TCI Turns It Around: Cable company’s loyalty program is a hit

With the March merger of cable provider TCI and teleservices contractor AT&T, the utility industry’s goal of all-inclusive packages took a great leap forward. But AT&T has found it now has the ability to offer more than bundled services. By incorporating TCI, the communications giant also has taken over a loyalty and retention program that’s grown exponentially in its first full year of operation, reducing churn rates and raising service upgrades among cable subscribers.

As cellular phones become more of a commodity, and consumers reach out for service features that differentiate providers, AT&T should be able to incorporate TCI’s lessons into its programs. The two companies are exploring ways to tie in AT&T long-distance use with TCI’s Rewards program. They plan to re-brand the program as AT&T Cable Rewards in the fourth quarter.

TCI’s successes were not gained without some pain. Until the mid-’90s the cable TV industry had been arrogant in its marketing efforts, which many in the industry characterized as driving the cable truck down a street and having potential subscribers run out and beg to be hooked up. But with the advent of satellite systems, cable providers found themselves in need of more consumer-friendly practices.

“It was an industry easy to hate,” says TCI’s senior vice president of marketing Doug Seserman.

Not only had the marketing practices within the once-monopolistic industry been minimal, but much of its priority had been placed in infrastructure improvements that were not readily apparent to consumers, such as gaining rights to programming and equipment upgrades.

Perhaps the most significant mistake the cable operators made was not linking the content with the service provider. Customers, says Seserman, may love their MTV, but these feelings were not being carried over to cable companies like TCI.

The result was an alarmingly high disconnect churn – for TCI these ranged between 2% and 3% a month – consisting of customers terminating their service. Sometimes this was due to the customer moving out of the provider’s area, which was unavoidable. But American moving rates aren’t that high: Most of the rest were discontinuing because of perceived cost and value issues.

The latter was certainly true for TCI’s downgrade rates, in which customers canceled the lucrative contracts for such premium channels as HBO and Starz! while maintaining lower service levels. Downgrade rates running 3% to 5% a month, on top of the disconnect rates, served as a rude awakening that the industry needed to rethink its customer relations.

Seserman turned to several existing point-based programs for inspiration, incorporating theories behind the branded merchandise offerings of Marlboro and Pepsi with the targeting practices of airline frequent flyer programs. The practice among airlines of targeting high-worth users was especially appealing, he says; TCI’s satellite-based competitors were making their biggest inroads with the cable provider’s best customers.

>From Pepsi and Marlboro, Seserman took the concept of otherwise >unavailable branded merchandise. People might not wear a TCI cap, he >acknowledges, but if they are sports fans they might love to wear an ESPN >hat.

“We hoped for a transfer of brand equity from the service to the carrier,” he says.

The company distributes points freely: While basic service nets only 25 points a month, plus five points for each converter box, each added premium service ups the monthly total. The system is set up to stimulate multiple premium use. Moving from one to two premium services results in a net gain of 30 points, while moving from three to four brings an additional 70 points per month. When the AT&T merger was announced, every subscriber received 50 bonus points.

The prize thresholds are very attainable: With perhaps one premium channel and the occasional pay-per-view event, basic cable use will net a subscriber a lower-level premium, such as a Cartoon Network lunch box or an ESPN baseball cap, within three months. A household can easily earn two or three midlevel gifts, such as a VH1 CD offering or Discovery Channel’s “Shark Week” video collection. And the sight of a toddler merrily chewing on the ear of a plush “Animal Planet” elephant obtained through TCI Rewards will not damage the cable provider’s image. As it happens, lower-end, child-oriented premiums have proven most popular: The program’s most sought after item is a Nickelodeon “Rugrats” T-shirt.

Beyond the tangible incentives, the program uses a newsletter, TCI Rewards Update, to mend fences with its customers. The inaugural issue, which introduced the Rewards concept, addressed some of the corporate arrogance that had pervaded the industry.

“We haven’t always been as customer focused as we should have been,” a note from TCI on the bulletin’s front page says, “so we’re pulling out all the stops to bring you the kind of customer service and innovative products you deserve.” The newsletter also includes a brief description of potential rewards, such as discount service certificates and branded merchandise, a chance to earn an immediate 200-point bonus for upgrading to digital cable service and a “thank you” for being a customer.

Since the program rolled out in April 1998, TCI has seen an 11% drop in its disconnect rate, a 10% reduction in service downgrades and a 16% rise in service upgrades. The average revenue per household has increased 20%.

The program, which enrolled 2 million members in its first 12 months, expects to double that by year’s end.