Printer Friendly

Churn management--the colour of money.

Retaining customers is one of the most critical challenges in the maturing mobile telecommunications service industry. Customer churn adversely affects mobile telecom operators because they stand to lose a great deal in price premium, decreasing profits levels and a possible loss of referrals from continuing service customers. Figuring how to deal with churn is turning out to be the key to the survival of telecoms organizations. This report by IDATE sets out the real issues at stake in mobile churn management. It addresses and provides guidance on how to tackle churn both in terms of business processes (refining customer care, loyalty schemes, customer segmenting) and through the use of software solutions available.

Despite the continuous growth in subscriber additions, mobile churn rates have spiralled upward in developed economies over the last few years. Mobile churn rates are becoming a major problem for mobile operators, as the competition intensified and customers slip away to look for better deals. IDATE presents major tools used by carriers to retain customers and defend against regulators and competitors. Bearing in mind churn scores remain probabilities, IDATE expects carriers' customer retention tools to develop in the coming years to further reduce churn rates. If intense competition and the absence of differentiation in the mobile marketplace are the two main causes of churn, then a customer retention strategy that distinguishes one operator from another seems wise.

Varying definitions of churn

Companies employ varying definitions of churn and also have widely differing policies to determine when to cut off inactive subscribers and to remove them from their reported subscriber base. In essence, operators have different ways of defining subscribers. The churn rate measures the number of subscribers that are disconnected from a network in a given month and is expressed as a percentage of a company's average subscriber base for the period. A 2% churn rate translates into around a quarter of a mobile operator's customer base churning off the network in the course of the year. When mobile operators think about churn it is usually the voluntary kind that comes to mind. Deliberate churn is the most important part of churn when customers decide to leave his/her mobile operator.

Lead to comparison limits and costs

When considering post-paid churn, the deactivation date, i.e. the date that a customer is disconnected from the network, is equal to the churn date. In the case of prepaid churn however, the deactivation date does not necessarily have to match the churn date. This can be made clearer by the different states a prepaid customer can be in (normal use, no credit, recharge only, and deactivation).

Comparing churn rates between operators and countries where habits and culture are different is also tricky. Basically, low/good rates may hide problems because losses of revenues depend on customer values that have just been lost. Churn has a different impact whether the value segment from which the subscriber belongs to is of high or of low value. A 1% churn reduction has more impact (and is much more difficult to obtain) when the overall churn is lower. Marketing budget for subscriber loyalty should be allocated taking into account subscriber value segmentation. Gain and loss strongly depend on the customer lifetime value or CLV.

Analysis show significant churn performance discrepancies ...

On a worldwide basis, churn rates are increasing mainly due to higher competition in national markets. Increase in global churn rates is driven by inflating churn rates in emerging regions especially emerging Asia and Latin America. Emerging Asian countries show the highest churn rates on a worldwide basis. Across Asia, churn rates vary tremendously. Churn levels in advanced Europe or North America are higher than in developed Asia. NTT DoCoMo in Japan, which has a customer base that is almost entirely post-paid, maintains the best churn rate in the industry, with less than 1% of its customers switching to a competitor's network each month. Rates analysis shows a certain number of "rules". Countries where competition is fierce face higher churn rates. Challengers with low brand power show higher churn rates. Post-paid churn rates are always lower than blended churn rates. As within a given MNO significant discrepancies in churn performance between subsidiaries, local excellence is key.

... And helps define the nature of churn

Churn is pervasive. The churn is part of the entire wireless industry. Statistics from around the world all issue the same message about churn. Even in emerging markets where the market is buoyant, mobile operators have already experienced churn but do not care because subscriber acquisition is still easy.

Churn is inevitable. The telecommunication industry has a built-in product obsolescence cycle that guarantees that churn is going to be a continuous problem. Churn could then be considered as an opportunity to evolve.

Churn is expansive. The biggest consequence of churn is, of course, the loss of revenue assuming that the average customer brings in anywhere from 5 EUR to 80 EUR per month. Despite their best efforts to prevent churn, the company will lose some of its customers to the competition sooner or later and try to win them back by running reacquisition strategies. These campaigns might be successful but entail costs. Customer retention costs are also increasing. In addition, when churn starts, one of the first thing a mobile operator does, is to increase its advertising to have more media face time than the competitor.

Churn is manageable but often at the expense of inflating subscriber retention costs. In the context of falling ARPU, mobile operators face the challenge to reduce churn and costs. High cost of customer acquisition and customer education require companies to make large upfront investments in customers. Churn leads to higher subscriber acquisition or retention costs (SAC/SRC) and--invariably--cheaper products and services to try and beat off rivals' offers.

Churn drivers

Deregulation imposed by regulators is increasing the rate at which competitors enter into the market place. Introduced in most industrialised countries, the obligation of number portability is one of the regulatory elements enabling competition within the market to grow. Consumers take dozen of factors into account when they churn in a neverending combination of complex mental and emotional calculations. Customers receive numerous incentives to switch and encounter numerous disincentives to stay. Customer surveys that report the top churn reasons (price, quality ...) only provide a rough summary if those churn decisions.

Churn management approaches

Basically, three fundamental strategic approaches are possible for a mobile operator to maintain when it comes to issues to churn. All of them are legitimate with their own strengths and weaknesses, and can be effective in their own way. The objective is to make the optimum investment to reduce the risk of customer churn, especially in the short term.

* The most commonly effected strategy, especially during the early phases of churn problems, is for the company to ignore the loss of customers and try harder to acquire new customers as replacements. Emerging Asian countries currently show this type of strategy.

* The second most common strategy pursued by companies that are loosing customers is to try to steal customers from their competitors to make up from the losses.

* Eventually, most firms come to realize that their acquisition efforts alone are not enough to truly address churn issues. As companies mature and as their analytical and operational capabilities become more sophisticated, they begin to build customer churn management capabilities.

Most operators in advanced markets have come to this approach.

Churn management tools can work as a cure but only partly

The churn rate can be minimized by creating barriers which discourage customers to change suppliers or through retention activities such as loyalty programs. The concept of switching costs depicts the barrier costs the client must assume while changing operator. These costs may be monetary or non monetary. Mobile operators try to offer longer contract lengths to be sure customer will not cease the contract. The interruption of a post-paid subscription before the duration of the contract has matured will imply that the subscriber must honour his binding contract by paying off in a once instalment the remaining monthly fees. Delays to cease the contract are also a means to retain customers. Recommended technologies and embedded network provider settings are widely established tools well as disappearing walled gardens. The practice of mobile telephony operators of subsidizing handsets is common but controversial among regulators and operators. Several methods have been implemented; few countries have banned handset subsidies while most countries have banked on. Operators try to get rid of subsidies, recently Apple tried in vain with the iPhone. Sometimes the only alternative is to react and try to stop or slow the churn. Mainly operators try to match what is offered by competitors and launched loyalty appeal campaigns to stir up feelings of loyalty. For example, as most operators in Asia remain preoccupied with customer acquisition and growing their market share, churn management hasn't yet climbed to the top of the company agenda.

The key is to better know the customer

Predictive campaigns attempt to identify which customers are able to switch and when and the reasons why. The CRM approach helps the service provider to reduce customer churn by anticipating and addressing customer issues and increasing customer satisfaction. Effective business processes enabled by technology can help reveal customer behavior patterns and aid in assessing the profitability of various customer segments, what is important to them, and how the carrier can build loyalty within the most valued customer sets. The outcome of applying data warehousing, mining, and visualization tools is a set of models that supports predictions of those customers most likely to churn and, possibly, when and why. These models help identify intervention strategies that can reduce churn among particular customer segments.

Rewarding customers who are loyal seems an obvious way to reduce churn. Based on the market segmentation, different loyalty programs have to be made to respond to the needs and the criteria of those particular markets. Independent of the segment, the sub-segment addressed, the loyalty programs mainly have the same main objectives: reduce churn, increase the emotional link with customers and increase their satisfaction, better know the customers and better respond to their needs stimulate customer development, give the customer the feeling he is unique, make the customer loyal to the mobile operator, use the program as a reference tool for customer acquisition. But depending on the segment and sub-segment, the value of the customer and his particular needs, the characteristics of the program should be different: the beneficiary is different, so should be the reward (fun, money base, dedicated serving.) and the communication (marketing oriented, informative ...).

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

[FIGURE 3 OMITTED]

(*) This paper is a summary of a market report published by IDATE in the framework of its DigiWorld catalogue. For more information, see: www.idate.org.

Carole MANERO

IDATE, Montpellier, France
COPYRIGHT 2008 IDATE
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2008 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Firms and Markets
Author:Manero, Carole
Publication:Communications & Strategies
Date:Oct 1, 2008
Words:1804
Previous Article:Return from the "land return from the morning calm".
Next Article:The geoweb and hyper-local internet markets.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters