One often hears the argument that quality of service matters in competitive markets. Quality of service is said to lead to "happier" customers, and happier customers create more value.
According to that logical theory, quality leads to longer customer life cycles. That is important because long term customers spend more money, refer new clients and are less costly to do business with.
A study suggests that a five-percent improvement in customer retention can cause an increase in profitability between 25 percent and 85 percent (in terms of net present value), depending upon the industry.
Simple logic suggests why that might be the case. The cost of customer acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost of getting that customer.
Also, account maintenance costs decline as a percentage of total costs (or as a percentage of revenue), for a number of reasons. Customers sort themselves. If a product or service is not deemed "right," those customers leave. Customers, who stay, obviously find a particular supplier and service has value.
Customers who have been in a relationship with any supplier for some time also understand the product, how to use it, and why it adds value. That means less customer service cost.
Long term customers tend to be less inclined to switch and also tend to be less price-sensitive. Also, long term customers may provide free word of mouth promotions and referrals.
But there are other ways poor quality of service can harm a single communications or mobile service provider, and sometimes an entire industry. That would seem to be the case in Brazil, where government regulators have frozen the ability of service providers to add new customers until the operators come up with investment plans to fix quality of service issues.
Mobile operators in Brazil are said to be scrambling to create investment plans that will convince regulators that they can sell new accounts. Service providers Oi, TIM and Claro cannot make new sales.
The mobile service providers currently banned from selling new accounts account for close to 70 percent of all subscribers in Brazil, the Wall Street Journal reports.
Brazil's largest mobile phone operator, Telefonica Brasil, wasn't banned from selling new lines, but must also provide an investment plan to Anatel, the regulatory agency, within 30 days.
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Edited by Brooke Neuman