Need lower attrition? Balance price and value

Analyzing customers’ habits can be the key to long-term retention, says Devcon’s Brandon Savage
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Tuesday, May 7, 2013

YARMOUTH, Maine—When it comes to alarm services, customers can choose packages ranging from a Pinto to a Ferrari. If you’re lucky, they’ll pony up for a Ferrari. But will they get their money’s worth by putting it through its paces?

The answer can reveal a lot about patterns of usage, which in turn can serve as a barometer for how much alarm customers should be charged—and the chances of keeping them for the long haul.

“Usage is a proxy for value, and by monitoring it we can start to match price to the value that the customer is experiencing,” said Brandon Savage, senior vice president of customer experience for Devcon Security. “We can use that [information] to help reduce attrition.”

Savage delivered his message during “Matching Price with Value: Moving Attrition to Retention,” a recent webinar hosted by the Central Station Alarm Association. Analyzing the habits of customers can lead to more effective pricing and increased RMR, but he said the point is lost on many alarm companies.

Responding to a question about whether $35 a month is too much to charge for monitoring services, he rolled out the auto analogy.

“For digital monitoring or for two-way monitoring with fully interactive services?” he asked, referencing Pinto vs. Ferrari. “Thirty-five dollars may be on the high side for digital monitoring, but it may be on the low side for fully interactive. The real question is, is the customer who is driving the Ferrari using that premium service, or are they just letting it sit in the driveway?”

To find out, Savage said alarm companies can use an RFM (recency, frequency and monetary value) analysis. By plotting on a graph how recently and how often customers are using their systems, companies can determine how to better serve them and which products to offer.

“The customer who is more recent will be of more value to you,” he said. “One with less recency is on the bottom side of the curve and you need to be doing outreach to get them to use their system more.”

Savage used a blue line on a graph to represent high-use customers, a green line for low-use customers and a red line for the fees being charged. He said the attrition rate for high-use customers is typically lower than for low-use customers.

“The blue line shows customers who are experiencing more value than what they’re paying for. Upsell them on more services to boost RMR,” he said. “The green line, below the red, shows customers who aren’t using their systems [as frequently]. We can reach out and try to get them more training. If we can’t do that, perhaps we can reach out and lower their prices—reduce them from a platinum package to a gold package. If we don’t, we could lose them and the RMR that goes with them.”

Pertinent information isn’t limited to the arming and disarming of systems; it can include the use of thermostats, locks and notifications during a certain period of time. Savage said analyzing the data from such interactive services is “very much in its infancy” in the alarm industry, presenting challenges to making well-informed decisions.

“It’s certainly not easy,” he said. “In my opinion, AlarmNet and Alarm.com are still struggling with finding out how to share this data in the most useful format, particularly [with] small dealers who don't have a business intelligence group. Talking to reps helps, but there is not a single answer. … I’d like to put more pressure on vendors to understand that they have to share data to make it useful.”

Comments

Great summary, Rich!  I would add this to my last quote, "AlarmNet and Alarm.com are still struggling with finding out how to share the data in the most useful format, particularly for small dealers who don't have a Business Intelligence group."

Both of our partners have done terrific jobs in sharing the raw usage data and summaries of that data... it's just sometimes overwhelming for dealers to understand how to use that data in a meaningful and practical way... there's some very powerful information there that remains relatively untapped for most dealers.