Special Feature

Reducing Churn: The Fast Route to Profitability

By Brendan B. Read, Senior Contributing Editor  |  April 01, 2011

This article originally appeared in the April 2011 issue of Customer Interaction Solutions

Shrinking customer churn is arguably the key concern of today’s businesses, and for good reason: it costs less to keep customers and to acquire new ones. Yet it is a lesson that too many firms, especially those in the wireless industry–which is a key business bellwether–required a painful economic downturn to learn.

Aidan Connolly (News - Alert) is CEO of Idiro Technologies (www.idiro.com). He points out that during the boom years, wireless companies cared little about churn and paid little heed to providing quality service to keep it down. Why be concerned with customer care, was their attitudes, when they had a queue of five prospects ready to take the place of every single dissatisfied customer that left?

Consumers, he recounts, often resigned themselves to the notion that their mobile providers really didn’t make any effort to understand their needs, and frankly, could not care less. In essence, operators and customers alike were completely disloyal to one another. If a lower tariff or new handset was introduced into the market, the mass exodus from one carrier to another was palpable.

“During the good times when the money kept flowing, credit was readily available and customers were willing to put up with inconveniences, errors, and in some cases, poor treatment just in order to receive the goods and services they desired. The blemishes associated with customer service were easy to hide,” reports Connolly. “Incorrect billing, lengthy wait times on hold for customer service representatives and an overall low regard toward customer satisfaction were unfortunately commonplace during the boom years.”

As a result, churn rates in North America and Europe in the middle part of the 2000s hovered around the 25 percent mark–“a striking figure any way one looks at it,” he notes. In some European countries, the churn rate approached a staggering 45 percent. “And nobody really seemed to mind,” he adds.

A Cataclysmic Shift

This telecom version of musical chairs continued for the better part of a decade–until 2008 rolled around. That was the beginning of a cataclysmic economic downturn that caused a massive shift in the consumer psyche.

When the tide turned, and the level of discretionary spending scaled down–and customers realized that they indeed do have some control over how they spend and how they are treated–mobile operators made a complete about-face when it came to customer service. Providers understood this changing dynamic and took whatever capital was available and invested in technology that could help with the delivery of more prompt, efficient, and satisfactory customer service. These included new platforms, advanced CRM tools and more skilled and better trained agents gaining prominence within the organization. Good customer service was considered a cornerstone of the brand, rather than an afterthought.

“Where once there were legions of potential customers, the reality was those remaining with disposable income became the new and smaller addressable market,” Connolly points out. “These new target customers were embraced, welcomed, celebrated and endlessly thanked for their patronage. “

Enter SNA

One of the more innovative solutions that have been introduced to drive better customer service is advanced social network analysis (SNA). These advanced technologies, says Connolly “give businesses real insight into the behavior of customers by allowing providers to understand the relationships between customers and how these relationships influence their purchasing decisions.”  Armed with these insights, providers can then cost-effectively target compelling retention, acquisition, up-sell and cross-sell offers to the customers most receptive to them.

In simple terms, SNA solutions map the communities that exist among an operator’s subscriber base, explains the Idiro Technologies’ CEO. By using data from CDR (call data record) and other demographic data and then applying a number of complex algorithms that determine the nature of the relationships between individuals and how these relationships impact an individual’s decision making behavior, SNA tools can then give providers a very good understanding of the millions of communities that exist within the network. They identify who the “influencers” and “followers” are in each group, so that operators can determine to whom, how and when to deliver an appropriate communication or offer.

It should be noted that all customer details are masked in the SNA process. Data and customer details are always secured, and all government mandates regarding data protection and privacy must be strictly observed.

SNA tools have made a dramatic impact on an operator’s ability to retain good, profitable customers. The industry has seen stark improvements in customer retention, sometimes in the neighborhood of 45 percent.

“Just by understanding the interrelationships that exist between subscribers, and then delivering compelling offers that satisfy specific interests, operators can often pre-empt systemic churn and turn subscribers on the brink into satisfied advocates for the company,” Connolly points out. “Instead of losing a customer base and scrambling to replace revenue and subscribers, churn is mitigated, and operators avoid launching expensive acquisition and marketing programs to attract new customers. And all of this has a tremendously positive effect on the bottom line.”

Save the Right Customers

Perhaps one of the most important aspects behind the concept of mitigating churn is for the operator to not focus exclusively on the customers that have already indicated they are about to leave. It is clear, he says, that once a subscriber has made the emotional decision to leave the provider, the chance of saving him substantially decreases. Instead, providers are encouraged to act quickly to identify and save the subscribers that could be influenced by that disconnecting user.

“Churn is viral; it is rarely an isolated incident,” explains Connolly. “Churn spreads from one consumer to the next, infecting them with negative thoughts about the business or service provider, and reinforces that the option to move to a new provider is a very real option.”

In financial terms, the virality of churn can be easily measured. A typical customer moving from one provider to another can bring as many as four subscribers with him – and strong social influencers can drag even more.

So, instead of a business losing a $100 a month per customer, a single subscriber can cause four other good customers to churn, representing a loss of $6,000 in annual revenue. This figure becomes even more dramatic when the marketing costs and time needed to replace these customers are factored in.

Rather than continually chasing customers–and money–operators now understand that using SNA solutions to concentrate their efforts on identifying and saving those customers who are likely to be influenced by churning subscribers makes the most sense from financial, operational and customer service perspectives.

“Even though the economy is improving and consumers are beginning to have more disposable income, we suspect–or at least hope–that large service providers have had their epiphany, and understand that maintaining a loyal, satisfied customer base is the fastest path to improve profitability,” Connolly points out.

Brendan B. Read is TMCnet’s Senior Contributing Editor. To read more of Brendan’s articles, please visit his columnist page.

Edited by Stefania Viscusi