Loyalty strategies are now designed to curb churn
Europe’s leading telecom providers are losing ground in their core area, the fixed line business. Even worse: the loss of landline access means the end of the customer relationship. A study by Roland Berger Strategy Consultants shows how providers can keep customers who are willing to switch and win back those who have left.
According to the study, the key lies in understanding one’s own customers and in reaching customers who are willing to switch to other providers. Large European telecom providers would have to fight to assert themselves in their former area of expertise – the fixed network business. Between the first quarter of 2006 and the first quarter of this year, some providers had already recorded losses in the double-digit percentage range.
The consultants name lower prices, simpler products and a lack of customer service as the three most important reasons for switching providers. Once customers have decided to switch providers, they often do not return. The market leaders must therefore act before they lose their customers. The study shows four different measures to identify customers who are at risk and to initiate measures against a switch at an early stage:
First, the development of a forecasting model that can be used to identify customers who are willing to switch. Second, the development of loyalty tools and measures for these customers. Thirdly, the introduction of attractive telephony and broadband products. Fourth, all of this must be checked for cost efficiency. The third point in particular, the simplified products, is now one of the most important tools for satisfying customers in this highly competitive market.
Functioning prediction models would have to identify and classify customers who are considered willing to switch as precisely as possible. In addition, the model must be precise enough to distinguish between different types of hazards. The prediction model should also be integrated into the company’s customer relationship management (CRM) so that customers at risk can be identified immediately, for example in the event of complaints and service requests.
“As soon as it is clear which customers are particularly at risk, it is important to find out how their trust and loyalty can be regained,” explains Klaus-Ulrich Feiler, partner in the InfoCom competence center at Roland Berger Strategy Consultants and one of the authors of the study. It is true that rapid success can often be achieved through special service offers, but this often requires far-reaching offers. Despite legal restrictions, heavily regulated companies could also revitalize their customer relationships, for example through attractive short-term products, premium offers in the form of one-off payments or bonus programs, installment payments, hardware upgrades or “money-back” offers.
It is crucial to find the right approach for different types of customers who are willing to switch. The study recommends starting with a direct marketing campaign first. In a further step, companies should check their forecast model for its range and accuracy and link it to their CRM system. This would allow call center agents to identify churn customers when they answer calls.
For efficient and successful recovery strategies, a clear distinction must be made between customers that the company needs to keep and those that the company can do without. The study cites the following four parameters as an example: the average per capita turnover (ARPU), the risk of cancellation, the premium costs and finally the influence of the premiums on customer loyalty. “An optimal adjustment of these factors is crucial for the success of a customer retention strategy,” says Berger expert Feiler.
The experts also name the right timing as an important factor. Real-life examples have shown that up to 30 percent of customers who cancel their landline connection will go back to their previous provider if they are contacted quickly enough. Specially trained and highly motivated employees should address customers who are willing to change. For example, external “rescue teams” who work on a commission basis could be used for this purpose. All in all, suitably tailored loyalty strategies, combined with a short response time, could curb migration in the fixed network area and thus minimize revenue losses.