When asked, “Who is going to own the customer in a competitive
environment?”, Chuck Levin, chief marketing and sales officer of Sprint PCS,
stated: “Nobody. The customer is going to make its decision based on their own
value perception and best interest.”
Mobile telecommunications customers are becoming more mobile
every day, canceling contracts and switching providers at the first sign of
discontent. The phenomenon known as customer churn is prompting US and European
wireless operators to replace a remarkable 20-35 percent of their customer base
each year¹.
Industry analysts believe this alarming statistic does not even represent
the high end of the curve, since churn rates rise with market maturity and
increasing competition. Based on experiences in more mature markets like Asia, it is conceivable that customer churn rates could soar to an astronomical 50 percent.
With the cost of customer acquisition already well in the five-figure range
(Deutsche Telekom paid almost US$14,000 per customer when it purchased
VoiceStream, and Vodafone paid nearly US$15,000 for each Mannesmann customer)²
, the cost of churn is staggering.
The growing challenge to the remaining fabric of wireless
customer loyalty is pre-paid mobile. Projections show pre-paid mobile
accounting for 50-80 percent of the global wireless customer base by 2005³. If
this prediction holds true, customers will become price shoppers, flitting from
deal to deal when the time comes to recharge their pre-paid units.
In a worst case scenario, wireless providers will not only forfeit secured relationships and revenues, but find themselves attempting to rectify the problem in the absence of reliable customer relationship churn management data.
Reasons for Churn Based on a global review, the most commonly known drivers of
customer churn are the following:
- Equipment envy: Customers want the very latest handset with
the most advanced features, the most attractive case and the most entertaining
services.
- Pricing plans: Annual tariff pricing contracts predominate in
immature markets. When pre-paid options come on the scene, customers migrate to
the more flexible plans; particularly those willing to pay a premium for
privacy and freedom, those with credit problems, or those too young to sign
contracts.
- Customer service and billing: With ties to mobile providers
already tenuous, the slightest hassle over billing or service levels sends
customers running into the arms of the competition.
- Network performance: More pertinent to newer market
participants with developing infrastructures, customers will walk away from a
contract when they discover major gaps in so-called blanket coverage.
Although not yet introduced in all geographies, number
portability, the ability to migrate your phone number across carriers, further
increases customer churn rates. Recent number portability studies reveal that
churn could be increased by a factor of 1.6. Since phone numbers are often
carrier specific, switching carriers entails changing numbers and business
customers are slower to incur the added costs associated with reprinting
materials and informing clients.
Re-Connecting with Customers
Fortunately for the mobile industry, an excellent model for rebuilding
customer relationships has already been tested in both the banking and airlines
sectors: loyalty programs. In the banking and credit card industry, companies
have been very successful at creating “stickiness” with customers by adding
multiple types of accounts following customer acquisition, consequently
lowering attrition rates.
Adapting the principles underlying the popular mileage marketing offerings
of the airline sector, one European wireless operator achieved a 72 percent
decrease in intent to churn, and a corresponding 14 percent
increase in revenue per customer among members of its
loyalty club. An Asian wireless provider experienced a 50 percent decrease in
customer churn, courtesy of its innovative customer loyalty program. As a note
of caution, however, loyalty programs are not uniformly successful and adaptive
across industries, borders and cultures, as value perception directly affects
the success of these programs.
A Measured Approach
The key to success is to develop and adopt a holistic approach that fights
the causes underlying the symptom of customer churn. This approach yields the
most impressive results by far, as churn cuts across the whole value chain of
an organization. That certainly proved the case for a proactive European
wireless company operating in a rapidly maturing market, facing the prospect of
massive contract cancellations and heightened customer demands.
Faced with growing challenges, the company’s executive team worked with
Accenture to implement a multi-pronged program. The first element involved
using segmentation analysis to quantify the long-term value of customers and
predict the impact of churn. The analysis represents just one of 19 modules
in a Customer Retention Solution Toolkit which offers effective and
proven solutions to address the many diverse components of churn. Underlying
the program is the pivotal notion of knowing your customers, then applying this
insight to create highly targeted campaigns.
The next step featured the launch of a full-scale customer
marketing plan structured to reduce churn, increase service utilization and
cross-sell additional services. Further strengthening the customer loyalty
aspects, the wireless operator introduced a multi-faceted retention campaign
featuring a mobile phone renewal plan. Lastly, the carrier established a
marketing automation center to integrate customer data for a single,
comprehensive customer profile.
Are these concentrated efforts worth it? Churn was cut by a factor of four,
enabling this wireless provider to claim it had one of the lowest churn rates
in the country. Amazing results can be achieved through this holistic approach
with churn reductions reaching up to 75 percent.
Compelling Figures
As this example shows, managing churn provides valuable dividends. Consider
the fact that extending the length of a customer relationship by as little as a
single year inflates revenue by 45 percent. Now, extend that relationship to
three years, and the top line impact is even more impressive with revenues
rising 130 percent . Factor in the additional impact of data service
sales to the loyal client base, and the potential exists to boost individual
customer value by as much as 240 percent .
As churn cuts across all areas of an organization, the key to successfully
reducing customer churn lies in adopting a holistic, modular approach. Rather
than combating it with piecemeal solutions, address the underlying reasons for
the symptom of churn, incorporate performance benchmarks and deliver on a value
proposition at each step toward completion.
About the author: Astrid Bohe
is an associate partner in the Accenture Customer Relationship Management
group, specializing in customer churn.
For more information, please contact us.
¹Telecon, 01.17.02, Astrid Bohe.
² "More than miles:
Designing successful loyalty programs in the communications industry," Outlook
Point of View, December 2001.
³Telecon, 01.17.02, Astrid
Bohe.
"More than miles: Designing successful loyalty
programs in the communications industry," Outlook Point of View, December
2001.
ibid.
ibid.
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