Hold On!

Data Mining Gives Carriers Firm Grasp of High-Value Customers

Of course, preventing churn isn't always possible. Unavoidable churn occurs when a customer dies or moves out of the carrier's operating area. And involuntary churn occurs when a subscriber fails to pay for service and, as a result, the carrier terminates service. Termination of service due to theft, fraudulent service acquisition or fraudulent usage also is classified as involuntary churn. But then there's the issue of voluntary churn, or service termination on the part of the customer when leaving one carrier for another.

Digging for Dollars

Carriers can manage this last type of churn by turning raw subscriber data into actionable intelligence. Effective customer intelligence programs unleash important knowledge that actually can be used to increase loyalty, add new and grow existing customers, and improve company reputation. Customer intelligence also allows carriers to improve their bottom line by more efficiently aiming sales and marketing funds at programs that target key customer segments.

To make the job easier, specialized software applications can enable carriers and retailers to manage voluntary churn through measurement, analysis and action.

Before executing a full-scale churn-management program, carriers must understand their challenge fully. This can be accomplished through a detailed measurement of that challenge. During this measurement phase, the carrier should consider a number of factors that affect customer loyalty, including those that can be controlled the least, to those over which carriers have more control:

• Competitive landscape of the country or region;
• Government regulation over data protection;
• Distribution channels for selling products/services;
• Internal resources allocated to combating churn (human and financial);
• Company culture/attitudes toward customer service; and
• Marketing strategy.

Of course, all of the factors contributing to churn are not within carriers' control. So carriers should begin by focusing on churn-reduction tactics in areas over which they have the most control.

During this phase, the carrier also should identify current levels of voluntary churn and set realistic goals for reducing it. Identifying patterns of current churn activity in the existing subscriber base can be a serious challenge for the majority of carriers that sell products and services through a complex set of distribution channels. Some churn-measurement tools can evaluate both the performance of the business, providing insight into the behavior of customers, and the impact of business decisions on customer behavior. This can be accomplished with an online analytical processing (OLAP) tool that summarizes and stores customer data to create key performance indicators useful for analysis. This enables the carrier to identify the sources of churn, correlating statistics to a particular geographic region, dealer or rate plan. The information helps the carrier set goals and plan how, when and where to spend marketing dollars, provide training or invest in specific channels.

Drilling Down

Once the carrier has a clear understanding of its churn challenge, it must drill down further into its subscriber data and gain an equally clear understanding of its customers. Churn analysis typically is used to identify target customer segments with a high risk of churning and that present value to the carrier. Using this intelligence, the carrier can allocate resources, effectively focusing on the subscribers that will yield the
best return on investment. Segmentation ultimately enables the carrier to implement targeted telemarketing or direct-mail campaigns that result in increased customer retention.

In the analysis phase, some tools formulate customer intelligence based on the anticipated future behavior of customers. By observing past customer behavior and analyzing the differences in customers with different behavior, the technology predicts behavior. For example, data mining is an automated, predictive modeling application that analyzes historical data and identifies hidden patterns and/or trends in customer behavior. When applied to current customer data, the model predicts which customer segments are more or less likely to churn. Easy-to-use front ends or graphical user interfaces (GUIs) allow nonstatisticians to interpret results and implement a plan of action. Vendors can provide the results of decision support and data mining efforts in an extractable format for porting to other systems such as marketing, call centers and telemarketing. This actionable data is used for reactive (inbound save efforts) or proactive (outbound campaigns) action against churn.

Empowering the Rep

The most urgent churn cases are the customers who call up to say, "I don't want the service anymore." These cases require immediate action on the part of a call service representative (CSR) who is empowered to offer the customer an incentive to continue service--during the call. Too often, when a customer is at this stage, the CSR does not have any actionable information about this customer (such as customer value, risk of churn, reason for potential churn and available offers) at his or her fingertips. If a CSR has access to data extractions from the analysis stage, that critical information will be available instantaneously on his or her screen and often can be used to save the relationship.

The most critical customer segment for any carrier is the group of subscribers that is designated as high risk to churn, as well as high value to the carrier. Using the results of data mining, these subscribers can be tagged with a "red flag" to alert the CSR they are likely to churn in the very near future. In these cases, proactive action to retain the customer must be taken immediately by someone with authority to make decisions and offer various options based on the value of that customer to the carrier.

High-risk customers of any value also are ideal targets for proactive retention campaigns using telemarketing or direct mail. For example, a direct-mail piece offering a special reduced rate plan for the three regions called most frequently could be sent to small-business owners. This type of specialized campaign could go a long way to increase loyalty, eventually migrating some customers into a low-risk, high-value segment.

With high-value customers, carriers need to develop one-to-one relationships to ensure satisfaction and deflect predatory competitors from moving in. This means implementing tactics such as direct customer relationship management and personalized, repeat-mail campaigns. Most operators already have some type of relationship marketing for their high-value customers. By using customer intelligence, carriers can be much more effective and efficient in the tailoring of communications.

Matt Bixler is senior manager of Lightbridge Consulting Services, Burlington, Mass. He can be reached at mbixler@lightbridge.com.

Figuring Out Churn

The basic formula for dealing with customer churn should figure in both the type of customer and that customer's possibility of churn.

Here's a matrix to consider.

High value, high risk. Small businesses, self-employed professionals and consultants typically fall into this category. As high-volume users, they tend to take an active role in their telephone contracts and are more susceptible to competitive offers. If proactively managed, it is possible to significantly reduce the risk of voluntary churn through early intervention. Telephone or mail correspondence prior to the customer's decision to disconnect service is extremely effective.

High value, low risk. This segment typically is composed of corporate or long-term, high-usage customers for whom one-to-one relationships are very appropriate. These customers are typically loyal and represent significant revenue to the carrier. Ongoing maintenance can be achieved through the assignment of an account manager to review subscriber data on a regular basis and provide a high level of customer satisfaction.

Low value, high risk. On the other end of the continuum, there are low-value, high-risk customers. These are low volume callers who are very susceptible to competitive offers with better rate plans. Although such customers do not necessarily warrant expensive calling campaigns, the rate of churn in this segment easily could be reduced through strategic inquiry handling (such as waiting until the customer calls) and low-end mailers.

Low value, low risk. This segment is composed of the "emergency users" who only use their phones in the event of a crisis. Switching carriers is not a priority for such users, so they represent little risk of churn. The return on investment for proactive campaigns to this segment probably will be negligible. Carriers typically use only "save" measures (such as waiting until the customer calls to disconnect service) to retain such customers.

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