Eleven Ways to Reduce Telecom Churn
by Arthur Middleton Hughes
Telephone companies and cable TV companies (Telecoms) have been offering consumers what they call “The Triple Play (News - Alert)” of phone service, broadband and TV (including movies on demand). The cable companies started it by offering broadband, and later phone service. The Telcos fired back by offering DSL broadband, and most recently by offering a full range of TV and movies. As a result, a small number, and eventually most of the consumers in America will have the option of getting these three services from at least two competing companies.
One result of this situation is that soon broadband and phone service will become commodities. A commodity is defined as a product or resource that is traded prima¬rily on the basis of price and not on differences in quality or features. When a product or service becomes a commodity, in the long run, the market price of such a commodity will fall to the marginal cost of the lowest-cost volume producer.
A commodity is something like corn or wheat which meets recognized standards so that one bushel is like any other bushel. At any time, there is a national price for wheat which is determined by daily trading in the Chicago Board of Trade. When phone service is excellent, as is generally true for Verizon (News - Alert) and AT&T, the only issue will be price. When broadband is fast and doesn’t break down, who cares whether it comes from Comcast, or Verizon? Because of the Internet, consumers can learn what the lowest available price is for broadband or phone service in their area. Result: churn – consumers are constantly taking advantage of better offers and switching providers.
One way to avoid churn is to use mass marketing to persuade the public that your service is somehow better. This process is called product differentiation. This is what the makers of Tide, Bold, Downy, Gain, Surf, Wisk, and many other laundry detergents have been doing for years using mass marketing – trying to tell us that their products, in some way, get clothes cleaner. And product differentiation is what the Telecoms are trying to do today using mass marketing for phone and broadband. But the Telecoms have a disadvantage not shared by detergent manufacturers: the cost of switching is much higher for the Telecoms. Mass marketing is not doing enough to reduce churn.
Churn is expensive. A typical Telco or cable TV company spends over $200 to acquire a new broadband or phone customer. When the customers switch, you lose not only the acquisition cost, but the revenue that customer would have provided you for a year or more. Churn costs AT&T, Verizon, Comcast (News - Alert) and Time Warner Cable, to mention only four Telecoms, billions of dollars every year.
There is a better way of avoiding churn than just mass marketing. The Telecoms have two significant advantages over the manufacturers of laundry detergents: 1) Telecoms have the names and addresses of their customers, and 2) the Telecom customer’s monthly revenue is much more. Telecoms can compete using a method that is more cost effective than mass marketing: database marketing.
Using database marketing, it is possible to build a relationship with customers that will keep them from leaving. The secret? Personalized communications. If you can develop a dialog with your customers, they will rarely leave. Traveler’s insurance research proved that customers who hear from their agents on a regular basis are much less likely to leave. But if you are going to communicate, what can you talk about that will keep your subscribers from leaving? Here are eleven different communication strategies that you can use to keep customers from leaving.
1. Review their price plans. Study each customer individually, and develop price plans for each of them that recognize their value and reward them. Don’t make this a public announcement. Make it a personal message from you to each customer.
2. Use analytics to predict defection. With a modern database it is possible to identify potential churners with an accuracy of better than 90%. Once you know who is thinking of leaving, create a message with an offer that will head them off at the pass.
3. Sell them a second product. This is why the Triple Play is important. Bundle the pricing of the second product with their current plan so that they end up better off. Make it expensive to switch back.
4. Thank them for their business. You can send a simple letter: “You have been a Verizon customer for five years on June 24th, Mr. Williams. We just wanted to thank you and to let you know how much we value your business.
5. Don’t rely on statement stuffers to communicate. Everyone knows that advertisements can be put into the envelope with the monthly bill. The postage is free. How wonderful! But don’t fool yourself into thinking that this is a communication. Most people chuck out the junk that comes with the monthly statement. You must communicate with your customers to keep their loyalty, but this is not the best way. If you think it is, compare the response rate to statement stuffers with that of a personalized direct mail or email piece. Typically, a well-crafted personalized direct mail or email piece will generate several times the level of response and conversion of a statement stuffer. To be effective, however, the message must be personal: “Dear Mr. Hughes.” And it must be offering the “Next Best Product for Arthur Hughes” determined by analytics, not the “Product of the Month” that is sent to everyone.
6. Develop a customer contact strategy. Some companies have a policy of six touches per year, remembering that a bill is not a touch. Every one of these six touches should be personal, and as far as you can determine, of interest to the subscriber. Finally, they should promote one, and only one, product: shift to digital, or upgrade, or a better price plan. Don’t give them a menu of choices. Give them a single specific offer. Study after study confirms that choice kills response.
7. Review each customer’s situation on a daily basis in real time. Once a month is far too slow in this fast moving Telecom world. Modern databases can be updated several times a day. The updates are used to score all customers by their LTV and churn potential. The matrix can then be used to review each customer on a nightly basis, and develop automatic communications before it is too late.
8. Let customers manage their services themselves. As customers invest more of their time to managing their accounts they feel more committed to the relationship. Churn goes down.
9. Get customers to become advocates. Referred customers typically have a lower churn rate than the average customer. So set up a program to reward your customers for providing you with referrals that sign up for your service. Advocates have lower churn rates as well. So you will be getting double mileage out of a referral program.
10. Study the calendar. Churn typically happens mainly in certain months, or certain periods of time after the customer first signs up. When you know which are the most active churning months for each customer, mount an aggressive proactive campaign to head them off at the pass.
11. Study Usage. When usage suddenly drops or declines, you know that churn is coming.
Build a marketing database of your customers with their usage history. Do analytics to predict who might leave. Then use the database to communicate by email or direct mail. You can use communications to make a major reduction in customer churn.
Arthur Middleton Hughes is Vice President / Solutions Architect at KnowledgeBase Marketing (www.kbm1.com) which builds and maintains marketing databases for major companies. Arthur is the author of Customer Churn Reduction and Retention for Telecoms published by RACOM Communications in 2007 and available from Amazon.com (News - Alert). You can reach Arthur at Arthur.firstname.lastname@example.org
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