Hold onto that customer    
Industry News
By 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

Retention tips:
  • Prioritize high-value users
  • Segment user base
  • Leverage back-office data
  • Avoid competing on price
  • Move beyond handset subsidies
  • Identify prepaid customers with targeted loyalty programs
  • Invest in employee training
  • Invest in advanced customer care and billing systems
  • Set manageable churn targets
  • Regularly evaluate and refine all loyalty initiatives

Despite the 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.

Despite 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 revenue growth.

"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."

Also 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.

To 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.

Meanwhile, 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.

In most 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, customer-focused organizations.

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.

Take 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 services.

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.

"Being more 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.

Operators 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.

The 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.

Khalek 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.

The 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.
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