Revol Wireless to Focus Investment in In-bound Call Centers

Case Type: operations strategy.
Consulting Firm: Arthur D. Little first round full time job interview.
Industry Coverage: telecommunications, network.

Case Interview Question #00620: Our client Revol Wireless is a regional wireless carrier and cell phone operator in the Midwest of the United States. Headquartered in Independence, Ohio, and operated by Cleveland Unlimited, Inc., the company offers completely unlimited wireless service, on a high quality all digital CDMA wireless network with flexible plans and unlimited service at an affordable rate. Customers pay a set amount of money each month for unlimited talk, text and data.

The CEO of Revol Wireless has hired Arthur D. Little to advise him on his strategy for the next five years. You are one of the consultants working on this project, and you will be responsible for the sales effectiveness strategy. Basically, the CEO wants to focus the company’s investments in the most effective and profitable channels. The company currently has three direct sales channels: own retail stores, in-bound (responsive) call center, and an outbound (proactive) call center. Based on the economics of each sales channel, what do you advise him to focus on?

Suggested Approach:

The interviewer was expecting a basic knowledge of the telecommunications industry as well as the three sales channels, and the case requires the interviewee to focus on the calculations. Customer Lifetime Value is a major framework to be used to approach this marketing and strategy case. Also, the interviewee has to drive the questions and collect — in a structured manner — all the numbers needed to solve the case. It is important to ask the appropriate questions as well as state the reasoning behind each question. Some important elements are:

• Discuss customer service versus sales
• Understand the mix of variable costs and fixed costs

Additional Information: (to be given to candidate if requested)

Economics of each of the three sales channels

Possible Solution:

Interviewer: So, how would you go about this case?

Candidate: (Summarize the case and work on a framework) I want to understand the customers (size of the market, customer segmentation and consumer behavior), the competition and key figures of each sales channel (acquisition rate, sales volume, success rate, fixed cost, variable cost and traffic).

Interviewer: Very good. Our client, the CEO of Revol Wireless, does not have insight about customer segmentation in each of the channels though.

Candidate: Right. Let us see which figures the client has available. Do we know traffic in each channel?

Interviewer: We do. In-bound call center and retail stores are accessed respectively by 20 millions and 1 million customers a year. The out-bound call-center accesses 1 million customers.

Candidate: I would imagine some of these customers are also demanding customer services, right?

Interviewer: You are right for the in-bound call center, which also serves as a customer service channel in a proportion of 50-50 (sales: 50%, customer service: 50%). However, our client believes that every customer visiting a retail store generates revenue, and the out-bound call center only focuses on sales.

Candidate: What about success rate per each channel?

Interviewer: In-bound call center, out-bound call-center and retail stores have respectively 10%, 50% and 50% success rates.

Candidate: In looking at lifetime customer value, do we know the churn for each channel?

Interviewer: Actually we don’t. But our client believes it is the same across all segments.

Candidate: What about revenues per channel?

Interviewer: Sales generated by in-bound call center, out-bound call-center and retail stores generate respectively $40, $50 and $85 in revenue on average per customer.

Candidate: Perfect, we already have enough data for sales. What about cost? Do we know either total cost or cost per “call” for each channel?

Interviewer: Our client has provided us with cost broken down by channel. In-bound call center, out-bound call center and retail stores generate respectively $1 million, $1 million and $10 millions in costs.

Candidate: Do we know how much is fixed vs variable cost?

Interviewer: We do know the current percentages. Out of total costs, fixed cost for inbound call center, out-bound call center and retail generate are respectively 50%, 25% and 80%.

Candidate: Fair enough. This is what we’ve got so far:

From the calculations, we see that the average revenue per new customer generated by retail stores is the highest while inbound call center generates the lowest.

Also, on the cost side, although the fixed cost by out-bound call center is the lowest, the variable cost for the in-bound call center is the lowest. Additionally, the out-bound cost center’s revenue is the lowest. This means that the out-bound call center generates a lower contribution margin, as its fixed cost is proportionally the lowest portion. Thus, out-bound call center’s total cost could increase the most should our client decide to invest more in this channel versus other channels – retail stores with a 80% fixed cost and in-bound call center with 50%. Because of the high variable costs, out-bound cost centers are a higher risk.

Interviewer: Very well. What is your recommendation then?

Candidate: I would advise our client to focus its investments in the in-bound call center. The relevant variable cost for this channel is low, but so is the revenue for new customers. The client should examine the causes for the low revenue with an eye towards generating more revenue from customers through this channel.

Interviewer: Excellent. Thanks.