Customers Fading Away?

In 1998, annual churn in the U.S. wireless market reached almost 26%, according to industry statistics. Although 4 million new subscribers entered the market, 16 million either switched providers or cancelled service. These numbers are expected to rise significantly in coming years.

Customer acquisition cannot come close to matching churn rates. The large number of customers willing to switch providers has had wireless companies scurrying after each other, matching rewards and rates programs as quickly as they can say "me too." Recent rate wars indicate that this trend continues, but churn numbers do not indicate that such programs work. Because there is so little difference among the competing programs, customers have every reason to switch as often as they see a better deal.

How can you differentiate your programs from all of the others and retain high-usage customers? By providing value.

In the current market, informed customers have newer and better deals tossed at them nearly every day via direct mail, telemarketing and advertising. However, these deals are not better for everyone. For instance, one of the summer's most notable rate-plan wars was better for customers who spend more than 200 minutes each month on long-distance calls, according to The Associated Press. However, the average wireless customer places only 80 minutes of long-distance calls a month. Still, how many of your customers are aware of their calling patterns or will calculate the benefits when they see a lower price that seems to offer better value? You can provide your customers and your company with this knowledge.

KNOWLEDGE IS VALUE Do you know your most valuable customers' calling patterns? Do you know what your customers value? Can you calculate the benefits of a customer using one plan instead of another? If you can't answer these questions, you will contribute to high churn rates.

The key to providing this level of value is knowledge: the right combination of information, strategy and analysis. By developing a comprehensive customer-knowledge base that you can share across the organization, you can identify customer values and develop offerings to meet those needs. The customer-knowledge base represents a cycle of communications through which lifetime relationships are created and managed. The cycle's framework is data that passes through frequent contact points, advanced analytic capabilities and an innovative marketing strategy to form a dynamic source for understanding customer values and needs.

Your goal must be to understand each individual customer's multiple dimensions. This knowledge allows for improved strategic marketing to build more profitable lifetime customer relationships. With significant data resources and applied analytics, you can build a holistic view of each customer that displays the multiple relationships between you and the customer. For instance, one customer might respond to both personal and corporate offerings, indicating two entirely different relationships with you. This customer's usage patterns are different in each relationship. A customer-knowledge base allows you to identify relationships, view usage patterns, build profiles and better market to this customer.

NOT YOUR BASIC DATABASE Trended financial data, combined with the right demographic and lifestyle data, can tell you exactly which customers will respond to particular products or promotions. The right combination of data and analytics can identify clearly price-sensitive customers vs. those interested in the latest technology. With this knowledge, you can create profiles based on actual customer behaviors, values and needs.

Generating this dynamic, comprehensive customer knowledge requires technological sophistication, creativity and a commitment to understanding the customer at all contact points. When you understand customers at the behavioral level rather than at the product level, you can build a composite view of customers based on their interactions with you over time.

For instance, Customer A has been a good customer for 14 months, remaining on the same plan, despite a noticeable change in calling patterns about six months ago. She has not responded to your cross-sell and rate-plan offers. She probably has thrown away your direct-mail pieces or hung up on your telemarketer. Traditionally, carriers would leave her alone or continue to give her the same offers as everyone else. However, according to the statistics, she has lasted longer than most others and potentially could be considered one of your most loyal customers. A customer-knowledge base's trigger analytics would tell you when her calling patterns change and identify the rate plan that would best meet her needs. Since past communications vehicles have been unsuccessful, you could send her free calling time to reward her for loyalty. The customer-knowledge base helps drive decisions on customer loyalty, the best rate plan and the most appropriate marketing tool for this customer.

RETENTION ELEMENTS Successful retention programs require two elements: the profitable customers that you want to keep and determining what those customers want most. Both elements require a comprehensive customer-knowledge base and will feed sales and marketing strategy in tandem. For instance, predictive models and analytics may indicate that Customer A has low churn risk but a high profit margin. She is definitely a customer you want to keep happy. Customer B also appears to be worth retaining; however, Customer C may not be worth it. These scenarios have helped some carriers reduce churn by up to 60%.

How does all of this work? Developing a strategic knowledge base first requires the right data set. You must combine trended financial data with your own customer data and the appropriate mixture of demographic, psychographic and lifestyle information. Data becomes knowledge only with the right analytics. Applying segmentation schemas and developing probability and estimation models drives your ability to understand customer behavior, needs and values. The result is an understanding of customer motivations, needs and lifetime value at the individual level.

By analyzing observable customer behavior over time, you can identify customers' needs in the future, allowing for a more pro-active customer-retention approach.

Churn statistics continue to paint a dire picture. Why aren't carriers winning the war against churn, and what can be done to turn the numbers around?

It's time to expand thinking and shift your focus from buying tools to looking at retention as a process. Some carriers now are taking a much more systematic approach by mapping out the entire retention process, identifying the gaps, then taking appropriate action. Typical steps for building a holistic retention approach include:

* Implementing profit-based segmentation to help focus resources on customers who matter most.

* Aligning customer-contact mechanisms with the appropriate profit segment. Contact mechanisms are the channels used to pro-actively build loyalty (telemarketing, account management, direct mail) and to save customers (inbound call centers, save teams).

* Building a retention platform to deliver lists of high-risk customers scored by churn likelihood, profitability and other relevant criteria (number of blocked calls, calls into customer service).

* Mapping the workflow. Build a complete picture of how data the retention platform creates is delivered and acted upon by employees.

* Conducting a gap analysis, which will identify the areas in greatest need of improvement. Some carriers are well equipped to deal with average-value customers, but poorly equipped to manage high-value customers. Front-line employees often do not know the relative profitability of the customer, let alone what to do to save the customer.

Think of the adage "look before you leap" while building next year's retention budget. Y2K may be the year to optimize and plan around the systems you have instead of adding to the list.

A customer-knowledge base represents a shift away from marketing by product to marketing via demographic and lifestyle. By viewing customers' behavior and their points of interaction with you, the knowledge base:

1. Provides a customer understanding that bridges traditional product-line barriers, showing a more complete customer view.

2. Allows for dynamic, ongoing alignment with customers over time.

3. Optimizes offers by identifying the best offer at each marketing point of contact.