Churn Away

All industries suffer from voluntary churn — the loss of customers to some other company. But some get hit worse than others.

Take the telecommunications business.

Annual churn rates for mobile telecom companies average between 10% and 67%. The rate depends on the firm and whether the subscriber has a postpaid contract or prepays the service. At the low end is Verizon Wireless, with about 10% of its contract customers leaving annually.

Worse, roughly 75% of the 17 million to 20 million subscribers signing up with a new wireless carrier every year are coming from another provider and, hence, are already churners. It costs hundreds of dollars for a company to acquire a new customer. When that person leaves, you lose the future revenue — and the money spent on the acquisition.

But there are many things you can do. And they apply not only to telecom providers but to any high-turnover business.

Recruit loyal customers from the start

Frederick Reichheld pointed out that the likelihood of churn is a function of the type of customers acquired in the first place. Some people are loyal and some by nature are always shopping around. How can you acquire the right kind? First, keep track of where they came from and the offer that attracted them. Then do the analysis necessary to see what acquisition methods are resulting in disloyal or loyal customers. Here are some ways:

• Increase the credit requirement on postpaid wireless customers. Involuntary churn most often results from failure to pay bills. A higher credit requirement usually eliminates many of these folks.

• Pay commissions only on customers who last longer than one year. Verizon Wireless, for example, pays its agents 50% on activation and 50% residual over the following five years if the subscriber continues the service. Result: The sales force will take an interest in recruiting the right kind of people. Agents will follow subscribers’ careers and act as advocates for them if they become dissatisfied.

• Recruit from the right geography. One insurance company found that customers from the Midwest and rural areas were very loyal, whereas Northeast customers and urban residents switched more often. Check churn by ZIP code.

• Change channels. When you examine where churners come from, you may find that direct mail produces more loyal people than TV or billboard ads. You also may discover that phone calls get lower churns compared with e-mails.

• Find married people. Single people switch more often.

• Find homeowners. Renters switch more often.

• Find older people. Young people switch more often — but they tend to have a higher average revenue per user.

• Acquire people who want service, not price. Low-ball offers attract people who will jump at the next competitive low-ball offer. Of course, if your service is bad you’re stuck. Marketing, however, should always be agitating for better service for subscribers. You are the subscriber’s advocate.

• Acquire postpaid wireless customers. Prepaid customers are much more profitable, but they have a very high churn rate.

Review customers’ price plans

Gold customers use a lot of services. You can develop a personalized price plan that recognizes their value and rewards them. Better to get 90% of your current revenue and keep your gold customers than lose them and get 100% of nothing. Don’t make this a public announcement. Make it a personal message from you to your vulnerable gold customers.

Sell customers a second product

It works. Now would be a good time to do it. Important note: Bundle the second product’s pricing with the current plan so the customer ends up better off. Make it expensive to switch back.

Thank customers 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 let you know how much we value your business. As an anniversary present, we would like to give you a new Verizon LG VX5200 camera phone at one-half the regular advertised price. Go to our Web site using the following code, or drop in at any Verizon store with this message to pick out your new phone.”

Don’t rely on statement stuffers to communicate

Everyone knows 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 statements. Just look at the response rates. Typically, a well-drafted personalized direct mailer will generate several times the response and conversion of a statement stuffer. But it must be personal: “Dear Mr. Hughes.” And it must offer the “next best product for Arthur Hughes,” determined by analytics, not the “product of the month” that’s sent to everyone.

When appropriate, you can use e-mail for this purpose and, sometimes, a phone call. Personalized responses can be sent to customers’ cell phones when they make calls. Finally, you can add similar messages to your Web site.

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.

Review each customer’s situation daily 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 lifetime value and churn potential. The metric can then be used to review each customer nightly and develop automatic communications before it’s too late.

Let customers manage their services themselves

A survey in the United Kingdom reported that 44% of U.K. consumers are interested in using self-service technology to manage and control their mobile contracts rather than having to call the customer service line. Self-service also was preferred by customers for checking available calling minutes, changing to a new rate plan, subscribing to value-added services and topping off prepaid credit levels. More than half of Vodafone’s corporate customers in the U.K. use a dedicated self-service portal to monitor and control their wireless services online. And 39% use the system at least once a week.

Use service bundling

Tie the ownership of additional offerings to a price reduction that will be eliminated if the customer drops the new offerings.

Study the calendar

Churn typically happens in certain months, or in certain periods of time after the customer first signs up. When you know what your customers’ most active churning months happen to be, mount an aggressive proactive campaign to head them off at the pass.

Study usage

When it suddenly drops or declines, you know that churn is coming.

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For more CRM and database marketing material, go to http://directmag.com/disciplines/crm/.

ARTHUR MIDDLETON HUGHES is a vice president and solutions architect at KnowledgeBase Marketing. This is a selection from his new book, “Customer Churn Reduction and Retention for Telecoms: Models for All Marketers,” published by Racom Communications (www.racom.com).