The long goodbye
Dan Hesse, the CEO of major US operator Sprint, recently commented that “improvement in churn is the quickest, fastest, most significant way of improving your bottom line.” Although operators are rightly focusing on growing ARPU and average customer spend, winning the loyalty of existing customers and extending their stay on the network arguably plays a stronger role in maximising customer profitability.
Churn is a serious issue for the vast majority of operators. It has steadily increased on a global scale in recent years, from three per cent in 2009, to 3.5 per cent at the end of 2010 and almost 3.9 per cent towards the end of 2011. Take Sprint as an example of a tier-one operator in the US: With a churn rate of 1.91 per cent for the third quarter of 2011, the company lost a net of 44,000 postpaid subscribers, each bringing in an ARPU of $58 for the quarter. That’s a potential loss of $2.5m for the quarter outright, and a far greater sum over a contract lifespan.
Obviously, no carrier wants to see their valuable subscribers move to competitor networks, yet it’s only recently that operators have changed tack to focus on building a relationship with the end user in order to actively prevent churn, rather than retain customers in a reactive, last-ditch attempt. By and large, it’s still something that’s only really addressed at the last minute.
In a late 2010 survey of operators by Informa Telecoms & Media on customer loyalty, 66 per cent of respondents commented that they thought customers had become less loyal in the two years since the last survey. Only nine per cent thought they had become more loyal, yet 79 per cent of the same respondents said they expected competition in their market to increase dramatically over the next 18 months.
So why is it that in the same survey, these operators that so clearly expressed concerns about the fickle nature of their customers, admitted that their main focus when it came to customer relations was on churners (65 per cent) and potential churners (91 per cent), suggesting that retention and loyalty efforts rely on last-minute actions?
“There’s an issue with priority in terms of customer segments,” says Michal Harris, director of marketing insight & strategy at Amdocs. “We should be talking about a different customer lifecycle now, which needs a different approach to how you treat your customers. Many carriers are still focused on last minute efforts,” she says.
This attitude is somewhat bewildering given that, by the reckoning of Firstsouce CEO, Iain Regan, the cost of acquiring a new customer is six times that of retaining an existing one. And, of course, there is a cost attached to that last ditch attempt to appease a customer. However, he says that, with a well thought out reactive process in place, it is not uncommon that an exit interview can provide an opportunity to fix a problem and hold onto a customer.
That’s all well and good, but common sense—and numerous balance sheets—argue that there are great savings to be made by tackling customer restlessness before it gets too late, with a proactive focus through analytics.
Accenture recently boasted that a leading US wireless provider—one of its clients—was able to cut churn by 15 per cent in six months, retain more than one million subscribers and generate hundreds of millions of dollars in incremental net OIBDA, all thanks to analytics-driven customer segmentation, and the company’s creation of a ‘Churn Command Centre’ dedicated to driving customer lifetime profitability.
By leveraging a diversity of data—demographic and behavioural—retention analytics can predict just when and why customers are likely to churn. They determine the customers’ value to the company in terms of both current and future revenue and profitability, as well as their influence on other customers.
Paul Bultema, executive director, UK and Ireland strategy lead, for the communications, media and technology operating group of Accenture, says: “Analytics is playing an important role in tailoring and defining services for customers. It gives operators the ability to dynamically link customers to their products and services and then to the financials and back to the network quality, so they can proactively respond to and address the customer experience. This is a great differentiator.”
The consultancy also believes operators can infer the drivers of churn by using multi-dimensional analysis in novel ways, such as correlating churn with the interactions a customer has had with the company in order to trigger retention treatments, as well as identifying areas where the customer experience needs to be improved. This is a strategy which may sound straightforward, but is one that requires the ability to build a service interaction history across all channels to identify these churn ‘hot spots’.
But Firstsource’s Regan suggests that, as operators measure and incentivise or penalise against the performance of their divisions with regards to the customer experience, the real question is whether all the incoming data is providing operators with tangible insight?
His company’s approach is perhaps more material. Firstsource uses analysis tools to gain insight into customer interactions to identify broken processes or pinpoint where competitors are ahead of the game. A big part of this is reactive analytics around pre-churn customers; the ones that are in the process of drifting out of the zone of contentment.
“With voice analysis tools on care calls we listen for emotional strain in the customer’s voice. Or keywords like ‘sorry’. This allows the operator to get on the front foot and intervene to get a specialist on the phone and fix the problem with the customer,” he says.
“No one takes this lightly. This is all about insight and about what we can change. Most customers expect problems but it’s how those problems are rectified that matters.”
But the operator’s role as a problem solver raises another interesting paradigm. The arrival of the smartphone changed the entire landscape of customer experience management, and with a plethora of increasingly complex connected devices entering the market, user expectations have risen dramatically. No longer content with a desire to make calls and send text messages, telco customers now expect to tech support and troubleshooting advice from anything to in-car communications systems to ‘connected home’ gadgets like set top boxes or smart meters. The issue being that if they don’t get everything they expect from their connected gadgets, they point the finger squarely at the provider of that connection the operator.
According to Tim Deluca-Smith, VP for marketing at WDS, if mobile operators want to provide unparalleled customer service and capitalise on the opportunity the connected home concept offers, they will need to start getting more creative, and generous, with their data sharing policies, as this will make the customer’s life much easier.
“Consumers don’t want to consciously think about the device or network to which they’re attached. They want to buy a data allowance and use it, at their discretion, across the multiple devices on which they’ve come to rely,” he says.
Moreover, in light of the smartphone and application store revolution, the same argument applies to content as much as to devices. Given that operators are now in many cases editorialising content for consumers, they are in a position where they can use this hand holding to their advantage in terms of customer satisfaction. Indeed, Thomas Schöpf, COO of integrator Kapsch CarrierCom, believes operators should be looking to develop their own content or form a partnership giving access to good content for their users.
The point is well supported by Alcatel-Lucent’s, Ben Geller, senior director of solutions marketing, who believes operators have all recognised that at some point they are going to have to foster some pretty compelling partnerships because they can’t be all things to all people. “There is a desire to truly own that customer experience and OTT players are not equipped with the infrastructure required to provide a world class experience. Operators can keep themselves at the heart of the relationship and add value too.”
Informa’s 2012 Outlook survey, which highlighted the intention of carriers to address the area of customer experience over the coming year, also discovered that the single most important asset for a service provider building a content ecosystem is the billing relationship, with 40 per cent of responses—more than twice the number for the next most significant element—ownership of customer data.
“The real USP of the operator today is that it owns the customers through billing and customer care. It’s no longer the basic network because at the end of the day anyone can run a network and take advantage of your rollout and your coverage,” says Schöpf of Kapsch CarrierCom, referring to the over the top players. “Through billing expertise operators can offer much more charging for third party content for example. Users aren’t interested in having several accounts with several different providers. They want one bill, one point of contact and one system for customer care.”
It’s the market that is changing, according to Michal Harris of Amdocs, and providers need to change their model to focus on the network experience. “If providers say ‘my core value is the network, this is what I do best,’ then they should do their best to sell the network to the end user or a third party.” The network should be the enabler and in reference to the OTT guys, there are plenty of companies willing to provide the experience to the end user.
By acting as a gatekeeper, the operator is rewarded with total ownership of the customer and all the trappings and information that go with it. On the one hand, the sea change in business strategy is still held back by technological hangovers such as the persistence of post and pre pay billing, which codifies who you are as a customer and defines the entire user experience when it really is just a payment mechanism that has been shaped by technology. In essence, operators have tied up the customer experience with things that aren’t that important users are just after a service after all.
But the knowledge consistency of the operator-gatekeeper means that telcos have access to so much knowledge and with such an integrated profile of the customer, that Amdocs’s Harris believes they can compete against the databases nurtured by Facebook and Google.
As the CEO of a tier one operator in France recently commented during a survey on customer experience carried out by Informa: “Good Customer retention practice is about business culture, not technology.”