By: Jim Rice

An old adage says sales is a numbers game. The more attempts you make and the broader you cast your net, the more successful you’ll be. But what if that new customer is using someone else’s identity? Or what if they can’t pay their bill? What once seemed like a win for a company, can quickly become a glaring risk.

In May 2017, LexisNexis Risk Solutions published the first in its series of State of Risk white papers, "The Way Communications & Media Services Companies Market Can Increase Risk to Their Business." Through in-depth interviews with executives responsible for consumer marketing, fraud and account management, the series takes a comprehensive qualitative look at credit risk and fraud throughout the consumer lifecycle.

The study found that while mass marketing draws in greater numbers of customers for media and communications companies, it does so at an increased customer risk. Successful customer acquisition needs to be viewed through a lens of fraud and default risk. As one fraud specialist for a wireless services provider quoted in the study put it. “When you cast wide, unfortunately you get the good with the bad, and then once you get the bad, you have to be reactive on how to get rid of the bad.”

Involuntary Customer Churn Risk

There are two types of involuntary customer churn risk: customers who can’t pay, and customers who won’t pay. These customers don’t need to rack up thousands of dollars in unpaid debt to cause problems; even a few hundred dollars, multiplied across numerous accounts, can have a significant impact on an organization’s bottom line.

Some customers who sign up for accounts do so with the intention of not paying. This fraud-related side of credit risk is more prevalent among larger, national organizations that provide multiple in-demand entertainment services and access to popular brands of smartphones and other devices. Once the customer has the device in hand, the dollar amount at risk becomes significantly higher, as it is harder for the company to recover these items. 

“We do have fraud depending on a promotional offer. If we have a big enticement, you have plenty of people who sign up for a service, get their flat screen TV and then you never see them again,” says one marketing director for a TV services provider quoted in the study. “How restrictive can we be and still make it interesting versus how much fraud are we willing to experience is the bigger problem for me.”

Separating Good Apples from Bad

Mass marketing campaigns increase the risk of attracting riskier customers. Even with the possibility to limit TV advertisement audiences to wealthier neighborhoods or direct mailings to customers with a high credit score, it is impossible to filter out fraudsters and customers who are more likely to default entirely.

“When you put food out, it doesn’t mean you’re going to get one particular type of cat. You get all the cats. And that’s basically what happens with publicly broad marketing campaigns,” says a fraud specialist for a wireless carrier.

Furthermore, simply limiting your customer pool to those with high credit scores leaves many valuable prospects on the table which can prove costly in a highly competitive market.

“If you just said, ‘I won’t take any high-risk customers,’ you’re really going to struggle to grow,” says one financial services director from a wireless service provider quoted in the study. “So, you have to take some high-risk customers – even if they’re not going to be customers for five years.”

So, how should media and communications service providers balance this juxtaposition between attracting new customers, while also reducing involuntary customer churn?

New Avenues for Customer Growth

Media and communications services companies need to build a fuller picture of prospects based on more than just credit scores and demographics. According to the LexisNexis Risk Solutions study, alternative data on a customer’s behavior can provide a more accurate forecast as to whether they represent a risk of involuntary customer churn in the future, while also opening up avenues for new customer prospects.

One of these avenues is younger Millennials between the ages of 18 – 24, who use an average of 3.5 devices to make retail purchases, conduct financial transactions, stream music and video and communicate with friends and family through social media apps. Their high usage makes them extremely attractive to providers of media services, as well as wireless carriers selling mobile phones, but more often than not they have “thin-file” credit histories.