Retaining your telecommunications customer base: Put water in the bucket before the fire breaks out

The Canadian telecom industry is on the brink of a period of rapid change. With the expansion of the wireless spectrum to new competitors and the imminent introduction of 4G wireless technology, the shape of the industry will undoubtedly look much different in the next two to three years. A snapshot of the potential future of the Canadian telecom industry perhaps lies in Q1 2009 numbers released by Telus, an industry leader with $9.7 billion in revenue. Year over year (YOY) wireless subscriber additions were flat, rising only 0.3%, while subscriber addition rates had grown 4.8% YOY for Q4 2008, and 17.0% YOY for all of 2008. At the same time, Q1 ‘09 YOY net additions dropped 46%. Deactivations pushed monthly churn rates to 1.62%. “The worsening trend is believed to be primarily due to the weakening Canadian economy,” said Telus in a release, citing “lower consumer confidence and a resulting decrease in retail sales including customer deferral of buying decisions; lower and more cautious business spending; and lower employment levels.” Certainly such factors apply, but the story doesn’t stop there. The United States telecom industry encountered similar problems pre-recession because of such factors as deregulation, increased competition and corporate addiction to acquisition over retention. Canada is just beginning to embark on a journey similar to the 12-year trek that the US started in 1996. So, as the Canadian telecom industry welcomes new competitors and starts to market the new technology-fueled 4G, how will these new competitors and a broader set of services affect your customer-acquisition efforts? Even more important: How will these factors affect your ability to retain your existing customers? To profitably manage your customer base and dampen the blows dealt by this new era in telecommunications competition, you must anticipate how the impending paradigm shifts will affect your business in general and your customer retention specifically. In this environment, it’s increasingly critical to understand what our customers say is – and isn’t – important to influencing their likelihood to switch telecom providers. Toward that end, COLLOQUY and LoyaltyOne conducted a February 2009 research study with 985 Canadian consumers to identify the issues that influence their stated intention to stay with their current provider. (A PDF version of this article with charts and other information can be accessed by clicking on the link at the bottom of the page.) As expected, the most important considerations in choosing a telecommunications service provider are reliable service (86%) and good customer service (81%). Competitive price is also important to subscribers, with almost 8 out of 10 subscribers ranking it as very important. While Canadian consumers can’t yet fully appreciate the greater breadth of options and more aggressive offers they’ll soon be bombarded with, their responses – placed in the context of upcoming changes – reveal some clouds darkening on the horizon. The research indicates that satisfaction ratings vary by category. But, the percentage of wireless customers saying they are very satisfied with their current provider lags behind other categories by as many as 20 percentage points. In addition, consumers’ responses to “How likely are you are to switch services from their current provider?” reveal that as much as 20% of dominant incumbent Bell Canada’s landline customers and nearly 30% of their Internet customers are at risk and are considering a change within the next 12 months. When we investigated the benefits, incentives and rewards that appeal to telecommunications customers, four perks topped the list: 30-day trials of new services; assurances that customers are “right-sized” (matched with the most appropriate price plans for them); unlimited minute plans; and – not surprisingly – cash rebates. Between 20% and 26% of customers said that these benefits would make them “very likely” to switch providers. Customers also ranked receiving loyalty points/miles above 14 other incentives and benefits presented in the study, and 16% of customers said that loyalty points/miles would make them “very likely” to switch. So, how should these stated consumer intentions and preferences shape your retention and acquisition strategies? Clearly, a holistic approach that combines service enhancements with tangible rewards for the customer’s loyalty will work best. Tip #1: Build trust into the relationship If history is any indicator, an acute period of rapid changes to the price and promotional plans offered by Canadian telecommunications companies lurks on the horizon. Yet, customers still consider telecom services a commodity that they’d rather not think about in the midst of their hectic daily routines. What if you took the angst out of the equation? A best-plan guarantee clearly demonstrates to customers that you will proactively help them keep up with your best offers, and reduces their perceived need to shop your competitors’ offers. Tip #2: Avoid the “self-talk” It seems intuitive to reward customers for their loyalty in exchange for additional in-kind products and services (a telco’s own offerings, such as upgraded handsets, service upgrades, and so on). Yet, that approach suffers three flaws. First, once again, consumers perceive telecom service as an unglamorous utility, an ideally low-involvement commodity. Second, why would consumers desire and value more products and services before they even recognize an expanded need for them? Demand must be cultivated through education first. Finally, both our Canadian consumer research and actual in-market tests in the US demonstrate that in-kind benefits generate little interest and engagement. Tip # 3: Test what really changes behaviour COLLOQUY’s research study – and your own customer research – provides a strong foundation for developing a broader strategy to retain your customers and attract new ones during this tumultuous period. Testing best plan guarantees and new service bundles is a given. But, the trickier question is what recognition and reward strategy will stand apart from what your competitors can also offer? Here’s where a lesson from our neighbours south of the border may provide key insights. For the last 12 years, US customers have said “give me discounts” and “give me handsets” in research. Yet, market tests with US telecommunications providers reveal that customers will take advantage of merchandise rewards and experiential rewards more than they admit to in research. In fact, when COLLOQUY analyzed the behaviour of US customers who have redeemed for discounts, telecom products, merchandise and experiences, we found that experiential rewards have the greatest impact on retention rates – in some cases, as much as a 10 percentage-point improvement in retention. So, as Canadian telecommunication providers begin to struggle to retain customers as competition increases, a preemptive strategy may be the best solution. Don’t fall into the trap of passively blaming only the economy for delayed customer-purchase decisions – because, in a sense, there’s no such thing. No decision – in this case, deactivation – is in itself a decision. More important, other significant forces are about to bear down on the industry. To maximize customer retention rates, give yourself a head start by applying pre-recession lessons learned by US telecom leaders. Of course, researching the needs and preferences of your specific customers is critical to defection defense. But we predict that your tests will reveal that your customers will respond positively to rewards and recognition benefits. Begin devising a retention strategy that leverages reward and recognition tests before attrition rates start to rise. Fill the bucket and test the waters, as they say, before the fire breaks out. About the authors Kelly Hlavinka is Partner, COLLOQUY. She is an acknowledged expert in the theory and practice of loyalty marketing, with broad experience as a loyalty strategy practitioner assisting a variety of telecommunications clients as well as developing loyalty articles, white papers and educational initiatives. Michel Bougie is Senior Director of Business Development, LoyaltyOne. He has over 30 years of experience in banking, credit cards, market research, fuel retail, economic development consulting, data and analytics consulting and loyalty solutions.

Retaining your telecommunications customer base: Put water in the bucket before the fire breaks out

News | June 3, 2009

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