Comcast: Poor Customer Service

Issue 2: Poor Customer Service (Short-Term)

In 2007, Comcast ranked third on MSN Money’s Hall of Shame for customer service. Poor customer service can not only tarnish Comcast’s brand reputation, an extremely valuable intangible asset, but also hurt its financial strength. To remedy this issue, Comcast can flex one of its sustainable competitive advantages identified in Section 4 and form a strategic alliance with a customer service firm. If no action is taken, revenues can decline, hurting both the net profit margin and asset turnover ratio, major components of the DuPont analysis.

A strategic alliance with a customer service firm would be mutually beneficial for both parties involved: Comcast would improve its customer service and the

customer service firm could increase its own revenues. This plan should be implemented in the short-term because addressing the poor customer service issue is critical. The ideal strategic alliance would be with a firm that has employees that have excellent customer-service skills, can upsell on products and services (to increase RGUs and ARPUs, discussed in Section 3), and are knowledgeable on the cable markets industry. The current customer service associates who staff the call centers should be screened to see if they can be trained properly by the new customer service firm. If not, they may need to be replaced by new associates who are willing to embody a new customer-centric company culture.
Because Comcast must make a change in its culture, support from top management and other leaders is crucial to the success of the strategic alliance with the customer service firm.

Although there may be some upfront costs associated with forming an alliance with a customer service firm, such as increased employee pay, severance packages for employees let go, and overall fees paid to the customer service firm, the offsetting increase in RGUs and ARPUs should more than offset the extra expenses incurred. More importantly, Comcast’s brand reputation can increase with its current and potential customers. This should be the main goal of the implementation plan. A scalable monetary award could be given to the new and existing employees of the customer service department if metrics improve by predetermined

amounts.
Reviewing the strategic alliance from a monetary perspective could be done easily—simply measure the increase in revenue-generating units and the average revenue per unit, two industry-specific measurements. Reviewing the strategic alliance from brand reputation perspective could prove quite difficult. Comcast could see if it ends up ranking on the MSN Money’s Hall of Shame for the upcoming year. Comcast can also conduct surveys with existing customers to see how it ranks on customer service over time through telephone and Internet-based surveys. With the results of surveys conducted, Comcast can see if any changes with strategic alliance or the employees of the customer service department are needed.
Issue 3: Increasing Costs Could Cause Loss of Subscribers (Mid- to Long-Term)
The cable markets industry is an expensive industry to operate in.

Cable companies spend billions of dollars each year on items such as infrastructure costs, programming costs, technology development costs, mergers and acquisitions, and interest costs (mentioned in Section 3). Typically, the cable markets companies have no choice but to pass on the costs to consumers. However, as identified in Section 2, the demand for cable industry products is elastic, stemming from the fact that consumers are extremely price sensitive; increasing costs could hurt Comcast’s growth and ability to remain retain customers.

Programming costs alone have grown 115% from 1996 to 2002, increasing an average of 23% per year. Cable network providers usually charge a fixed contract cost as well as variable fees depending on how many subscribers purchase their programming. This price increase has been passed on to consumers by the cable markets companies. As a result, demand for substitute products and services such as Hulu, iTunes, and Netflix have grown

steadily.
It is recommended that Comcast uses one of its sustainable competitive advantages discussed in Section 4, economies of scale, and vertically integrate into supplier industries. This implementation plan would have a mid- to long-term time frame. The supplier industries that Comcast should target would be primarily the cable networks and television production industries. Comcast can use its preexisting value chain supporting activities, such as general administration, human resources, and infrastructure to reduce the fixed-cost components of running a cable network or television production studio. Finding employees whom are knowledgeable in these industries may prove difficult at first, but creating an incentive program for employees could help. This incentive program would be based on the successful creation of original programming, subscriber numbers, and other television network metrics.
Top management would play a crucial role in helping to review and control this implementation plan because venturing into new industries is risky. The top management team would need to convey to existing employees the importance of the new ventures with the intent to have employees buy in to the plan. Financially speaking, Comcast could expand its current line of credit with banks, issue debt or equity for capital, and possibly sell off future distribution rights to competitors.
Performance metrics would be critical in evaluating the merits of these new ventures. As mentioned previously, measurements could include the monetary success of creating original programming and network subscriber numbers. If one of the original program shows or television networks does not prove to be successful, Comcast could simply stop putting money into that venture or perhaps attempt to sell it to one of the existing cable network companies.