NEW YORK-When looking for the causes of customer churn, executives of cellular and personal communications services carriers should “start with the man in the mirror,” to borrow words from pop singer Michael Jackson.
“In many ways, it’s not the customers who have caused churn; it’s the carriers,” said Phil Asmundson, regional telecommunications partner, Deloitte & Touche L.L.P.
“There is increasing competition in all markets, which makes for a volatile business environment, and there are a lot of evolving services. Many subscribers are confused. They’re conditioned to 30 (cents) to 35 cents per minute and, all of a sudden, they’re being offered 10 cents a minute.”
There is a broad consensus in the wireless telecommunications industry that it takes roughly a year of uninterrupted service provision to a single subscriber to recoup acquisition costs for that customer. And yet, like lemmings to the sea, carriers seem to continue their headlong rush to sign up at any price every Tom, Dick and Harry.
“Annual churn rates are very high, about 30 percent in the [United States] and 25 percent in Europe. You’re losing a third of your customers each year, and you have to replace them and add even more customers,” said Lisa Modisette, director of telecom intelligence for Lightbridge Inc., Waltham, Mass.
“Cellular companies got really good at and trained the marketplace to be focused on acquisition, a marketing model that promotes churn,” said Rebecca Masisak, a senior principal of the Telecommunications Industry Group management consulting practice for American Management Systems, headquartered in Fairfax, Va.
“When you’re starting out, you want to get a customer base so you take all comers. It’s the entrepreneurial spirit and it’s certainly true of PCS players.”
Looked at collectively, it is important to acknowledge that the tactics of customers at any cost in a newly competitive arena are growing the overall market, even if nonpaying and/or quick churning customers hurt individual carriers.
But it also is necessary to see the potential pitfalls in earlier parallels. Consider the status of thrift institutions a decade ago when loan officers, pressured by competition and sales quotas, granted mortgages willy-nilly. If that example doesn’t resonate, recall what happened to some of the major airlines, which are now defunct, after deregulation in their markets fostered price wars.
The wireless industry doesn’t have to follow suit in a race to the bottom. Besides 20/20 hindsight, there are other tools available to tinker with the outcome.
“Just say no” is the most obvious one. A case in point: Allen E. Smith, president and chief executive officer of Powertel Inc., West Point, Ga., told securities analysts in late October to expect a spike in the PCS carrier’s third-quarter churn. “We are cutting off the no-pays,” he said.
Like a mantra, increased churn rates generally are said to be verboten. However, in specific, strategic cases, it ain’t necessarily so. Deliberately cutting off customers takes some fortitude because the investment community cares first about market share and second about revenues per subscriber, Masisak said.
“You might have to finesse Wall Street for a few quarters,” she added, in order to realize a longer term tangible gain.
Having gotten quite good at “going after customers who aren’t theirs yet, carriers aren’t doing as good a job at keeping the ones they already have,” Asmundson said.
“It’s that old 80: 20 rule where 20 percent of your customers produce 80 percent of your revenues. It wouldn’t hurt to call those customers with better rate plans.”
Another way to change the fickle behavior of customers, Asmundson suggested, is to move away from the analog cellular model of give-away phones to the old Baby Bell model of loaned handsets. Alternatively, there has been some discussion of engineering wireless handsets so that they don’t work once a customer changes carriers.
Doing so would, in turn, also help reduce customer acquisition costs, Asmundson said. At present, acquisition costs in both the United States and Europe are between $300 and $400 per subscriber, and they are not declining, according to Modisette.
“As it is now, subscribers have no skin in the game,” Asmundson said.
Wireless services providers also have enormous amounts of information about their customers that could help them manage retention better if only they would use it.
“Carriers need to look at information in a more holistic, client-centered way,” said David Stein, director of solutions marketing for Cincinnati Bell Information Systems.
“Typically, they are looking at it from a functionality viewpoint. They have a lot of information on sales and marketing, service delivery, billing. They need to pull that together into a central repository and use statistical analysis to determine the services and features desired and price sensitivity of different customers.”
Many other kinds of information, he said, also can be factored in: demographics, consumer attitudes, offerings by competing carriers, equipment issues, network coverage issues, etc.
“Churn is a very dynamic problem, and the tools for managing it so far have been static. The enabling technology wasn’t available 10 years ago,” Stein said. “The external factors that come into play, for example, may differ from one place to another.”
Traditionally, carriers have used their billing systems for customer analysis, but doing so slows down the billing process, Modisette commented. Summary information from billing systems is necessary in a data warehouse, along with “other information that would be nice to have.”
The trick is to avoid loading up a data warehouse “with more information than you ever wanted to know,” she said. At the same time, it needs to include enough to identify high-value and high-risk customers and to empower management and its employees to react to both customers appropriately and proactively.
Modisette likened the process of finding and keeping the best customers to the singles’ scene. “You probably can go out on a date every night if you have low standards.”
Following that analogy, the wireless industry must and will move toward the onset of a maturation process in its customer courtship ritual.
