Fiona Chau While
competing on price has been a long-time strategy for many telcos, the
focus has shifted to bundled and personalized services as a customer
retention tool. But industry watchers say Asian cellcos need to be more
proactive and focus on customer lifetime value to increase their bottom
lines and hold onto customers
Prioritize high-value users
Leverage back-office data
competing on price
Move beyond handset subsidies
prepaid customers with targeted loyalty programs
in employee training
Invest in advanced customer
care and billing systems
Set manageable churn
Regularly evaluate and refine all loyalty
continuous growth in subscriber additions, churn rates have spiraled
upward in Asia over the last few years and are becoming a major problem
for mobile operators, as the competition intensified and customers slip
away to look for better deals.
According to the
Yankee Group, Asia is the only major global region where churn has
risen substantially, from an average monthly rate of 2.2% in 2002 to
2.7% per month in 2004. In western Europe mobile operators have seen
their monthly average churn rate fall to 1.8% from 2% during the same
period. Even North America and Latin America have seen an overall
decline during the period, with annualized monthly churn at the end of
March 2005 dropping to an average of 2.4% in both regions, according to
the research firm.
Across Asia, churn rates vary
tremendously. Operators in prepaid-dominant markets like India and the
Philippines usually have consistent high churn levels, with average
monthly rates of 6%-8%, as the lack of fixed-term contracts in the
prepaid model means there are few barriers to moving to a new
coperator, says Farid Yunus, wireless/mobile Asia-Pacific senior
analyst with the Yankee Group. Conversely, DoCoMo in Japan, which has a
customer base that is almost entirely postpaid, maintains the best
churn rate in the industry, with fewer than 1% of its customers
switching to a competitor's network each month.
a downturn in the past few quarters, Yunus predicts that Asian mobile
operators will see their churn rates continue to rise in the medium
term and remain in the 2-3% range.
When it comes
to customer retention, Asian operators use different approaches due to
the disparity of the region's mobile market. In high-growth markets
like China, Indonesia and India, operators' customer retention strategy
is more focusing on price, quality of service and network coverage,
while they continue to build their infrastructure and acquire new
customers. As most operators in these countries remain preoccupied with
customer acquisition and growing their market share, churn management
hasn't yet climbed to the top of the company agenda. "Most
operators in large developing markets are still experiencing rapid
growth and see no reason to invest in combating churn now," Yunus
points out. But as markets become more competitive, operators
have no choice but to switch emphasis from volume to value,
prioritizing customer retention over acquisition and profits over
"As these big developing markets
begin to mature and the pool of first-time users dries up, operators in
these markets would be forced to steal each other's customers to
maintain growth," he says. "Increased churn and shorter customer
relationships will result in reduced customer lifetime values, higher
marketing costs and ultimately lower profits."
the fact that the pay-back time for a new customer for Asian operators
has increased from around eight months in 2003 to one year in 2004
means operators now need to retain their customers longer to make a
profit from them.
Bundled and personalized In
high-penetration and matured markets, such as Hong Kong, Taiwan,
Australia and Singapore, operators are focusing more on customer
retention. The competitive and saturated market environment has forced
operators in these markets to move beyond a conventional price strategy
to more sophisticated retention strategies and become more intelligent
in targeting niche groups with compelling offerings and tailored
value-added services, Yunus says.
Hong Kong's Sunday
Communications, for instance, has developed one of the most
sophisticated and effective customer segmentation models in the world.
differentiate itself from rivals, the company shifted its focus to
delivering targeted wireless data applications and services to meet
customers' specific lifestyle needs, and established a successful brand
through unconventional and eye-catching advertising campaigns. This
move away from commoditized product offerings allowed the company to
reduce its average monthly churn rate from 7.8% at the start of 2002 to
3.9% in 2004.
Ash Khalek, Oracle Asia-Pacific's VP
of communications, media and utilities, says product bundling is being
used as a key strategy for customer retention as operators in these
markets are actively shifting revenues growth from voice to data.
operators in markets like Japan and South Korea, where the key growth
is moving from voice and data to personalized services, operators are
focusing on offering innovative personalized services that are
tailored-made for different customers. As operators are investing
heavily in their infrastructure and backend systems, they also are able
to do real-time up-selling and cross selling to customers, says Khalek.
Proactive and smarter Although
some retention strategies have proven successful in slowing churn,
industry analysts say Asian operators need to more proactive to enhance
customer loyalty and satisfaction.
developing markets operators haven't yet got past the basic
prepaid/postpaid and consumer/business paradigm. Although operators
increasing realize that they need to become smarter in implementing
customer retention programs and give churn management greater priority
and resources, Yunus says most operators will find it difficult to
change from their current mass-acquisition mindset to become strong,
Even in mature
markets where retention is the priority, there is still much that need
to be improved, from customer service and proactive outreach to loyalty
programs and subsidized services/handsets.
handset subsidizes for example. Most operators still dedicate the bulk
of customer acquisition and retention resources to handset subsidies.
But this is no longer a strong differentiator and is only effective at
the point of renewal, which is usually too late, Yunus explains.
Instead operators should introduce a range of tangible benefits,
including points-based reward schemes and exclusive value-added
At the acquisition stage, he notes
operators must be more discerning when attracting new subscribers. They
must identify and prioritize high-value customer segments and launch
new products, marketing and incentives accordingly. Instead of
classifying users based on historical APRU, operators should also
consider more sophisticated parameters, such as the net lifetime value
or potential value of a customer. They should also assign cut-off
thresholds for unprofitable customers, weighing provisioning, retention
and management costs against current and potential individual returns,
then do nothing to keep these customers.
selective about which customers to retain will reduce operational
expenditures and enable the operator to divert resources to improving
high-value customer care," Yunus says.
should also leverage backoffice data - call and event data records to
obtain clear insight of the customer's behavior and make efficient use
of this information in real time to proactively offer tailored loyalty
initiatives for prioritized segments.
problem, however, is that most lack the necessary CRM tools to gain
this visibility and be able to analyze individual client behavior and
exploit this data in a cost-effective way.
concurs, saying a lot of bundled services offered by operators in
mature markets are very generic and fail to offer personalized services
based on customer preference.
What operators need to
do is move to granular segmentation and offer bundled services that
match different segment of users. More importantly, they should be able
to gather real-time "intelligent" so they can up-sell or cross-sell to
subscribers when they use a service - like their counterparts in Japan
and Korea do.
Acquisition vs retention Although
it is often necessary to invest to retain customers, the investment is
almost always far less than that required to acquire new subscribers,
who usually demand significant additional value over their existing
service before they are persuaded to switch. To do this operators
generally have to offer free handsets and attractive initial discounts.
Yankee Group estimates that mobile operators in Asia generally spend
$50 to $200 to acquire a new customer. Countries such as India and the
Philippines, predominantly prepaid and have little handset
subsidization, are at the low end of the range. At the other end are
markets such as Korea and Japan, where the competition for high-end
customers and the desire to migrate users to advanced data services and
handset are intense.
By comparison the cost to
retain an existing customer ranges from $2 to $6 per month in fast
growing developing markets like China, India and Indonesia, and $20 to
$30 in mature and highly competitive markets such as Japan, Australia
and Singapore, according to Farid Yunus, wireless/mobile Asia-Pacific
senior analyst with the Yankee Group.