AT&T market strategies and competitive positioning

AT&T

Today AT&T faces a serious dilemma in whether or not to continue a relationship with their least profitable customers. AT&T's customer base today perfectly fits the 80/20 rule first devised by Italian economist Vilfredo Paereto in the 19th century (Krotz). Currently, over 80% of AT&T's revenue is generated by the top 20% of customers. By eliminating the least profitable 80% of customers, the company would make a profit similar to what is currently being seen. This raises the serious question of whether AT&T should consider eliminating these customers from their customer base. In the solution proposed today, this lower 80% of customers would be "sold" or outsourced to other firms that offer higher rates than AT&T.

Advantages

The most obvious advantage of getting rid of these least-profitable customers would be financial. Eliminating these customers would free the company from spending money on maintaining a customer relationship that is not profitable. Company resources could be focused more closely on increasing profit, rather then gaining revenue through these customers. As such, customer service resources could be better focused on keeping the top 20% of customers happy with AT&T. This is especially important, as Krotz notes, the "cost of acquiring new customers... runs 8 to 10 times more than the cost of keeping existing ones." Thus, marketing to existing customers and to potential customers that fit the profile of the top 20% of customers may be a more efficient use of marketing resources than current efforts, which do not discriminate between the top 20% of customers, and the other 80%. As Peebles notes, these lower 80% of customers often waste energy, time and resources; resources which may be better spent on maintaining a relationship with the top 20% of customers.

Pitfalls

The most salient pitfall of "firing" the lowest 80% of AT&T's customers lies in the potential for serious damage to company credibility as a result of the outsourcing of customers. It is important to remember that "every relationship is an important link to other customers" (Staples). As such, it is crucial to avoid alienating the existing lower 80% of customers, as this may inadvertently damage potential relationships with prospective top 20% customers. For example, by simply eliminating service to the lower 20% of customers, and move their business over to smaller, less efficient firms that are more costly may serve to alienate these customers. This alienation would likely have a profoundly adverse impact on AT&T's image. In turn, tarnishing this image may result in the loss of some top 20% customers, and result in lowered recruitment of such customers.

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