CIOs Play Crucial Role in Controlling Company Churn

The new Wireless Number Portability rule has telecommunications companies’ stomachs churning. But with the right strategies you cannot only survive, but prosper by turning churn around to your advantage.

How long have you had the same cellular phone service? Two years? Four years? Chances are that if you use your wireless phone for business, you have been hesitant to switch carriers, even if you are fed up with poor customer service, dropped calls and coverage gaps.

Wireless operators have relied on the fact that businesspeople don’t switch carriers because it would necessitate changing their phone numbers-a move that could cause a high-powered consultant to lose a million dollar sale simply because his client couldn’t locate him. But that “stickiness factor” is about to disappear, much to wireless carriers’ dismay, thanks to the long-awaited (sometimes dreaded) Wireless Number Portability (WNP). WNP, mandated by the Telecommunications Reform Act of 1996, allows customers to take their current phone numbers with them when switching to a new wireless service.

That’s good news for consumers and businesses, but mixed news for wireless carriers. Not only are wireless carriers bracing for a massive price war as they compete with each other to retain customers and woo others away from the competition, but they know that defection may become the norm-not the exception.

Telecommunications executives have been battling defection, commonly called churn, ever since the industry came into its own. Today, roughly one-third of wireless customers in North America switch carriers every 12 months, and carriers around the globe spend $10 billion annually to combat churn-a number that is destined to rise as WNP takes effect.

But carriers can turn the WNP mandate into an opportunity to gain – not lose – customers.

Granted, the advent of WNP will turn many of the models used to predict customer churn on their heads – but that is just a call to action to the CIO.

A Call to Action

CIOs can and should consider this new world order as a business opportunity and use it as a springboard to modernize business models and shore up customer-facing programs. By far, the most important technological change will occur when carriers create a new “central nervous system” of business analytics by implementing a system that uses centralized business rules management.

CIOs can start by assessing existing systems, reformulating rules and assumptions to meet new realities. Using that as a springboard, build a flexible business rules management system structure around it, connecting silos of information from various departments. This is particularly important, since many wireless carriers tend to have different, often conflicting, business rules and routing requirements for different departments. By creating a flexible and integrated system, you can be sure that all customer data plus all the business rules and business logic pertaining to a specific customer are centralized. The result is consistent communication with the customer and targeted offers and incentives intended to reduce the chance of that specific customer defecting to another carrier.

Once you have all customer data organized in one place, use it to Test and Learn the process of running controlled experiments and improving strategies based on lessons learned. For example, a carrier could take a universe of 100 customers sharing the same attributes, dividing them into four groups. By treating each group differently, the carrier will see, over time, that one group’s churn rate is much lower than the other’s. Based on that information, the carrier will know how to incentivize customers sharing those attributes. To employ the Test and Learn process, carriers must have the appropriate technology in place-starting with the centralized business rules management system.

Carriers also can use this technology to determine what constitutes a profitable customer-one worth the time and money to prevent from churning. If carriers can use business intelligence to determine, for example, that one Customer X is worth five Customer Y’s, they can search for customers with those characteristics-even those currently subscribing to a competitor-and target an offering to those potentially profitable customers. This process saves time and money-both precious commodities to today’s wireless carriers.

Here are two important steps that will help ensure that wireless carriers become winners in the new paradigm:

• Differentiate your offerings through Wireless Data Services. Wireless carriers must find ways to differentiate themselves, beyond controlling a certain phone number, based on features that customers consider necessary, interesting or particularly useful. Doing so will re-institute that coveted “stickiness factor” that will encourage customers to remain with their existing carrier. While price wars are anticipated as a result of WNP, carriers in other countries who have been through WNP know companies can’t compete by lowering prices and sustain profitability. The European wireless market learned that lesson quickly when WNP was instituted several years ago. Wireless marketing in Europe today virtually ignores the pricing issue, focusing instead on state-of-the-art features such as exchanging video clips, personalizing ring tones, and playing fast-moving arcade-like games. UK-based Vodafone, the world’s top phone services provider with about 123 million subscribers, for example, plans to introduce 3,000 to 4,000 new wireless data services in 2004 alone.
• Transition from a product- and network-oriented organization to a customer-centric organization. Traditionally, wireless carriers have built products in search of customers. Forward-looking organizations, however, will turn the model around, first determining what specific groups of customers want and then building products to meet those needs down to the individual customer. In this area, telecommunications companies can take their cues from the financial industry, which had to face similar issues due to deregulation 20 years ago. One notable example is the Royal Bank of Canada, which used a combination of technology and analytics to collect and analyze customer data and create a method of identifying profitable customers. Today, the largest financial institution in Canada continues to use this model to develop actionable customer strategies for hundreds of micro-segments within each customer segment, with the ultimate objective being one-to-one marketing.

Clearly, there is significant incentive for wireless carriers to find a way to prevent churn in the new paradigm. If they fail to do so, new customer acquisition costs will rise and revenues will shrink. Cutting customer defections by just five percent can boost profits 25 to 95 percent, according to Harvard Business Review.

Raising the stakes-and the rewards

The advent of the WNP era certainly raises the stakes, but savvy carriers can turn the situation around to their advantage-even gaining market share if they play their cards right.

U.S. carriers can take a lesson from areas of the world that have dealt with WNP before them-and learned what works and what doesn’t. Hong Kong was the first to implement it, in 1999, in a market that in many ways mirrors that of North America, with six major competitors and a 30 percent churn rate. After introducing WNP, massive price wars followed, increasing wireless penetration from 50 to 70 percent. Carriers that follow the advice outlined above-offering an array of differentiating services, moving to a customer-centric organization and implementing a centralized business rules management system-were able to capitalize on that increased penetration to realize increased revenues.

In Hong Kong and in Europe, another consequence, of course, was increased churn-to nearly 50 percent in some cases. Eventually, as carriers learned to use both offensive and defensive methods to secure customers, churn rates began to decrease again, settling at under 40 percent.

In the end, it’s about winners and losers. Carriers that understand that WNP changes everything and do what it takes to adapt to those new realities will win. Conversely, those that conduct business as usual may be doomed to lose customer loyalty and eventually, market share.

Nazzic Turner is Senior Vice President of Communications, Media, and Entertainment (CME) for AMS. Learn more about Wireless Number Portability.