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Telecom Convergence: Changing the Conversation

Safety Nets: The Best Defense Against Customer Churn

In today's telecommunications industry, acquiring potentially high-value customers is costly. According to industry analysis, on average only 20 to 30 percent of a telecom's entire customer base generates revenue and is profitable. Additionally, the industry experiences an average of 30 to 35 percent annual churn, with only 25 percent of the acquired customers staying with a telecom provider after a year's time. Churn is creating a chasm in companies' balance sheets.

Retaining customers and creating a loyal customer base is critical for the continued success of telecom providers. Rather than having one single initiative addressing customer retention and growth issues, organizations should construct a set of three safety nets around their customers to minimize churn: customer experience management, total relationship loyalty, and churn prediction and prevention. This approach gains importance as competition and price pressure increase and products get more commoditized.

Once customers are acquired, telecoms must use customer experience management (CEM) to keep customers satisfied. Proactively managing the customer experience is a key delivery vehicle of a company's brand promises and, therefore, allows a company to either make or break its promises to customers. Research shows that telecommunication companies with a branded customer experience management approach achieve higher customer satisfaction and retention rates. However, no organization can offer a flawless experience to all customers all of the time. There will be service delivery failures, and some customers will slip through that first safety net.

A compelling Total Relationship Loyalty (TRL) program that engages customers will catch many of the customers who fall through the first safety net. Customers experiencing a loyalty program relevant to their lifestyles are less likely to switch to a competitor as long as they are earning relevant rewards. Research shows that engaged customers (with high redemption rates) are less likely to switch operators.

However, even the best loyalty programs do not engage all customers. The industry average for a loyalty program is to have more than 60 percent of the operator's customers enrolled, with about 50 to 70 percent redemption rates. Some customers will still churn. This is when the operator needs to be able to predict churn and work proactively on retaining high-value customers. Churn prediction and prevention measures allow a telecom provider to develop models that assign a churn probability score to each customer, generally with an eight- to 10-week prediction window. The operator would then develop a library of churn prevention campaigns with automated rules based on customer behavior, customer value, and churn risk (see Figure 1).

In this article we examine each of the three safety nets and look at their critical success factors, as well as their areas of impact.


Safety Net #1: Customer Experience Management

Companies are increasingly realizing the importance of managing the customer experience throughout a customer's lifecycle, with the goal of turning satisfied customers into loyal advocates. Telecom providers must proactively create the desired customer experiences and effectively manage them to successfully create long-term trusted relationships.

Peppers & Rogers Group defines customer experience as all interactions that happen between a company and its customers as seen through the eyes of the customers. The Peppers & Rogers Group Customer Experience Framework (see Figure 2) outlines how customer experience leads to Return on Customer (ROC equals a firm's current-period cash flow from its customers plus any changes in the underlying customer equity, divided by the total customer equity at the beginning of the period). The framework shows how customer brand perception is transformed to brand realization with customer experience. CEM is vital for telecom providers because it builds customer trust while promoting the brand promise. CEM is a companywide, multiphase, multiyear project, so when implementing it, there are a number of factors to consider.

The main steps for establishing and implementing the ideal CEM state are as follows:

1. Assess the current customer experience. 

  • Map the customer experience across the customer lifecycle and touchpoints.
  • Identify the moments of truth. 
  • Identify customer preferences and needs.

2. Design the customer experience strategy.

  • Establish the vision and guiding principles for CEM.
  • Design future state customer experience for all interactions and touchpoints.

3. Implement the CEM strategy.

  • Identify the gaps between current and future state.
  • Define and prioritize the initiatives to close the gaps. 
  • Implement and monitor these initiatives.

There are six enablers that need to be at the desired levels to successfully implement a CEM program (see Figure 3). These are strategy, organization, processes, customer data, reporting, and tools.

After implementation, the impact of CEM should be continuously monitored and reported. It is essential to balance costs and benefits incurred in such a program. The most important benefit will be from reducing customer churn, but the level of correlation between CEM and churn varies from segment to segment. Establishing a business case and key performance indicator (KPI) targets in the beginning of the program is critical to having standards to measure against along the way (see Figure 4, page 41).

Safety Net #2: Total Relationship Loyalty

Total Relationship Loyalty (TRL) is used to differentiate the customer experience based on customer tiers. It represents a platform to communicate to customers about their differentiated privileges, while CEM represents the basis and lays down the fundamentals of the different treatments.

TRL goes well beyond mere points-based loyalty programs. While basic points programs reward customers for their use of services through earning and redeeming points, TRL helps telecoms manage and nurture all types of customer interactions.

The objectives are two-fold: first, to increase customer insight, learn more about customers, and consequently, serve them better with customized rewards; and second, to develop and strengthen customer relationships, further engage them, and engage them recurrently. TRL is composed of three pillars:

1. Customers: Different customers should belong to different program tiers. Customers can be tiered based on their value to the telecom and also based on their lifestyle. Tiering is essential to be able to treat different customers differently and provide customized rewards and treatment for them.

 2. Products and services: Products and services are the core program rewards; they can also be the main drivers for customers to earn points. TRL can guide different marketing strategies, e.g. by offering upsell as rewards.

3. Channels: Channels represent other forms of rewards and allow the expansion of loyalty engagement across all customer interactions. TRL can contribute to a successful channel strategy by designing earn-and-rewards rules to drive desired customer behavior related to channel usage.

There are four key success factors required to ensure the effective fulfillment of TRL. First, TRL should be an integral part of telecom providers' customer strategies. Although a TRL program should have its own defined strategy, objectives, and KPIs, it's essential to ensure alignment with other customer initiatives whenever and wherever it is needed.

Second, TRL should be endorsed by the whole organization and managed by a dedicated and centralized team, as well as championed by a proactive person within that team. The team should include members with analytics competencies who can collect and process customer insight and profiling, and assess program performance by processing and analyzing KPIs.


Additionally, a TRL program's business case and ROI model should be developed and tracked over time to accommodate its budget, evaluate program performance, and add required improvements and refinements. A TRL program also should be well positioned and communicated to customers. The right communication is a critical lever that is capable of turning TRL into a key differentiator over the competition.

Finally, a TRL program with different components should be designed, operationalized, and aligned with personalized customer needs and other customer-centric strategic initiatives. The program should be simple with a rich customer experience for program interactions. A successful and effective TRL program should bring a positive impact on the telecom provider's business. This impact is measured through a number of indicators, including positive ROI, improved Return on Customer, and increases in customer acquisition, retention, and referrals (see Figure 5).


Safety Net #3: Preventing Churn

Managing customer churn is universally challenging for telecom providers, but retaining highly profitable customers can prove to be even more arduous.

That's due to the fact that predicting churn and then designing cost-effective strategies to reduce it are extremely difficult undertakings for most telecommunications companies. Such projects require organizing and analyzing huge volumes of data that are often difficult to access and consolidate. Many telecom organizations simply lack the abilitly to support the complex data mining and analytical tasks that are essential to combating churn. Churn affects the profitability of a compny most when a customer churns before the company can earn back the investment it incurred when acquiring the customer. Therefore, it is critical to identify profitable customers and retain them, especially in today's highly competitive market. But what is churn? Customer churn describes the rate at which a company loses its customers. In telecommunications, there are two different types of churn:

1. Voluntary: This occurs when the customer initiates termination of the service contract. Most telecom operators find that the major stated reasons for churn include price, quality, network coverage, customer service, and image.

2. Involuntary: This occurs when people are churned for fraud, non-payment, and under-utilization. The best way to manage this type of churn is to determine who is likely to be fraudulent or create credit problems and prevent them from subscribing in the first place.

After defining the extent of their churn, telecom companies must develop a mechanism or strategy to predict and prevent it from happening in the future (see Figure 6). This should begin with using analytical models to understand customers' likelihood to churn. Using historical analysis of customer behavior, telecoms can create reliable predictions of future behavior.

In order to effectively fight churn, companies need to focus on the critical success factors of churn prevention. These include culture, process, and data issues. In addition, telecoms must implement an end-to-end retention program, which entails not only churn analysis, but also strategy and action development, deployment, and continuous monitoring.

The cost of retaining existing customers is less than acquiring new ones. The success of telecom providers rests not on spending marketing budgets on fancy campaigns to attract new customers, but on taking care of the customers they already have. Customer experience management, total relationship loyalty, and churn prediction and prevention are the three safety nets that can help retain high-value customers, improve their loyalty, and build their value.