Carriers Struggle to Control Churn

Churn is one of the most dreaded words in the industry. Providers think about it daily as their customers leave and purchase services from others. To combat this exodus, providers go to great lengths to entice customers to stay, but thus far, they have largely failed to do so.

On average, providers face about 30 percent churn rate annually—that amounts to roughly 2.5 percent per month. According to a Gartner Dataquest report, this monthly rate will likely persist for the foreseeable future. Many in the industry acknowledge that the rate can vary dramatically by carrier, but typically these statistics hold true for the established, brand name providers. And in general, wireless carriers deal with higher churn rates than wireline carriers.

David Meredith, director of the customer relationship management practice at AMS, estimates that churn costs the telecom industry $10 billion a year. On average it costs a provider $60 to retain a customer but $350 to $400 to acquire a new one, he says, and at the same time providers lose one-third of their customer base annually.

In addition, new accounts tend to be less profitable, since many companies offer heavy subsidies, through discounts and promotions, to acquire a new customer. As well, Meredith notes that the percentage of bad debt among new customers is typically higher than among established customers.

Christine Wright, vice president of knowledge management at Convergys, adds that newer incumbents often face higher churn rates. Yet she believes that, while the industry is facing tough times, churn rates have actually not risen in the last four years.

A View From the Top

One major problem is the lack of an executive-level focus that encourages an enterprise-wide effort.

Meredith says AMS is working at the vice chairman and board of directors levels, as well as with each functional area, to implement churn reduction systems and processes. The idea is to work on one area at a time, while working as well at the C-level across the enterprise. And, he says, the management at the top three wireless carriers that AMS works with all receive bonuses based on performance goals to reduce churn.

Many carriers maintain, however, that management has always given a great deal of attention to the problem. “I think that we’ve always focused on this from an executive level,” says Dana Chase, director of acquisition in Sprint’s Mass Markets Organization. Chase does not believe churn has necessarily increased in importance since the telecom market slump; however, she does note that the causes of churn evolve and change, especially as new technologies affect customer behavior. Sprint has certainly had to evolve with customers’ increased usage of wireless services.

Cindy Rock, vice president of sales and service at Sprint, says that it is very easy to lose long distance customers, so Sprint learned early on that it had to put churn on the radar screen. But overall, she says, “it’s the same set of [churn reduction] objectives we’ve always had.” Sprint itself has not devoted a task force specifically to the problem.

A Range of Reasons

One of the biggest causes of churn is price. Customers seek competitive prices for any product they choose, so as a provider rolls out promotions, discounts or new pricing plans, its competitors must do the same or better. Wright at Convergys estimates that the bulk of churn—about 48 percent—comes from people who go over their allotted rate plan minutes.

As well, customer calling patterns—whom they call and when—might change dramatically six months to a year after they sign on for a particular plan and therefore could be a factor. Sprint tracks changes in individual calling patterns so it can contact customers to head off their possible departure.

According to spokeswoman Catherine Lewis, Verizon is trying to listen to customers and develop products based on needs they are articulating, so that customers are not force-fitting services to their needs. “Products are based on what customers are telling us they want,” she says. This is particularly the case as wireless carriers begin rolling out their next-generation services.

Leaving a provider is now easier for the customer. “Because of the competitive nature of the market, [providers] have done away with contracts,” says Wright; many of them “did away with contracts that were highly prevalent four to five years ago.” She believes contracts might work at first, but that a customer would most likely jump ship in the end anyway.

The younger age group targeted for services also has had an impact. This group, with its lower credit thresholds, tends to use more prepay services, and prepay customers can churn more easily. Among the carriers Convergys works with, Wright says, 50 to 60 percent of the customer bases subscribe to prepay plans. In addition, the cost to change providers is less than before—another lure for customers to switch.

Network issues such as outages, dropped calls and service footprints are other important factors, as are bad experiences with customer care and billing. Although many in the industry expect wireless number portability to add to the problem, Wright does not. Instead, she believes it could help many providers in terms of customer acquisition. “We’ve only just started looking at modeling some of that data,” she says.

Wright does believe however that while churn rates are remaining constant, churn is actually happening earlier in the customer lifecycle. “Customers are churning at a much faster rate, earlier,” she says. Many are reviewing price plans of other carriers much sooner—as little as 60 to 90 days after signing on with a provider. As a result, carriers must analyze churn causes and triggers sooner, to be able to intervene with customers.

Counting Smiles

Measuring customer satisfaction is a critical task in churn reduction. Verizon’s Lewis says, “The onus is on the business to provide good customer service.”

Rock says Sprint tries to provide a pleasant customer experience and make sure every contact is a positive one. “We try to make changing providers something customers don’t focus on,” she says.

Sprint collects information daily, by location and by customer segment, about the perception of how Sprint operated the day prior. Rock says the company takes this information seriously and constantly self-evaluates through weekly readouts to measure its performance. “It’s just basically part of our process,” she says. “It’s so embedded into our culture internally … to hold ourselves accountable to those survey results.”

Sprint is hoping to automate this process even further; the more information it can get at the CSR level, the better. Chase says, however, the company doesn’t want to annoy customers by surveying them all of the time. When customers do churn, Sprint surveys them and compiles the information into a monthly research study; it also makes calls to win them back.

Disjointed Efforts

Sprint conducts targeted marketing if it detects a change in calling pattern. Yet most carriers find it difficult to market to customers cost-effectively, with an eye on both their propensity to churn and their value. PeopleSoft’s Daniel Kenyon, vice president of communications strategy, says it is important to measure how effective the organization is at offering service to a customer at a level that is still profitable. Very few of the carriers he works with have implemented a targeted customer focus to decrease churn.

Meredith at AMS says a provider must look at this from an operational cost perspective: if its marketing efforts are not targeted, the provider could end up giving away discounts to people who did not need them. This often results when marketing and care organizations operate separately. Marketing groups may look at the value of a customer or churn and in turn enact a marketing campaign. Meanwhile, customers get upset when dealing with customer care. The departments’ efforts are rarely linked to give the provider a full history of the customer’s relationship.

Most providers try to save customers at the moment they bolt, Convergys’ Wright says. But this is not enough; providers must use proactive enticements. These could include welcome calls after subscribers receive their first bill—contact that helps to alleviate sticker shock or remorse over installation or equipment charges. Other proactive measures include loyalty plans and periodic reviews of rate plans, yet not everyone uses them. Wright estimates that 50 percent of carriers are using some type of proactive means to reduce churn.

Building Loyalty

Customer loyalty is determined largely by the provider’s actions, says Amdocs Vice President of Marketing Peter Hurst. “A lot of what drives loyalty is what happens when you put the phone down,” he says. It is more than what happens in the front end—when the customer, for example, speaks to a customer service representative or goes online—and it is more about how the promises the provider makes are carried out through the back office processes and systems.

Many believe that electronic bill presentment and payment promotes customer loyalty, especially when customers can use a credit card. Lewis says Verizon has found online billing to be effective. While customers may be swayed to stay if their bills are already tied to convenient payment methods, Sprint’s Chase doubts that this truly instills loyalty. Customers who want the convenience of online billing, if Sprint didn’t have it, might find someone else who did, but she believes that by itself it is not necessarily a reason people stay.

One significant effort to increase loyalty involves offering multiple products. “One of the ways Verizon is trying to reduce churn is through bundles,” says Lewis, and it has found packages to be great tools.

According to Meredith, “Every time you cross-sell a service to a customer, you decrease churn by one-third.” This explains why so many carriers take cross-selling so seriously.

Sprint refers to its bundling strategy as “anchor-tenant,” in which consumer long distance is attached to other communications anchors and external partners. AOL, insurer USAA, United Mileage Plus and EarthLink are all partners in this strategy.

Internal offerings that are part of the anchor-tenant strategy include the Sprint 50 at Home plan, in which Sprint offers 50 free minutes of domestic long-distance calling per month from a home phone. This was actually made the lead offer for new customers through the company’s promotion channels, and offered to existing customers reactively. The product is currently promoted at point of sale in PCS stores, at affiliates and at Radio Shack. In addition it is offered when the customer activates a PCS phone and through direct mail. “The feedback that we receive from the customer is that that inspires loyalty,” Chase says.

“Some carriers believe cross-selling other products and services is proactive churn reduction,” Wright at Convergys says, but “whether or not that actually reduces churn, I don’t know.” In this respect, she says, perhaps the issue is a little of the chicken versus the egg. As Wright sees it, customers who are loyal buy multiple services, more so than the other way around.

Spanning the Enterprise

Whatever the merits of bundling for boosting customer loyalty, it does pose some challenges from a systems perspective. Providers offering these types of bundles will have to manage that complexity across business units, which is no easy task.

More than 50 percent of CRM implementations are failing today because they cannot work across the enterprise or different enterprise divisions, such as bundled wireless and wireline offerings, says Wright.

When dealing with legacy systems and very large systems, integration is a huge task, notes Verizon’s Lewis. Integration to allow more proactive churn reduction is critical. But “it’s a training issue, it’s a resource issue, and it’s an integration of back-office systems issue,” she says.

“We have entire organizations who are focused on integrating the company—the systems and the processes,” she says. “Every time we roll out a feature, it goes across our entire business. It ripples all the way through the organization.”

Sprint’s bundled loyalty offerings are an example of enterprise-wide retention efforts, but Chase admits that reaching across an entire business to track customer behavior is not easy. “Some data points are more difficult [to capture] than others,” she says.

Analyze This

Analytics have become the key to proactive churn reduction. Once a provider understands the nature of its customer relationships, it can establish regular actions for a CSR to cross-sell, up-sell or otherwise prevent a customer from switching.

But billing systems are not set up to manage analytics. “The billing systems are very static. They’re not malleable,” says PeopleSoft’s Kenyon. They track transactions, not customer data, whereas analytics use complex algorithms to mine transaction and other data. “It’s a very complicated process if you have six or seven billing systems you’re using to bill the customer,” he says.

“The real focus we’ve had for the last couple of years has been around the integration of churn analytics at the point where the CSR deals with the customer,” Kenyon says. The actual goal would be to use a customer profitability analysis to drive the CSR’s actions.

About 10 percent of the carriers PeopleSoft works with have a churn system linked to the call center desktop. Yet calculations are still originating in the back office, he says, and churn is still not handled in real time. One ISP that PeopleSoft works with has developed a system that identifies customer who fail to connect to the network several times, and shows their increasing propensity to churn in real time. The tool systematically flags such customers so the company can do something about it.

Wright says, “You can predict who’s going to churn very reliably. It’s really the execution—the marriage of the analytics with the action that’s horrendously difficult.”

Turning Data Into Action

Wright says providers need to take data from operational systems to identify churn triggers, such as the number of calls a customer places into the call center, whether a customer is using the number of minutes in a plan too early and not getting the full value of a plan, and other indicators. A decision engine could use this information, when the systems are triggered, to call for types of interactions that are meaningful to customers.

For example, if a provider monitored daily customer usage patterns from the billing system, the billing system could trigger an alarm to indicate the customer is over-using minutes on a plan. A customer going over that threshold will pay a higher price point per minute for calls—but the provider instead might want to sell them on a better plan, rather than face customer churn. The system would not only trigger an alarm for rate plan optimization but also figure a better rate plan, and it could trigger an alert via an integrated voice response system. The carrier would determine the decision rule for how to deal with the customer, whether e-mail or a phone call by a live agent.

The effectiveness of these actions could also be measured. Convergys is developing tools to operate this type of proactive campaign; it is in the pilot phase and not currently deployed with any carrier. “We believe it will in effect be able to reduce the net churn rate by 5 percent,” Wright says. Depending on the carrier’s size and churn rates, it could represent a significant savings.

Systems Integration

Analytics do very little for a provider if it cannot connect that information to see exactly how its actions impacted customers. To turn data into action, systems integration is imperative. “You have to pull that data out,” Meredith at AMS points out. “Tying that together is difficult for the telcos.” In some cases providers have 10 to 15 data sources—some internal and some external—all feeding into a decision engine. While AMS’s product is built for a customer view across the enterprise, telecommunications companies aren’t using it that way, but in functional areas. In contrast, financial companies use it across the enterprise. “It’s definitely a cultural issue,” Meredith says.

“It’s very hard for them to get accurate customer data in a timely manner,” PeopleSoft’s Kenyon says. And that it is even more difficult for the larger providers. Kenyon suggests that providers need to integrate customer care and order management, acquisition and retention—they each need to come from the same system.

Curbing Churn

“I think the perception is they’re doing a lot but they’re not doing it as effectively as they can,” Meredith says. “They’re not getting the results they want to.”

With the right systems and training, providers need to minimize the problems customers have, Hurst at Amdocs says. Quick recovery is needed if someone has churned, or is going to. Speed is critical, and can only be achieved with automated systems, solutions and procedures that can react on the fly.

Providers must employ rules-driven systems—giving the CSR a certain level of freedom to discount, to use those discounts to work with the customer, but at the same time employing system limitations. All of this must follow an understanding of the nature of the customer’s historical contact with the company. And providers must assess the value of customers against the price they are will to pay to retain them.

Because there are so many causes of churn, managing it across a vast and complex enterprise is a major challenge. Providers must track every interaction and be prepared to deal with churn in real time before it is too late.