Make New Friends, But Keep the Gold

A recent report by Andersen Consulting reveals that while new subscribers may mean silver for your company, the customers who stay are gold.

"Retention has three to six times greater impact than growth on the company's bottom line," states the report, Battling Churn to Increase Shareholder Value: Wireless Challenges for the Future. "There is a clear message here for those wireless executives who determine corporate priorities: Invest in retention, where the big wins are made."

Richard Siber, Andersen Consulting worldwide managing director for wireless consulting practices, said carriers spend between $5 and $9 on acquiring a new customer for every $1 they spend on retention, even though it can cost $300 to acquire a new customer and only $45 or $50 to retain one.

"It makes very little sense," Siber said. "There is an old saying, 'The devil you know is better than the devil you don't know.' Your customers, with whom you have developed a relationship and a billing and usage history, are very predictable. The customers you are acquiring today, about whom you know nothing, are really of an uncertain quality."

BE A GOOD LISTENER Andersen Consulting's report suggests that you should take a 3-step approach to battling churn. First, be sure you understand it. If customers leave, do your best to find out why, at what stage they were in their tenure when they churned, and where they went. Did they defect to the competition, or did they just discontinue service? Once you understand churn and its underlying factors, develop a program to keep your customers happy. Next, implement a plan to build loyalty among your high-value customers. The whole company should commit to this movement, from the top executives right down to the customer service representative.

The trend among carriers today is rewarding customers for their loyalty at a certain point, perhaps their 6-month or 1-year anniversary. Siber said that instead, you should call subscribers a month or two before they churn and offer them an incentive to stay. Incentives basically mean free minutes or a discount off the total bill. That will change in the future, Siber said, as you begin to capture data that really shows what makes your subscribers tick. He believes the wireless industry will begin to understand customers better once it begins capturing predictive and sophisticated front-end information at the point of sale.

When a person goes in to buy a wireless product, the carrier will go beyond a credit check and ask personal questions such as how often he goes grocery shopping, whether he has children, where he gets his car serviced, and where he likes to dine. Then the carrier can put together a profile on each customer and specifically tailor a program to meet his requirements, Siber said. If the customer adds cable TV and Internet service, he will see them all listed on a single bill. During the month of his birthday, the bill might tell him to take 15% off the total usage from all five services he orders or to take a free pay-per-view movie of his choice. Today's free airtime incentives maybe replaced with coupons from the customer's favorite retail and grocery stores.

"If you see where we are today and where we are headed, they are a fair distance apart," Siber said. "Financial services and the airline industry tend to be two of the bigger loyalty programs, and it's not as though the cellular carriers have not tried this. We, as an industry, just haven't done it effectively because we don't do things using information technology very efficiently."

Siber suggested that wireless carriers should look closely at other industries' customer-loyalty programs. For instance, the airline industry segments its users based on miles, price of purchased ticket or years of flying. Airlines categorize customers as bronze, silver or gold, then offer incentives accordingly. The wireless industry, on the other hand, does not differentiate much between delinquent payers and high-volume customers who generate $300 to $500 a month in revenue, he said.

Rich Hebert, Sky Alland Marketing president & CEO, agreed that the wireless industry is lagging when it comes to customer care. Sky Alland delivers Customer Relationship Management (CRM) solutions that help companies build customer loyalty and retention, with the ultimate goal of keeping their best customers for life. So far, Hebert has found the same trend in the wireless industry that he has through his work in the automobile and financial industries -- the most important thing to customers is good service.

"It's astonishing how little attention marketers pay to back-end service," he said. "We are so good at creating com-petition in America; almost overnight, new industries become commoditized industries. But you simply cannot ignore the need for customer care."

Sky Alland deploys a dialogue-based customer loyalty program where, through periodic relationship building and interaction, it helps companies retain customers. In every other industry in which Sky Alland has worked, customers have said that an ongoing dialogue shows them that a company cares. You need to look for silent sufferers and show appreciation for their business, he said, and they will remain loyal.

"Think about where you shop. You go back to the places where they know you by name, where they know what you need and have it ready for you," Hebert said. "You are loyal to the places where you have relationships. Wireless carriers don't have those relationships yet."

MAKE THE FIRST MOVE In order for you to establish and nurture a relationship, Siber returned to the idea of contacting the subscriber before he decides to leave. How do you know when that will be? A variety of companies, such as CBIS, Kenan Systems, Lightbridge and SLP InfoWare, offer products to help predict who will churn and when. But so far, Siber said, carriers have not made the best use of these programs.

"Rewarding a customer because she has been with you for six months is fine," he said. "If we know a customer is likely to leave us in month eight, today we let her go, but over the next 12 to 18 months, carriers will call her in month six and give her an incentive."

It's important to catch customers before they leave. Winning customers back after they have churned still will cost you dearly, even though you have their business once again. Possibly the most alarming part of Andersen Consulting's report reveals that sometimes churn has nothing to do with competitive activity; many operators inadvertently promote churn themselves. A study by the company for a European carrier found only 5% of customers were defecting to a competitor, and 40% were switching to other packages offered by the same carrier. So if a customer switches to another plan within the same company, is it really churn?

"Churn is really the financial implication of a customer migration," Siber said. "When this happens, the carrier still has to pay reacquisition costs."

For example, a woman goes to her local carrier because her battery is dead. She loves her phone and has been a loyal customer for a couple of years, she informs the representative. He responds that the new battery will cost her $68. Even though she only paid $1 for the phone a few years ago, batteries are still quite expensive, he continues. So she goes to the alternative carrier and finds that it will give her a phone, a cigarette adapter and a leather carrying case, all for free. She presents this other plan to her original carrier, who decides to keep her from defecting by signing her up again under a different name and giving her a free digital phone.

"Right now she has cost that company $600, and if she is only using that phone $10 a month, it might never reach a breakeven point on her," he said. "If she leaves in three months and takes the digital phone with her because she didn't need to sign the service contract, she has cost the carrier $600 plus the equipment subsidy, almost $1,000."

VYING FOR LOYALTY Churn in the wireless industry has reached epidemic proportions, averaging 25% each year in Europe and 30% in the United States, and studies indicate that it only will get higher as time goes on, Andersen Consulting reported. Siber believes the rate is so much higher in the United States because Americans have more choices when it comes to wireless service, and because of the media, they are more aware of these choices than people in some other countries.

"What we see in the United States is a competitive battlefield where the customer has been trained that if they wait, or if they shop, or if they use the tools around them, they can get a pretty good deal buying a car, a phone or PCS service," he said. "Where there are alternatives, you can do pretty well."

That competition has allowed more carriers to enter the market. Now that wireless carriers also offer local wireline, long-distance, Internet and paging services, they will have to treat their customers differently from in the past, he said. Carriers need to look at an individual as a communications customer and analyze his life cycle for all communications products and services rather than just as a paging or a cellular customer. For instance, a customer may be a$45-per-month cellular user, and he is treated as such by the carrier when it comes to billing and customer care.

"This new movement says we also should look at him as an Internet, mobile data, and cable TV user, and we may find that he is a $14,000 customer over an 8-year period vs. a $45-a-month customer for cellular alone," Siber said. "As products and services converge, we need to record the life-cycle value of the customer and stop treating them on a short-term, month-to-month basis. If you look at me as being a $45-a-month customer, you're going to treat me radically different than if you look at me and say, 'That guy is worth $14,000 to me.' You're probably going to send me a Christmas card."

Spending a little more money on retention programs can save you millions in the long run. With that in mind, you might even want to send a Christmas card to each of your new friends, and give the golden ones something more.