Churn it Down

As the novelty of wireless fades, subscriber adds are sinking fast. Carriers need to learn how to make customers stick around.

Before the current quarter, wireless customer acquisition numbers were swelling at roughly the same rate as Russell Crowe's ego. In fact, U.S. carriers were so lulled in this dreamy state that they lost track of existing customers who were skipping — even running — out the back door.

According to a report by Yankee Group analyst Roger Entner, annualized subscriber churn numbers ranged from 21% to about 80% at the end of 2001, forcing carriers to find a spot on their lists of critical business functions for customer retention. But while everyone is becoming more serious about implementing churn reduction programs, Entner has found it is not yet a concerted effort.

What are carriers waiting for? Entner's report indicates that if AT&T Wireless reduced churn by only 10% in exchange for providing subscribers an additional 120 minutes of monthly usage, it could increase its lifetime value by more than $360 million over two years and improve its corporate image. (“Every time someone churns, a carrier's brand equity declines,” Entner said.) But rectifying the situation will be a challenge because the No. 1 reason consumers pick a provider — competitive pricing — can result in a shabby bottom line and a slap on the wrist from Wall Street.

Thirty-eight percent of respondents to The Yankee Group's 2001 Mobile User Survey said they would switch carriers if offered a 5% price reduction. (And 57% said they'd switch to Sprint PCS for a date with “that hottie in the trenchcoat” from the carrier's TV commercials, but that's neither here nor there.)

But Entner believes manipulating price points is the result of “a lack of imagination — if the only way you compete is by lowering prices, that's an admission of defeat and near-ineptitude.”

The key for carriers to fight churn and attract consumers for the long term will be differentiation, Entner said. “Right now, to most consumers, one carrier's as good or bad as the other. If the soap industry has been able to differentiate itself and throw a marketing campaign around it, one would think wireless communications would think it a reasonable thing to do.”