Churn management solutions key to telco bottom lines

With the fourth cellular operator and CDMA players like Tata Indicom and Reliance entering the telecom arena, it’s a battle royale out there. Though customers stand to benefit from the fierce competition that has ensued, the high cost of customer acquisition has made it imperative for cellular service providers to understand the reasons for customer churn and retain them, says Stanley Glancy

The cost of acquiring a new customer is more than five times that of retaining an existing customer, says, Atul Jhamb

Most Indian cellular circles today have four GSM operators and sometimes up to two CDMA operators—up to six mobile telephony offerings. In this highly competitive scenario, it’s but natural that almost everybody is switching cellular providers. While teenagers are attracted by goodies such as free SMS, for executives it could be the free long distance minutes and value-adds.

But while gaining new customers is good news for any telco, the flip side is the loss of customers—or churn, in industry parlance. So mobile telcos are putting churn management systems in place, which can almost accurately predict the behaviour of fickle customers. Says George Varghese, head of marketing at SAS India, "Churn is a widely-recognised problem today for most mobile telecommunications providers. In simple terms churn refers to customers cancelling their existing contract only to embark on a relationship with a competing mobile service provider."

Impact of the problem

Though many service industries are affected by the churn phenomenon the problem is extremely acute in the telecom industry, with customers joining and quitting in short periods. According to research firm Gartner, India’s churn rate is anywhere between 3.5 percent to 6 percent per month, one of the highest in the Asia-Pacific region. Considering that the cost of acquiring a new customer is as high as Rs 3,000, the losses are immense.

But Atul Jhamb, COO of Bharti Cellular feels that the churn rate in India is not so high. According to him the industry standard is around 2 percent a month. But he agrees that the cost of acquiring a new customer is more than that of retaining one. Says he, "The cost of acquiring a new customer is more than five times that of retaining an existing customer." Even if you calculate a churn of 2 percent a month, an operator is losing 24 percent of its customers every year. Whatever the numbers, the fact remains that the telecom industry’s bottom line is getting affected significantly thanks to the high churn rate.

Why it happens

Usually, such a high churn rate is witnessed in more mature markets where operators try to attract customers from competitors since market growth is saturated. But with one of the lowest telecom penetrations, the Indian market is anything but mature. Then what are the reasons for this trend?

Many subscribers shift to another vendor due to brand image. Beyond the brand image, higher churn is generally attributed to the numerous tariff options available to customers. A customer may also churn due to billing disputes with a particular vendor—billing fraud also comes into play. But both Jhamb and Varghese agree that more than tariff plans it is the quality of customer service that prompts a customer to churn or remain loyal. In the current market scenario there is hardly any difference in offerings, prices and quality of service offered by different operators. Says Jhamb, "Cut-throat competition has ensured that there is not much difference between the tariff plans offered by different vendors. This is where customer service and value-added services come into play. If an operator doesn’t anticipate market needs or does not provide value-added services offered by the competitor, then the customer is likely to churn."

Other than this, some of the key factors that encourage churn are inadequate network coverage, which includes dropped calls that occur in places where network coverage is thin and blocked calls that occur when the demand for network services exceeds capacity.

The churn problem is more prevalent in the prepaid segment, which today accounts for the vast majority of Indian cellular users. According to Jhamb, the prepaid customer is more price-sensitive than the post-paid one. With rentals as low as Rs 300, customers with low usage prefer prepaid cards. Also, students and those who like to experiment with different networks prefer the prepaid offering.

A telco can expect a return on investment of 50-200 percent within three to six months of deploying SAS’s churn management solution, says George Varghese

The answer

What can the operator do in such a scenario? How can the service provider predict customer behaviour patterns? What value-added services can be offered to increase customer ‘stickiness’? Says Deepak Varma, senior vice president and chief operating officer for BPL Mobile, "We have reached a crossroad where the only long-term differentiator between operators is customer service. Since the customer is our most valuable asset, it is important to understand this asset in detail."

All the major cellular service providers Express Computer spoke to have implemented SAS’s churn management system to reduce churn and retain valuable customers. While Airtel is still testing out the system, Orange (Hutch) and BPL Mobile have already gone ahead and deployed the solution.

According to Varghese, SAS offers a total end-to-end customer retention solution, which supports the whole process of managing churn—right from gathering and warehousing data to predictive churn modeling to reporting and distributing actionable results to decision makers.

The solution enables an operator to gain a better understanding of the variables that influence customer churn. It enables the telco to understand which customer is likely to leave and why, which in turn can help the company take the necessary measures to counter it.

The solution predicts a customer’s likelihood of cancellation or switchover by scoring them on a scale of 0 to 1. If a customer scores 0.73 it means there’s a 73 percent chance of his churning. The lower the score, the more content the customer. Once the scores are known, it is easy to figure out which customers are likely to switch.

The solution provides the telecom company with a sliced and diced view of the customer base, thereby empowering it to treat each customer differently as per needs. The customer attributes typically considered in a churn analysis can be broadly categorised into customer demographics, contractual data, technical quality data, billing and usage data and events-type data. But the most commonly used historic variables include the time a customer spends on air, the number of calls he makes and the revenue generated from that customer.

The predictive information becomes crucial as it gives the service provider a window to proactively fix the glitches in service and contain churn, thereby improving bottom lines. The solution also helps identify cross-sell and up-sell opportunities, which can have a further positive impact on the operator’s bottom line. Says Jhamb, "Once we have identified the customers who are likely to churn we can take immediate measures to retain at least 85 percent of them."

BPL Mobile, for instance, has put in place relationship teams to look after corporate and platinum customers. Churn management tools identify which customer uses a particular service regularly and which ones don’t and low users of a particular service are targeted with awareness campaigns.

A telco, according to Varghese, can expect a return on investment (RoI) of 50-200 percent within three to six months of deploying the solution. "Bharti Cellular reduced its churn from 3 percent to 2 percent with immense positive impact on its bottom line after deploying the churn management solution," he adds. "Today, we can predict with 80 percent confidence, which customer will churn. Internationally they have reached accuracy levels of 90-95 percent. But customer variables keep changing. Hence the solution has to be continuously fine-tuned to improve accuracy," says Jhamb.

Other means

Service providers have introduced a plethora of value-added services to increase customer ‘stickiness’. The common services offered by almost all operators include SMS, group messaging, voice mail, caller line identification, GPRS and even multimedia messaging. Other than this, different service providers have introduced unique services for certain segments of customers, depending on their usage patterns.

Operators have also introduced closed user group (CUG) services for corporates that want to provide employees with cell phones but also want to restrict their usage. Operators even offer special pricing for calls made within a limited group.

Though m-commerce hasn’t taken off as expected, certain banks offer mobile banking services like balance enquiry, cheque book requisition, bank statements, etc, free of cost.

BPL offers ‘Hello Chennai’ for customers in Tamil Nadu. Explains Varma, "A number of people called their contacts in Chennai, which is in a separate license circle, as compared to Tamil Nadu. These users called up their business associates, children, parents, and friends. Our prediction tools helped identify this behaviour. Users in Tamil Nadu can now pay a nominal charge every month and call Chennai at local call rates.

Since voice mail was perceived to be expensive BPL Mobile has tied up with Navin Mail, which provides combined voice mail and alert services for those who can’t take a call or are travelling outside their networks, and who wanted to know who called while they were busy. Airtel also offers a similar service called Reach Me, which sends an SMS detailing all the calls a customer missed when he had switched off his handset.

The road ahead

It is an exercise in futility to invest in acquiring a new customer only to lose him before even a part of the investment can be recovered. Though retaining a customer might require seven times more effort than acquiring one it definitely makes more economic sense. Even from a long term perspective maintaining a good relationship with not just profitable customers but all prospective customers will pay huge dividends. Only a churn management system can provide a better understanding of the customer, the operators’ most valuable asset.

It is important to deliver value to the customer and put in place offers that tie in the customer. New products and services development is essential to ensure loyalty. A churn management solution can help devise more attractive incentives, tariff bundles, loyalty schemes and proactive customer service along with acquisition strategies to attract the right type of customer, thus reducing fraud and bad debt—all key to a better bottom line.