Don’t lose your advantage: incentivise existing customers to stay

Clare McCarthy, Principal Analyst

With competition hotter than ever, mobile network operators (MNOs) are fighting to assert themselves as the must-have brand with the most innovative portfolio and attractive handsets. However, MNOs should not fall in to the same trap as other industries and neglect what they have. For example, credit card companies and banks have been notorious for offering their best deals to new customers only – what better way to increase your churn! MNOs need to provide their existing customer base with a reason to stay, and that means loyalty programmes and ‘cash-back’ deals for spending with them.

In Q4 2005 in Western Europe, the ratio of subscriber acquisition costs (SAC) to monthly blended ARPU was 3:1. Retaining customers and reducing SACs is a growing priority, and there is a trend for MNOs to provide material rewards for loyalty and for increasing minutes of use.

Telefonica Moviles Espana (TME) has loyalty and retention programmes aimed at rewarding all customers, regardless of whether they are post- or prepaid, on 2G or 3G networks). ‘Programa de Puntos’ is a loyalty scheme for its postpay subscribers, who can obtain points in exchange for usage of voice, SMS and browsing services; these points can be exchanged for discounts when purchasing new terminals. An equivalent programme for prepaid customers, Plan Estrena, allows subscribers one free upgrade for a new device per year, regardless of their usage and loyalty to the operator. The overall impact is that monthly churn is 0.8% for TME, versus the monthly average of 1.95% in Q4 2005 in Western Europe.

A rather different approach has been taken by relative new kid 3UK, which recently launched its WePay offer. Here 3UK is actually paying its users to answer their phones. Customers are rewarded with credit of 5p per minute for calls and 2p per text received. Two years ago, 3's biggest need was numbers: having started recently from zero, it aimed to pull in as many subscribers as it could. These days, the focus is much more on ARPU, which is why 3's tariffs are increasingly designed to appeal to regular mobile voice users. The offer is too new to analyse the impact, however it will undoubtedly have a positive effect on 3UK’s numbers.

MNOs that can offer triple or quad play also have another weapon that can be used to retain customers. Optus’ reward scheme, ‘yes’, is available to those who subscribe to two or more of Optus’ services (broadband, fixed telephony, mobile, digital TV and dial-up Internet). The rewards vary depending on which services the customer subscribes to, but customers with multiple products have churn rates 50% lower than single product customers and Optus has continually posted lower mobile churn than its key competitor Telstra.

Naturally, customer retention and loyalty programmes, cash back and service and tariff bundles are just one part of a strategy that has to be fine tuned for each national market, but they are equally as important as good customer service, product innovation and high-profile advertising.

Clare McCarthy is a Principal Analyst at Ovum and specialises in wireless market and business strategies, particularly in the arena of 3G, MVNOs and globalisation trends in the wireless space.