Developing Actions for a Value-Oriented Retention Strategy

Telecoms Loyalty & Churn

Dr. Gunnar Clausen Vienna, July 8th, 2008

Cologne Office Gustav-Heinemann-Ufer 56 50968 Cologne, Germany Tel: +49 221 36794-0, Fax: +49 221 36794-498 E-Mail: gunnar.clausen@simon-kucher.com Internet: www.simon-kucher.com

Simon-Kucher & Partners

Competence-Ranking "Marketing & Sales"*
Rank Consultancy 1 2 3 4 5 Simon-Kucher & Partners Boston Consulting Group McKinsey & Company Bain & Company Roland Berger Points

"World Leader" in Pricing

"world leader in giving advice to companies on how to price their products"

401 370 346 344 338

"the worlds leading pricing consultancy"

Peter Drucker
"pricing strategy specialists" "... in pricing you offer something nobody else does."

Global Presence
17 offices world-wide Employees 2007: >400
Moscow Boston New York London Luxembourg Cologne Bonn Warsaw Frankfurt Munich Paris Vienna Zurich Milan Madrid Tokyo

Continuous Growth
Revenue in million
80,6

San Francisco

* Soruce: manager-magazin Aug 2007 / Institut fr Management und Beratung; Survey among 264 top-managers; Maximum 500 points (04DE8002_035X001_Vienna_Loyalty_08-07-07) -1-

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Customer growth can not go on forever

Typical penetration in Western Europe

Penetration for mobile based on number of citizens, fixed-line broadband based on number of households.
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Management attention misaligned

80%
of profits Existing customers

80%
of management attention New customers
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Churn rates in telco much higher than in other sectors (Example Germany)
Telco Other subscription businesses

25% 20% 15%

10% 5% 7%

Broadband

MNO Postpaid

Fixed Net

Electricity

Mortgage Finance Providers

Pay TV

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Value creation throughout the customer lifecycle

GET
(Acquisition)

BOOST
(Up-Selling)

KEEP
(Retention)

Retention focus
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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Find out what lies behind churn

ILLUSTRATIVE

Influence of churn reasons

Total churn Hardware Community Service

Costs

Other tariffs

Brand Financial perception churn

Other

Actionable

Non-actionable

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Even the simplest analysis are rarely conducted

ILLUSTRATIVE

Churn rates by contribution margin and tariff

Class of contribution margin 2 3 4 5 6 33% 20% 33% 33% 0% 0% 0% 8% 6% 4% 8% 5% 6% 5% 4% 8% 3% 3% 5% 4% 50% 51% 58% 55% 48% 1% 0% 1% 0% 1% 0% 0% 0% 0% 0% 0% 0% 100% 19% 17% 17% 17% 11% 10% 11% 16% 21% 22% 62% 60% 57% 57% 62% 40% 42% 45% 43% 50% 1% 0% 0% 0% 1% 16% 16% 15% 13% 18%

Tariff Tariff 1 Tariff 2 Tariff 3 Tariff 4 Tariff 5 Tariff 6 Tariff 7 Tariff 8 Tariff 9 Tariff 10 Tariff 11 Tariff 12 Tariff 13 Tariff 14

-99

1 100%

7 0% 0% 50% 33% 0% 0%

8 0% 0% 0% 0% 0%

0% 0% 0% 14% 10% 45% 0% 0% 0% 25% 0% 57% 20% 0% 90% 35% 38% 34% 44% 2% 9%

Who churns? What value do they contribute? Starting point for: what can we offer them?

0% 0% 0% 48% 67% 36% 41% 1% 5% 10% 0%

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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Opposite of reassurance is reality today

How do you feel you are treated as a loyal customer in comparison to new customers?

Worse

62%

2/3 of the customer base feel disfavored

Equal

28%

Better

10%

Incentive to churn, to become new customer (instrumental conditioning)

Source: SKP-research 2007.

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Cost cutting?
Online Invoicing

Contact with customer is worth less than 0.50 cents?

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Reassure / reward loyal customers

Customers like being pampered and rewarded If a system is implemented fast reward necessary Key aspects in rewarding customers Promises for the future are heavily discounted (>3 years = knock-out criterion) System has to be easy, no additional efforts to be invested Perceived freedom important for customers Perceived value add in reassurance can be larger than monetary advantage through rebate ("I am not just a number in the customer database") Possibilities not Possibilities not nearly exploited nearly exploited today today
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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Brand and emotion proven to be powerful

Brand

Commodity Product Commodity Product

Price + 60%

Closeness

Contents

Devices

Emotions

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Drivers of emotion to be addressed

Brand Handset 1:1 communication Status

NOT EXHAUSTIVE

Testimonial

Effectiveness:

Effectiveness:

Effectiveness:

Effectiveness:

Effectiveness:

70% 50% 30% 10% 10%

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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Different options for different customers

Pre-Renewal
"Feel-Good actions

Renewal
Early contract renewal for high value or high risk customers 6 months before end of contract, without contract termination

Winback
Win-back from cancellation of contract After contract termination, briefly before end of contract

Goal

Faciliation Renewal Churn reduction 7-8 months before end of contract

Timing

Investment

small

medium

high

Perception

Operator appreciates customers Operator cares for customers

Customers expect something in return More value for money than at other operators

Expecting something in return for returning to operator: New hardware, new / attractive tariff /

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Target groups by retention campaign type

ILLUSTRATIVE

Target groups of campaigns

Tariff group Margin Churn-risk low LVC high Tariff group A low MVC high low HVC high only letter Pre-Renewal Renewal Winback only letter No action Only reactive Active

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State of the art solution at CC/POS

ILLUSTRATIVE

Customer data

Call Center Software

Date for end of contract
Data Customer: Mr. Meyer Place: Be rlin Tariff: Tarif 400 CBM: 5 Offer 1 Current tariff with new Nokia XXX

Usage data

Churn propensity

Logic

Tariff conditions

Contribution margin Channel specific recommendations

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Simplified offer logic for 1:1 offers

ILLUSTRATIVE

Determinants Delta in contribution margin Brand migration factor Wrong-grading factor . Margin Offer selection Selection rules (dependant on Usage, Wronggrading, churn propensity) Cost oriented ranking

Determinants Target margin Churn risk Incentive rules Delta margin SRC budget Type of incentive Incentive Usage paramter

&

Best offer per customer

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Alternative: Simple rules for renewal

margin / year

ILLUSTRATIVE

Who?
Customer above value class 3 Customers who want tariff type A HVC who want to switch

What?
Old tariff plus incentive Offer tariff A2 instead of A1

margin / year

Existing POS-rules

2
NEU!

3
NEU!

Offer tariff B1

4
NEU!

LVC

Offer tariff C1

T US LL I

E IV T RA

Challenge

Keep rules simple enough for POS agent!

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Controlling cockpit

ILLUSTRATIVE

Renewal

% takes first offer

%

ARPU at renewal
ARPU

ARPU saved
ARPU saved
100%

Financial Impact
000

POS:

week

week % ARPU

week

week ARPU saved

100%

week 000

CC:

week Total /

week ARPU Up ARPU Down

week

week

week

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Status quo of "customer base marketing in telecoms

Not enough understanding of customer base

No reassurance

Almost no emotion

Offers not individualized / only developed for acquisition No long-term development plan for customers

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Medium to long term perspective totally unclear

KPI calendar

October KPI of the month:

Septembe r

Revenue

KPI of the mo nth:

August
Ju l y KPI of the month: KPI of the month : DA IT

Subs

EB

Reven ue

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Goals in retention?

Comparison of different goals at end of contract

ARPU
32

ARPU
31

ARPU

Price development Price development with actions implemented Project benefit

31 30 29 28 EoY '07

30 29

29 28

EoY '08

EoY '07

EoY '08

EoY '07

EoY '08

Upselling realistic?

Give away services for free

Controlled downselling

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Find answers to the most important questions

hy are we offering something? ho do I offer something? hen do I make the offer? hat am I offering? hich channel do I use? hich direction should the customer develop to? ow often do I offer something? ow effective & efficient is my investment?

Goal definition Selection Customer Lifecycle Incentives Channel Migration / Up-Selling Escalation Execution

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