Telcos bank on service to repair battered image

After years of taking customers for granted, the companies find their past sins are catching up with them and are trying to take a leaf out of the banking sector's book, write Peter Cai and Clancy Yeates.

When Optus chief executive Kevin Russell was last in Sydney seven years ago, the Australian cricket team were world beaters and the standard of telecommunication services was good.

However, when the Scotsman returned last year to take the helm at the country's second largest telco, the service standard had retreated to an alarming level and the cricket team - sponsored by a rival carrier - was not what it once was.

Complaints to the telecoms industry ombudsman, Russell notes, reached "stratospheric" levels

"The market has gone backward in customer experience while other international markets moved forward," Russell says. "It is a quite stark difference."

Indeed global customer rankings have European, Asian and even the major North American carriers placed substantially higher than their Australian counterparts in terms of customer service.

After years of taking customers for granted, locking many into inflexible contracts and bill shocks following an overseas holiday, Australian telcos are substantially on the nose.

They are now ranked deep in negative territory according to the "net promoter score", an important industry metric that measures customers' willingness to advocate for their brands.

In contrast, northern European carriers are sitting on plus 15 and the more nimble Asian telcos are even better performers at plus 27.

Bill Morrow, Vodafone's new Australia boss, who is facing an uphill battle of turning around a company that has been plagued by a history of network problems, shares Russell's assessment.

"Australia has a poor image in the telecommunication sector compared to other telco sectors in the world. This is why there is an opportunity for each one of us [three telcos] to lift the game and change the image of our respective brands," he says.

The drive to win over customers has serious implications for profits.

In the past few years, the mobile industry has experienced breakneck growth. Australia has one of the highest smartphone adoption rates in the world and telcos have ridden the wave successfully, bringing in new customers even as service standards slipped.

However, the market has reached a saturation point after years of strong growth. Past neglects are catching up with the companies, and as the Optus boss admits, "sins get exposed".

In the past, a disproportionate amount of resources was allocated to winning customers rather than investing in customer services.

That is about to end as the cost of acquiring new customers increases and telcos are keen to take advantage of the strong growth in demand brought about by data-hungry smartphones.

Telco executives are now turning to another once deeply unloved industry - banking - to see how it managed to win back customers.

Telstra chief David Thodey has sought advice from Commonwealth Bank on how to improve its popularity with its millions of customers. This involves big changes to Telstra's processes, technology and culture.

Thodey recently told BusinessDay that the formerly government-owned CBA had "a lot of parallels" with Telstra, and he took heart from the bank's success in transforming its customer satisfaction ratings under the leadership of former chief executive Sir Ralph Norris.

Roy Morgan research shows consumer satisfaction with CBA is running at nearly 81 per cent, the highest rating of the big four and the bank's best rating since the survey began in 1996.

An equivalent measure for Telstra shows satisfaction has fallen below 70 per cent and is trending lower.

One main difference between the strategies of CBA and Telstra was that the bank had not sent processing and call-centre jobs offshore. Telstra runs local call centres, but also has a significant call-centre operation in the Philippines.

Thodey says that while he understands some customers are more comfortable hearing an Australian accent on the other end of the line, the first priority is to give a great customer experience, irrespective of where the call centre is.

For all the criticism heaped on banks by politicians and the media, customers have a much more positive view of the big lenders today than they did early last decade.

After a wave of branch closures in the 1990s, Roy Morgan's measure of satisfaction among customers hit rock bottom in 2001. Less than 60 per cent of customers were happy with their bank. CBA was running at a point where nearly one in two of its customers was unsatisfied with the service.

Today, the measure of combined satisfaction among the big four banks has climbed to 79.5 per cent.

Satisfaction with Westpac, the nation's second biggest lender, stumbled in recent years following a series of out-of-cycle interest rate moves on mortgages, but it has since improved. All the big banks are within striking distance of CBA, separated by a margin of just 2 percentage points.

Westpac general manager for retail banking Gai McGrath says the error many banks made in the 1990s and early last decade was to impose their views on customers.

"If you think about the whole shift of closing branches, and almost forcing customers into other channels, mainly going to ATMs and things, that was very much being driven by the banks," McGrath says.

In the early days of the online revolution, people were wary about the security risks of managing their money online or over the phone, despite bank assurances it was safe to do so.

Banks failed to pick up on this signal, harming their reputations in the process.

Russell is also keeping a close eye on the banks.

"They had a challenge that is comparable with telco industry in terms of being viewed very negatively," he says.

There are easy wins on customer service such as improving the online experience and scrapping fees.

Optus, which has experienced flat growth in mobile subscriber numbers over the past year, is preparing to give up short-term revenues and take a hit from scrapping breakage fees and excessive charges to boost its customer loyalty.

"If you are serious about customer experience, if you are really serious about loyalty of your customers, you must deal with the things that let customers down," Russell says. "Excess charges, roaming charges, unfair fees, are all part of what you must address."

The company has introduced a pricing plan that allows customers to move automatically to a higher pricing point once they exceed the limit. This is aimed at reducing bill shock. Optus is also lowering international roaming fees - one of the most frequent complaints directed at carriers.

Morrow, who arguably has the most challenging task in repairing Vodafone's damaged brand, emphasises the need to deliver consistent good services across all "touch points".

"I lecture quite often to people across the company that you can have nine times of calling the call centre with great experiences and once with poor experience - and then you are reduced to the least common denominator."

He says the company has made significant inroads in improving the customer experience, but still has a long way to go.

Telstra, which accounts for nearly half the local mobile market, is also implementing an aggressive strategy to win the hearts and minds of consumers.

Chief customer service officer Gordon Ballantyne, who is overseeing nearly $20 billion worth of consumer-facing business, says increasing customer advocacy for the Telstra brand is the No.1 concern for the company.

It is determined to "change the way every Australian talks about Telstra as an iconic brand", he says.

Central to Telstra's strategy is the adaptation of the net promoter score.

"We measure every single customer interaction," Ballantyne says. "We have NPS for customer interaction; we have NPS for every product launch. We measure the actual end-to-end customer service experience."

He says the company is not paying lip service to improving customer service. Salaries of executives (40 per cent) and frontline sales staff (10 per cent to 25 per cent) are linked to the net promoter score.

"We are not just talking about it in a superficial way, but it is in the fabric of how we are remunerated, in the fabric of how we are measured, in the fabric of aspiration and ambition we have for the business," he says.

Optus has introduced a similar measure to remunerate sales staff. It also analyses customer service through the organisation, from how it recruits staff through to even the tone of voice used by employees in communicating to customers.

Telstra, which is preparing for the launch of Apple's iPhone 6 next week, has conducted more than 10 million surveys so far to gauge customer preferences. Senior executives, including Thodey and Ballantyne, receive daily updates on this measure.

Customer feedback weighs heavily on the launch of new products and services. Telstra introduced a "no lock-in" plan this year to cater to customers who did not want to sign up for the usual two-year contract.

Westpac's McGrath says banks have invested heavily in looking at what products customers actually want and how they want to do their banking.

One big focus for online-savvy customers is technology. Whether it is Westpac's iPad application or CBA's Kaching, which allows instant money transfers, banks are spending heavily on new technology for online banking.

"If you look now at what's happening, particularly with digital adoption and creating some great experiences for customers, it's very much because the customers are saying 'this is how we live our lives'," McGrath says.

Despite predictions of the demise of branches, their overall numbers increased up until 2012-13, when they dropped 1 per cent.

With more people banking online, the average size of branches is shrinking.

There is greater emphasis on machines that allow customers to do the transactions on their own.

McGrath says this combination of innovation and a focus on consumer needs has made customers happier.

"I think it was the broader range of choice that was provided to customers, which meant that the branch was not the only place that you could go to get your needs met," she says.

At the same time, bank staff have a vested interest in lifting satisfaction ratings, which are increasingly tied to bonuses.

For instance, former CBA chief Norris - who set himself the goal of improving its ranking among the big four from worst to best - was scheduled to benefit from long-term incentives linked to customer satisfaction for more than two years after he left the bank in 2011.

McGrath says that over the past five years, a much wider range of staff have had their bonuses linked to customer satisfaction ratings.

Customers who have dealt with staff in branches or call centres are surveyed, and their feedback can then be used when bonuses are determined.

"Now we start to see at a role-based level that people are being measured on how customers feel about their interaction with a person," she says.

"I do think that it's in the DNA now, whereas before it might have been at the very senior level only."