March 2014, HAPPIEST MINDS TECHNOLOGIES How to Reduce Churn in a Telco Industry Author Suresh Kanniappan 1
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How to reduce churn in a Telco industry A churn can be defined as the percentage of subscribers moving from a specific service provider or service to another in a given period of time. Although very rampant in the Telecom space, churn is seen more among satellite TV, telephone and internet providers where the percentage of people switching from one provider to another is significant when viewed on a month on month basis. Research shows that today, organizations across these industries have an average churn of 1.9 to 2 percent month on month and annualized churn ranging from 10 to 60 percent. Factors driving churn An organization loses its customers to competition for various reasons. Generally, consumer purchasing decision is driven by product price and quality. The same holds good for the Telecom industry as well. So long as a customer remains satisfied with a product or service provider, he will not switch to any other competitor. Multiple researches validate this fact. Hence, it becomes very important for providers to measure customer satisfaction and ensure that they take the right steps to enhance customer satisfaction at all times. The graph below outlines the findings from a research by strategy analytics capturing the churn trends across US telecom service providers over 12 quarters. Data Source: http://www.fiercewireless.com 3
Another key factor that drives customers to switch to a different provider is value added services. An outstanding example could be the Triple Play offering from Telecom companies. This offering combines TV, broadband and the phone offering as compared to the traditional model of just the phone services. On one hand, this can be seen as a value add to retain customers and on the other as a key mechanism to attract customers from other providers. The Triple play not only helps retain customers but also increases the average revenue per user (ARPU) directly contributing to the revenue of the company. Data Source: http://www.fiercewireless.com The need for reducing churn Immaterial of the size of the organization, a churn of 10 to 60 percent is a big number that can affect the overall growth. Further, a repeated increase in the churn percentage year-on-year, leads to damage in the reputation of the organization. This leads to a dip in the future business of the organization in turn adversely affecting the sales engine creating a vicious cycle that ends with the bankruptcy of the organization. Looking back at the history, we can see that many organizations have incurred heavy losses and gone bankrupt on account of a large percentage of customer churn. You lose not only revenue generated by the customers but also the resources you have invested for them. 4
However, for the customer to be retained, it is very important to also measure customer satisfaction. Industry data indicates that ARPU can be about $40 to $50 a month. The ARPU figures of most of the large US based players fall in this range indicating that even a single loss of customer can translate into a huge negative impact on revenue. Data Source: http://www.fiercewireless.com How to calculate churn Churn can be calculated using a simple three step process outlined below - 1. Calculate the total number of customers who discontinued the service. This can include customers who have taken the step themselves and the ones for whom the provider has discontinued the service. 2. Calculate the total number of customers who have subscribed to the service. 5
3. To arrive at churn percentage rate, divide the number of subscribers who have discontinued services by the number of subscribers. Tips to reduce churn Reducing churn is not a herculean task. When approached in a systematic manner, driven by data indicating the reason for churn, an organization is in a much better position to bring down churn ratio. Some of the initiatives that can be taken include After sales service: This is key to retain customers. Telecom players should categorize their customers, based on ARPU, into different buckets. The support initiatives extended to customers should be driven by the various categories, on the same lines as what is being driven in the banking industry today. This will ensure that best category service is given to the customers with the highest ARPU thereby ensuring a higher level of customer satisfaction. Consistent communication: Customers should be communicated on new services and offerings based on the usage analysis and trends. All proactive information provided to the customers should be driven by an understanding of their usage characteristics, leading to communication on plans that will benefit the customer. Value added services: Telecom players are all the more required to come out with value added services to demonstrate differentiation and retain customers. Triple play, mentioned earlier, was a value added service when it was introduced. However, today, all players offer Triple Play as a combined offering. This is no longer viewed as a value add and differenitator service. Telecom players need to look beyond this and unveil newer services. Happiest Minds value added solution for the Telco s to reduce Churn A unique hosted solution that Leverages the common man s communication media like the SMS, data, fixed and mobile connections Allows enterprises to effectively reach out and manage every possible lead Provides online prospects absolute convenience to interact Allows enterprises to deliver verified authenticated leads to its advertising customers Provides Enterprises a good insight into buying behavior, leveraging state of art business intelligence to enhance life time value. For more details please visit http://www.happiestminds.com/connect2connect/ 6