CUSTOMER CHURN: Catch 'em Before They Leave

The Indian telecom landscape is amongst the most dynamic business segments in
the country. The last five years in particular have witnessed a plethora of
changes resulting in what we are now seeing-a lean, mean, and highly
competitive industry with approximately 51.4 million cellular subscribers as of
February 2005, and growing at a rate of 85 percent annually. These changes have
taken place in almost every aspect of the business, be it pricing strategies,
policy legislations such as the unified license regime, or foreign investment
regulations.

The growth opportunity for telcos today, is tremendous. However, it also
brings to notice certain business challenges. With service offerings as generic
as providing a phone connection, what strategies does a modern-day telco need to
put in place to attract new subscribers? Also, in a dynamic market like India
where telecom companies are vying for subscribers, the average monthly churn
rate in India is as high as 3.5 percent. If statistics are anything to go by,
the more pertinent question is how does a telco retain its profitable
subscribers and prevent them from defecting to a competitor's network.

Also, certain business realities give us a clear indication of how important
it is to retain subscribers.

• It is five times more expensive to acquire a new customer than to retain
  an existing one.
• It takes typically three years to recover the cost of replacing each lost
  customer with a new one (customer acquisition).

It is therefore important for telecom companies to understand
what results in customer churn. Churn in the telecom industry occurs when a
subscriber cancels his/her contract with a service provider. This problem is
significant in most telecom markets, and negatively affects profitability. It
therefore becomes pertinent to manage churn effectively.

Churn
management is the process of finding potential subscribers who are considering
leaving and preventing them from doing so. The purpose of churn management is to
minimize the loss due to subscribers who leave, by finding the pattern of their
behavior and to maximize profit by retaining a stable and profitable customer
base. The most effective way of churn management is to understand the
subscribers' churn-related behaviour in advance and deploy a marketing action
plan to combat the same.

Therefore, although gaining new customers is good news for
any telecommunications company, the loss of subscribers is a far greater issue.
Given this, they are faced with the following key questions:

• Who are my best subscribers?

• Which of my subscribers are likely to leave?

• What can I do to retain them?

To better understand how customer retention solution works,
let's analyse the solution in relation to each of the questions listed above.

• Who are my best subscribers? (customer segmentation
  and profiling): The ability to classify subscribers according to their
  likely behavior and potential profitability is key for gaining a complete
  understanding of customers-and understanding subscribers is more important
  than ever for telecommunication companies. In order to retain its
  subscribers, a telco needs to be able to collect and segment subscribers
  with respect to value: propensity to buy, number of products purchased,
  current and potential profitability, etc. This information, when collated
  and reported on, can offer valuable insights allowing a telco to identify
  its high net-worth subscribers and designing offers and strategies to retain
  them.

• Which of my subscribers are likely to leave? (churn
  analysis/prediction): The primary goal of churn analysis is usually to
  create a list of contracts that are likely to be cancelled in the near
  future. At a more sophisticated level, the telecommunication company
  attempts to detect the reasons for an expected cancellation, because this
  information may help it to customize offerings. Detecting causes of churn
  that lie within the sphere of influence of the company also enable it to
  eliminate these causes in future. For example, analysis may reveal that
  factors as different as inadequate billing procedures and connection quality
  are the root causes of churn.

In order to accurately predict churn, telcos need a 360
degree view of the subscriber. This is possible only when they have critical
account information that includes: bill value, types of calls made, service
usage, usage patterns, services acquired in the last six months, period balance
outstanding, etc. It is also important to integrate information available across
the enterprise from call centers to fault repair systems.

• What can I do to retain the potential churners?
  (customer retention): Having identified its best subscribers, and those
  who are likely to churn, the next logical move for a telco is to devise
  strategies to retain those subscribers. Once it becomes clear as to which
  subscribers are likely to churn, marketing strategies need to gear up to
  deal with them.

Telcos now require more precise segmentation, and more
frequent and sophisticated communications than ever before-communications that
involve multiple stages and span multiple channels: from radio and television to
direct mail, e-mail, and the Web.

To succeed in this environment, marketers must devise
complex, yet agile, customer communication strategies. Investing the already
limited marketing resources in the right opportunities depends on understanding
and managing customer lifecycles and profitability-a process that includes
viewing, tracking, and measuring results while developing an effective means of
improving future campaigns.

To maximize the profitability of every customer relationship,
telcos need a marketing automation solution that supports the entire marketing
team and provides improved efficiency and effectiveness at every stage of the
marketing process: from setting strategy to targeting opportunities,
implementing campaign initiatives, and measuring results. Marketing automation
helps telcos improve response rates and revenues from marketing efforts by
providing the ability to easily manage sophisticated, timely, and personalized
customer-communication strategies.

What marketing automation tools do, therefore is use the
information and analyses gathered over the three stages elaborated above, and
help devise strategies based on the findings. Following are some of the
functions that it includes.

• Maintain an integrated customer view: Provide a
  unified view of customers across the enterprise, which incorporates
  information from all touch points and channels ensuring that customer
  information is consistent, secure, accurate, and comprehensible to users.

• Manage customer lifecycles: Customer segmentation and
  profiling capabilities consolidate insights at a customer level to build and
  monitor critical strategic segments over time.

• Improve effectiveness through better targeting,
  measurements, and analytics: If built in with advanced analytic
  techniques such as data mining, market-basket analysis, link analysis,
  forecasting and optimization; as well as segmentation, profiling, and
  behavior analysis the marketing automation solutions can help understand
  customers' past behavior and predict future opportunities

• Drive complex communication strategies: Through an
  intuitive graphical interface and in-depth campaign management functions,
  business users can easily deploy the results of advanced analytics and drive
  multi-channel, multi-stage communications using reliable customer
  intelligence.

• Understand the results of marketing activities:
  Marketing automation can also allow telcos to fully understand campaign
  responses, whether those responses involve direct communication or subtle
  changes in behavior. Reports on campaign effectiveness combine this response
  analysis with budget expectations to deliver a fuller picture of the
  financial return achieved by each marketing initiative.

• Provide support for all business units: A
  well-rounded and integrated marketing automation can support the activities
  of key marketing campaign participants including: business users, database
  marketers, quantitative analysts, and IT.

What we have observed is the fact that customer retention is
an all pervasive, enterprise-wide strategy. Far from being based on an isolated
silo of customer information, customer retention spans the entire gamut of
enterprise intelligence. It is aimed not only at garnering competitive advantage
for a telco via a granular view of the customer but also bettering the user
experience by facilitating targeted marketing campaigns.

Dinkar Sathe,
of SAS India