Capital Ideas Blog

Hey cable guy, offer me a free movie

By Pradeep K. Chintagunta
January 29, 2013

From: Blog


This post originally appeared on the Kilts Center Faculty Blog

Ernie “Chip” Douglas, the character played by Jim Carrey in the movie Cable Guy, notes that “Free cable is the ultimate aphrodisiac.” Most customers will settle for speedy and reliable service at a reasonable price. And an occasional perk will help, too.   
 
I bring this up because cable companies are spending a lot of time and money appealing to former customers. Recent news reports have suggested that Time Warner Cable will spend $50 million on an advertising campaign called “The Better Guarantee” to “re-connect” with former subscribers, to convince them to come back into the fold. The basic idea behind the move is to communicate to these ex-customers that the service quality has improved and so it might be worthwhile to take another look at Time Warner.
 
Time Warner Cable’s move comes two years after a similar move by Comcast. That firm went even further, rebranding its consumer arm as Xfinity, thereby attempting to communicate an image of speed, both of the service itself as well as of how quickly the company reacted to customer issues, and of limitless possibilities, in terms of variety of content as well as the ability to access the service on multiple platforms. It also invested, and continues to spend, on advertising in an attempt to convey the new positioning of the company to current, former and future consumers.
 
Trying to regain ex-customers (or “defectors” as they are often referred to) is certainly a worthwhile endeavor, especially when there are so many providers. These include Verizon’s FiOs (often viewed as the best television provider in the business), AT&T’s U Verse, or one of the satellite providers such as Dish and DirecTV. Customers also combine broadband access from Time Warner or one of its competitors with content from Netflix, iTunes, or Amazon.
 
If a firm has indeed upgraded its services and its responsiveness to consumer needs, such service improvements should definitely be communicated to the target audience. A mea culpa along with a money-back guarantee and testimonials from returning customers will certainly find an audience. But instead of chasing after former customers, why don’t cable companies try to retain customers they already have?
 
Studies of service industries have repeatedly shown it often costs less to retain an existing customer than acquire a new one. Further, inertia (i.e., staying with the same provider over time) in such markets tends to be high especially in situations where the customer has a single provider for telephone, TV, and broadband – an effect that has also been documented in academic research (see for example, my paper with Ting and Hongju). And existing customers who do not defect should not be taken for granted, as customers who feel like “hostages” (in business strategist Fredrick Reichheld’s terminology) might ultimately defect even if they have to pay high switching costs.
 
Proactively engaging existing customers to identify their pain points and addressing them will likely lead to a more satisfied and eventually a more loyal customer base. In his book “On Great Service,” Len Berry underscores four pillars of an effective service – service reliability, fairness, recovery, and surprise.
 
Reliability requires an emphasis on reducing outages for customers, while recovery refers to the speed at which an issue with the service gets addressed. To reduce customer frustration and speed recovery, don’t force a customer to suffer through an unnecessary menu of options on the phone when they just want to subscribe for a firm’s triple-play service.
 
Fairness can be reflected in several aspects of the service but most notably the price. While all customers realize that content is not free, raising prices, especially significantly and without warning, can get a customer to switch to a competitor. Effectively communicating a price hike to the customer base must be an integral part of a service firm’s operations.
 
Which brings us to service surprise. We are all pleased when we arrive at the check-in counter at the airport and receive an upgrade that we were not expecting. Similarly, the occasional coupon to watch a free pay-per-view movie can help engender loyalty – at little or no incremental cost to the cable company. Notifying a customer that she has been upgraded to a higher broadband speed or a fancier bundle of channels at the current fee will also serve this purpose. Alternatively if a company is forced to raise prices, then it could soften the blow by also providing, say, an additional channel or two as part of the service.
 
Cable companies have probably already thought of some or all these approaches to customer retention. Actually implementing and communicating them to customers might be an idea that helps. As Chip from Cable Guy puts it, crudely but effectively, “Wake up lil’ snoozy! Smell the smelling salts!”

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