RL Magazine
The Challenges and Opportunities for Mobile Phones After Sales in 2012
by David Cope, MGH Consulting

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The mobile phone market is in turmoil. After years of continuous growth, the global economic downturn has had a marked effect on sales in both developing and mature markets. With major pressure on revenue and margin, service organizations are being forced to cut costs rapidly, with the danger that they will do so at the detriment of customer service, increasingly the key market differentiator. The device landscape has changed markedly with the move to smart-phones and with this a rapid change in the manufacturer landscape.

Five years ago, after sales was viewed by many operators & retailers as an unfortunate by product and cost of doing business. Previously ignored and rarely truly understood and managed, it is essential today that operators & retailers start to see their after sales operations as both a considerable cost risk and a potential customer winner.

This article is one of three in which we will investigate the mobile phone after sales market, challenges and opportunities, from three perspectives. Firstly, that of the Mobile Phone Operators, MVNOs and retail. The second article will look from the device manufacturer’s perspective and the third will focus on repair and 3rd party logistics organizations.

New products - new problems

Go back 5 years and the after sales world from an operator’s or retailer’s perspective was a simpler place. The manufacturer service model was, by and large, the same - two years manufacturer warranty, manufacturer subsidized swap stock, handling fees and plenty of authorized service partners to choose from and manage directly. In the main this put all, or nearly all, of the same IMEI repair costs with the manufacturer and only where the organization chose to offer an exchange proposition, were there any considerable costs. With one or two service providers, the after sales operation could directly control nearly all of their repairs / exchanges and confidently manage turnaround times, multiple repairs and the customer service experience. Although inconvenient, No Fault Founds (NFFs) were a manufacturer issue, at least in terms of cost, and received little attention.

The smart-phone and the entry of Apple and HTC and the rapid growth of RIM changed all of that. RIM favored a highly centralized repair model, one they managed directly. Although supported with seed stock and handling fees, most operators were faced with a growing percentage of their repairs / exchanges handled outside of their chosen repair operation. For the first time they also had to focus on what they were sending to repair. With charges for NFF many organizations had to build in screening operations to make sure they were able to control NFF costs. HTC adopted a broadly similar model to RIM, but were more open to authorizing service providers in their major customers. However, it was Apple that changed the rules of the after sales game. Coming from an IT heritage, Apple’s after sales terms on the iPhone are pretty much common place IT terms - a standard one year warranty, no seed stock, no DOA process, no handling fees and no repair network, just a centralized exchange model. Pretty quickly many operators found themselves with a considerable chunk of their after sales activity and cost not under their direct control and often off-shored.

Whilst these new entrants were changing the after sales landscape the “traditional” manufacturers were also busy. With a strong focus on warranty cost reduction there was a gradual move to off shoring level 3 and 4 (component level) repairs and in de-authorizing low volume service agents , especially in countries with smaller repair volumes. Added to the different service models of RIM, Apple, and HTC this has resulted in operators & retailers having to manage the complexity of several different processes and relationships, whilst trying to provide a consistent customer experience. Today operators and retailers have a far more complex after sales service back end network to manage and far higher costs. Not surprisingly this is receiving increasing focus across the organization, with supply chain operations very much in the spotlight.

The “Me Too” proposition

Such a radical change in the device market should drive a very different end to end customer proposition. Certainly, it is generally acknowledged that the customer use, expectations and service requirements of smart-phones is very different from those for feature phones. However, if we look at service offerings in any country across different operators, the service models tend to be very similar. Germany and the UK have a high level of exchange especially for high value consumers and business customers, whereas outside of Western Europe the standard model is typically same IMEI repair across all segments. The support front end is typically managed by generic call centers handling the whole range of devices and customer issues, with very few specializing in remote support and repair and returns avoidance. Many of these call centers are focused / paid on call answer times and productivity, rather than on trying to resolve user perception and usage issues. The result, not surprisingly, is a large quantity of devices being pushed through the reverse supply chain incurring logistics, handling and for exchange, refurbishment costs, for no reason. With the customer problem not resolved it also results in high repeat repairs leading to a poor customer experience and lower NPS scores.

So the challenge is clear, the managers of the reverse supply chain are faced with increasing costs and complexity whilst under considerable pressure to drive the cost base down without sacrificing NPS. To meet this challenge the typical response of squeezing suppliers for cost reductions will not work. Many repair companies are struggling to stay afloat, recent developments in some of the largest European organizations bear witness to this. We believe that to successfully tackle today’s challenges operators & retailers must understand and act in a truly holistic way, starting from understanding why product comes back in the first place.

What drives repair and returns?

Selling it right - Stating the obvious, if you don’t sell the customer the right product it is going to come back. Either in the first few days through change of mind as a return, or later on as a defective when the customer gives up “trying to make it work!” Given this, how many sales organizations are targeted on net sales rather than gross? Often no account is taken of the end to end cost from cross sell promotions or pushing excess product to customers.

Ranging - Knowing what to sell. Increasingly we see operators & retailers starting to focus on the end to end costs of supporting specific manufacturers and even devices. Return rates across the lifecycle of a device vary massively by manufacturer, hand in hand with the cost of support and in opposition to NPS. Smart ranging has a major impact on the bottom line of after sales support.

Keeping it sold – Few companies really focus on making sure that the customer is happy with their device from the start or even make significant efforts to help once the customer is having problems. However, those that do with pro-active out-bound phone calls or emails and texts with links to on-line training reap the rewards of lower return rates and improved NPS and customer retention.

Lifecycle support – Promoting software updates through FOTA, via retail stores and over the web can considerably reduce both repair and returns. Likewise dedicated call centers handling returns and repairs, with the right tools and training are also able to take out the majority of usage and perception issues at lower cost and higher NPS.

With a cohesive approach from ranging to front end support, operators & retailers are able to make a step change reduction in the number of devices coming back into the reverse supply chain. Resulting in - Lower volumes – Lower complexity – Lower cost.

Without accurate and timely data, both in terms of operational and financial KPIs this is close to impossible. Operators & retailers need to understand their after sales costs accurately at a manufacturer level at minimum and ideally at a device level.

Working with manufacturers

Often the after sales relationship between operators & retailers with manufacturers has been combative, with each side trying hard to minimize their own costs, but with little focus on reducing the end to end cost. With the right data operators & retailers are positioned to engage with manufacturers in a proactive way. Rather than solely continuing to focus on pushing costs “over the wall”, operators & retailers need to engage manufacturers in looking at how supported training or web support can help reduce return rates. Highlighting high return rates on product launch can help manufacturers develop and implement solutions before the warranty population grows. However, in the end, poor quality product, both hardware and software, is the manufacturer responsibility and operators and retailers should be pushing manufacturers to reach agreed return and failure rates or shoulder the cost burden.

Understanding customer needs

We believe that the traditional “me too” propositions detailed above can only lead to increasing cost and customer dissatisfaction. Operators and retailers need to take a scientific approach to understanding what customers really want and value and match this to what they can afford to give away for free and what they need to charge for. How can you know if your customers truly value an exchange or swap proposition unless you ask them? Similarly, how can you know what customers expect for free and what services they are willing to pay for if you don’t ask them? The proposition needs to not only focus on the device warranty, but the life of the contract with a workable out of warranty by age or damage proposition. In many organizations not only is there little or no science behind the selected proposition but the business area deciding on the proposition doesn’t understand or sometimes even feel the cost. The right services strategy will not only drive up NPS but will enable the service organization to gradually build a services revenue stream.

Partnering with 3PLs and repair organizations

Devices will go wrong, they are subject to continuous use, all sorts of climates, dropped, sat upon, wear out or sometimes, just break. There will always be the need for a back end repair and exchange solution and here we believe it is imperative that operators and retailers are really focused on working with their 3PLs and repair companies with a win-win focus.

Looking at the operator/retailer relationships with 3PLs and repair organizations across the market it is hard to find one that could be used as the benchmark. There is considerable change of suppliers, contractual financial structures and scope of operations (multiple specialist suppliers or one stop shop) as operators and retailers search for the ideal solution. However, whatever the mix of capability, cost plus or transactional pricing, separate repair, distribution and forward logistics or 4PL managed service there is nearly always some level of dissatisfaction. The table summarizes the relative strengths and weakness of the various options;

We believe operators and retailers need to be looking at new ways of contracting with 3PLs / repair partners. The contract needs to focus on a win-win solution for reducing return rates and increasing NPS. The solution needs to include the end to end process and therefore progressively we see specialist technical call centers and insurance management progressively coming under a cohesive solution. However, specialization should not be sacrificed for the sake of single point management; potentially the best solutions come from a single point responsibility managing specialist suppliers.

Summary

In summary yesterday’s models are no longer fit for purpose. The after sales landscape for retailers and operators has changed to such an extent that after sales must become a key focus area at board level. Reverse logistics needs to be integrated into the end to end supply chain, from ranging and sourcing, web and call centre support, through to upgrade programs and recycling. It may not be the most glamorous part of the business, but it will be one that differentiates both operators & retailers over the coming years in terms of both cost and NPS. The diagram below shows the key after sales areas we believe operators and retailers need to focus on in 2012 and in the years to come.

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