholesale from. A switch to us, from the telco that was our supplier, was not a network switch but a provider switch. A switch from the other wholesaling telco was a network switch.

We knew the outgoing provider, because that was essential information for the switch.

Here's what we found. Almost all of the customers who were switching away from us very quickly had come from either our wholesaler's retail arm, or from another reseller that used that same wholesaler.

Given the collective market share of those companies was only about 30%, that was highly improbable. Those silos we'd been assured of weren't working as intended. Somebody was getting information via a back channel and using it to prevent customers from leaving them.

Armed with information, we headed in to have a chat with our wholesale account team. Things got a little tense, until we laid out the proof, piece by piece. Then they got quiet.

Very shortly afterwards, the leaks were sealed, a settlement was reached, and the scrappy challenger was back on course. A year later, we achieved a successful exit through acquisition by a larger telco.

It nearly didn't happen. Things got a little shaky as the switching costs were mounting and revenues were not keeping pace.

What saved the day was knowing the process well enough to spot what was going wrong. The only way to successfully solve problems is to be able to correctly diagnose them in the first place.

You need people within your organization who are focused on the details and are masters of their craft. Those are the people most likely  to be able to figure out what's happening, when things go south and it's not obvious why.