Prepaid market is an operator blind spot – research

Some new research commissioned by mobile financial services company Juvo has concluded operators are wasting loads of cash through prepaid churn.

The research was conducted by Strategy Analytics, which is having a busy day. It took a look at eight prepaid-dominant markets: Argentina, Brazil, India, Malaysia, Mexico, the Philippines, South Africa and Thailand; and concluded that in these markets alone, operators wasted $670 million last year replacing lost prepaid subscribers.

Otherwise known as PAYG or contract-free, the prepaid market probably gets a bit overlooked in developed markets as there’s nothing operators like more than signing someone up to a nice, fat two year contract. But as well as being a big piece of the action in developed markets, it tends to dominate developing ones.

Now, on one level remarking that churn is an issue in a market with no contractual obligation involved seems like a bit of a redundant statement. Of course punters are going to shop around and exhibit minimal loyalty. But the apparent point of Juvo commissioning this study is to show there are still plenty of things that could be done to efficiently reduce this churn.

It should also be noted that Juvo, in common with all other companies, doesn’t tend to just commission surveys for a laugh. It contends that what it has to offer can help operators with this prepaid lack of stickiness and has consistently messaged on the matter of prepaid churn. But that said, the findings of this study still have independent merit.

Prepaid accounted for 71% (5.7 billion) of global mobile connections and 32% ($265 billion) in service revenues in 2018. In developing economies those numbers move strongly in the direction of prepaid, for example is accounts for 94% of connections and 80% of revenue in Africa. SA also says it’s more profitable than you might think, with EBITDA margins of 40-55% in developing markets (apart from India, where Jio has thrown a spanner in the works).

SA Juvo 1

This background is designed to set up the punchline which is, of course, churn. The second chart below shows monthly prepaid churn of 3.1-6.5% across the countries studied. This equates to 37-80% annually meaning that, on average, operators have to totally replace their prepaid subscriber base every couple of years.

SA Juvo 2

“Until now, the industry has been in the dark on the scale of the costs associated with prepaid mobile churn, and the portion of prepaid OPEX spent on reacquiring the same customers,” said Phil Kendall of SA, the author of the report. “What this research allows us to do is to confidently calculate the profit that can be unlocked when prepaid churn is reduced. Success in the highly volatile, promotion-fueled prepaid market will go to those operators who can improve customer loyalty, allowing them to make strategic choices between OPEX reduction, accelerated growth or investment in service differentiation.”

“The market opportunity here is 5.7 billion customers and over $265 billion in annual revenue,” said said Steve Polsky, CEO of Juvo. “However it is hampered by huge churn and missed opportunities. As an industry, we need to talk about prepaid, we need to change our approach and we need to put identity at its heart. Prepaid customers in emerging markets consistently churn because they are constantly told ‘no’. No you’re out of airtime. No you don’t have enough money. We have to start with ‘yes’.”

The report, called ‘Death by a thousand nos’, offers a deeper dive into the prepaid churn issue, as well as some top tips on what to do about it, and can be downloaded from the Juvo website. With a major driver of the postpaid demand – the smartphone market – in significant decline, it seems likely that prepaid will become a bigger deal for all operators. So it’s probably a good idea to start thinking about how to make the most of it.

Repair or replace the device, keep the customer

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Kevin Gillan, European Managing Director at SquareTrade argues offering device insurance is a good way of improving the customer experience and reducing churn.

We all know how important our smartphones are to us and we are only too aware of the fundamental role they play in our lives. They are the gateway to our digital existence, they hold our precious content, they keep us connected. They are also very expensive and becoming increasingly fragile. Our reluctance to be without our devices means we literally take them with us everywhere – to help us find places, find people, pay for things, entertain us or capture memories. Inevitably, accidents happen, phones get lost, broken or stolen, sending most of us into mild panic.

The battle for customer mindshare

Most mobile users would agree that they have a much greater affinity with their device than they do with their operators. Most operators are aware of the problem and are thinking of new ways to drive brand value and customer engagement. To do this, some are investing in content partnerships, in sponsorship deals, and some are even launching sub-brands to appeal to an entirely new clientele. All these approaches are valid but there are other, significantly cheaper and more immediately effective ways for operators to improve customer satisfaction and retention.

Nothing is more frustrating to operator customers than being without their smartphones for prolonged periods of time. Then you have customers that damage their devices early into their contract (cracked screen etc.) and are forced to live with it because of the cost and inconvenience of getting it repaired. There is also the lingering fear of invalidating the manufacturer’s warranty by going to an unauthorised repair shop. And who do you think customers vent their frustration at? In most cases, rightly or wrongly, it’s the operator.

If the operator lacks the flexibility to provide a repair or deliver a replacement device to a customer when they most need it, then it must suffer the consequences. What perhaps is most significant, however, is that a customer with a broken device represents the greatest churn risk to an operator.

Why is this? Well because the vast majority of us still think of our operators as invisible enablers of connectivity – the organisations that sell us our devices and then help make them work. We have become so used to buying subsidised devices from our operator and old habits die hard. If phones break, we look into getting them repaired. Repairs are expensive, finding reputable places to carry out repairs is difficult. If phones turn out to be too expensive or time consuming to repair, most look to replace them. New device, new operator.

Meeting great expectations

Operators must work harder to meet customer expectations in areas that matter most. Historically, operators have been reluctant to offer holistic device care, despite the fact they remain the most popular device sales channel in most European countries. As their margins have been squeezed by competitive market pressures, operators have argued that device care is the responsibility of the OEM that manufactured it.

Thankfully, more and more operators are viewing device care as not only a lucrative revenue stream, but also a significant opportunity to grow affinity with their customers – beyond just sending them a monthly bill for connectivity. Better still, a growing number of operators are taking it one step forward and forming partnerships with companies that can turn a major frustration (a broken device), into a significant differentiator.

Moving with the digital times

Today’s mobile user has very high expectations of their operator. Much like in other industries, operators are undertaking digital transformation strategies to better meet these expectations. In a world so focused on customer service, companies like Amazon have set the bar for others to follow. Mobile users have grown to expect same day or next day delivery of purchased items, so why wouldn’t they expect same or next day issue resolution?

Traditionally, the operator community, with or without partners, has failed to keep pace and lacked the flexibility to meet customer needs and deliver against these expectations. It also hasn’t done itself any favours by partnering with device insurance companies that build policies based on the value of the device, not on the needs of the customer. Furthermore, they have also failed to settle too many claims for reasons that are simply not good enough. Again, all customer frustration resulting from this inflexibility and inactivity is often pointed directly at the operators.

Consumers love their devices – they’re expensive, they’re slim, they’re stylish, they’re lightweight, they break. If operators took greater responsibility for preserving the relationship their customers have with their smartphones, they could be seen to instantly react to their needs at  the time when it matters the most. By taking responsibility and acting decisively, operators can remind their customers that they can continue to be trusted and maintain the positive sentiment that will fuel further purchases and renewals well into the future.

 

KevinGillanAs SquareTrade’s Managing Director for Europe, Kevin is responsible for driving the company’s growth and international expansion. Before joining SquareTrade, Kevin served as Commercial Director for Best Buy Europe, where he developed the company’s multi-channel launch strategy. Previously, he served as CEO for Geek Squad UK, where he was responsible for creating the joint venture between Best Buy and Carphone Warehouse. Additionally, he oversaw the launch of a number of mobile virtual network operators across Europe.

The pre-paid market needs to learn how to say yes

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Steve Polsky, CEO and Founder of Juvo, examines some of the things pre-paid operators can do to reduce churn.

Since the dawn of pre-paid time, churn has been problematic. Customers switch from carrier to carrier chasing the best deal, which the industry has not done the best job of slowing by using one simple word: yes, instead of no.

Trusting their customers, and in turn, establishing a relationship with them based on mutual respect. Instead it has paid, over and over again, to attract and retain the same customer offering ever increasing discounts and incentives. Talk about a race to the bottom.

Now more than ever, in every market around the world, mobile network operators are struggling to keep up with declining average revenues per user (ARPUs), increasing costs, and saturating markets.

As PwC points out, no region is immune. Customer churn is a major contributing factor. Across Asia, Africa, and Latin America, approximately two billion prepaid customers rely on cash rather than credit to make purchases. Consumers pursue this means of transacting due to lack of access to banking systems and credit, fraud and corruption. Because they don’t have access to credit, 78% of the mobile users have only one option – prepaid mobile service, purchasing SIMs and top-off minutes on an as needed basis.

Here’s the problem. When a user is out of minutes, he or she faces choices. Is there time to head out of his or her way to top-up? If they do, is there any reason to remain on the carrier they are on at the moment? Do they feel any loyalty at the very moment that that carrier has just turned off his or her phone?

The answer to all of these questions is generally a resounding no. If a carrier has just said a big fat no to a customer, the chances that the customer says yes to them is almost non-existent.

Mobile minutes, a basic service that has become wildly commoditized, have telecommunications companies fighting over subscribers in markets that are becoming more saturated. It’s not enough for companies to compete on price, PwC explains:

“This process can be tracked by looking at two key metrics: changes in the spread between the wireless operators with the largest and smallest shares of each market’s subscribers, and changes in the spread between the one with the highest average revenue per user and the one with the lowest.”

To counteract churn, telcos need to invest in new technologies and think outside of the box. Which is why Juvo has decided to build an entire economy around the concept of saying yes, and earning loyalty in a new and exciting way that goes well beyond just airtime lending.

Changing market dynamics

For decades, telco leaders have recognized the importance of the emerging markets as a viable revenue stream. Just ten years ago, phones were brand new to the developing world. Prepaid SIMs were the most economical and efficient path for user acquisition in cash-based societies. Since then, this push has resulted in high mobile adoption but low carrier retention outside of the western world.

Today, prepaid subscribers represent a lost opportunity to MNOs, with up to 60% of new users turning over within the first 30 days, every 30 days. In hyper-competitive markets, where access to mobile phones is growing, some MNOs lose up to 80% of their prepaid customers within 90 days, and telcos are paying to acquire the same customers, over and over. The economics haven’t made sense for MNOs to build loyalty programs. With churn as a given, the path to building a successful loyalty program wasn’t clear.

But what if churn wasn’t a given, and loyalty was proven to drive revenue? What’s getting in the way?

Those operators who have tried to introduce customer loyalty programs have been ineffective because market incentives have pushed operators to compete with each other. On the ground, agents selling mobile services encourage users to switch SIMs to take advantage of a better deal. These same agents may be ill-equipped to explain the benefits of one carrier over another. When a person needs to top-up his or her minutes, he or she is going to rely on an agent to them find the best deal.

What’s important to keep in mind, however, is that this market dynamic is changing because the way people engage with technology is changing. Take Ghana, where mobile money adoption is on the rise. There, mobile money transactions have doubled to $35B. Throughout the region, the number of banks has been failing, and people are relying on their mobile phones for transactions that power their everyday lives more and more.

The mobile phone is taking on a new role in developing nations beyond Ghana, where the way banking gets done, is changing, and that is making the role of how customers choose to top-up move well beyond the agent relationship. This is an opportunity to re-write the rules of the relationship of the pre-paid customer and the carrier.

Responding to this market opportunity

It’s time for telcos to start tackling the core reason for churn, which is the lack of loyalty. But customers in developing markets have new incentives to stay on with mobile carriers—to access financial services.

Customer satisfaction is an under-represented metric that telcos in developing nations need to optimize. A shift in emphasis is needed in order to eliminate prepaid churn. This focus will result in higher ARPUs and more efficient cost-models for user acquisition. Telcos should also be looking at the relationship between net promoter score (NPS) and customer lifetime value. There’s revenue in that number, and it’s a lot more efficient than spending to earn the same customer over and over. Saying yes to customers that can be trusted, based on their good behaviour, provable by data science, is a win-win for both parties. Loyalty goes up, churn goes down.

If operators want to remove the influence of the agent, they must meet their customers at their exact moment of need, before they head down to visit the agent. Operators should leverage today’s cloud technology to understand the value of every single, individual subscriber relationship and enable consumers to graduate up to higher value, more loyal post-paid like relationships.

To continue to consumer regardless of their in the moment core balance – to break down the hard line between prepaid and postpaid behaviour to enable deeper more trusting, higher value relationships. And this is usually starts as soon as, or when they are close to, reaching zero balance. Keeping subscribers connected, recognizing the value of their relationship and giving each and every subscriber the chance to graduate to higher value plans helps them remain engaged. Operators need to reach subscribers with deals and offers before they have a chance to set foot near an agent if they are to truly mitigate the risk of churn.
A framework and pathway
The way to do this is understand the subscriber’s behaviour – much like an operator would understand the behaviour of a postpaid user. MNOs operate on the assumption that prepaid users are completely anonymous to them. The truth is, MNOs do have data about their prepaid subscribers that could prevent them from churning. But, there is a lack of infrastructure in place to manipulate this data into something meaningful that can be used to drive engagement and loyalty. But data science can provide a solution.

In fact, many telecommunications companies in emerging markets including the Caribbean, Asia, and Latin America have seen notable metrics so far. In one implementation, we’ve seen new prepaid user churn drop from 62% to 11% between SIM registration and first top up and from 85% to 34% in the first 90 days.

By implementing the top-up process directly with the consumer through their mobile device, operators meet the consumer at their time of need. And the moment of truth is brought forward. Operators are able to engage with a customer early and take the power away from the agent and place it firmly back in their hands.

This type of early interaction and focus on customer engagement, rather than a preoccupation with “churn”, can assist in stopping the bucket from leaking.

The result of this framework is the ability to pre-empt churn within the first 30 days of a customer receiving a SIM card. Through an identity scoring model, it’s possible to unlock significant value in prepaid markets, through a model that emphasizes customer satisfaction while working more constructively with agents.

Rather than saying no, sorry you’re out of airtime, what if at their very moment of need, carriers had a way to say yes? What if instead of saying no and turning away a consumer, operators said yes, we value you as a customer – in fact, we value you so much that we’d like to offer you the opportunity, a pathway to gain access to higher value services? It all starts with a simple yes. Need a smart phone? Yes, we’ll finance that. Need a scooter to get to work? Yes, we can help with that. Small business loan? Here you go, you’ve proven you’re good for it.

The more we start treating people as if they deserve more yesses based on a credit profile built on their actual behaviour, the faster we get to a world of financial opportunity. Who’s going to say no to that?

 

Steve Polsky Hi ResSteve Polsky is the CEO and Founder of Juvo. Steve founded Juvo with an overarching mission: to establish financial identities for the billions of people worldwide who are creditworthy, yet financially excluded. With over 20 years’ experience, Steve’s career has centred on founding, launching and managing early stage technology ventures across the mobile and consumer internet sectors where, prior to Juvo, he was most recently President and COO at Flixster/Rotten Tomatoes.

Churn is breaking the telecoms market: here’s how to fix it

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Brendan O’Rouke, Head of Design at BriteBill, attempts to tackle the perennial telecoms problem of churn.

We’re operating in an experience economy where success is not just determined by the best brands in the communications and media industry, but by the best across all industries. So how do you stack up?

Low levels of satisfaction in telecoms fuels churn

According to the latest UK Satisfaction Index , published in July 2018 by the Institute of Customer Service, UK satisfaction with businesses across all verticals stands at 77.9/100. The score for telecoms is 74.3, making it the lowest scoring – apart from transport (72.5). Industries that achieve higher scores are doing so by delivering a consistent experience throughout the entire customer journey.

The low level of satisfaction in telecoms translates into an industry with high levels of churn, which are exceptionally high in prepaid, and significant even in the lucrative postpaid sector. According to a new TM Forum Quick Insight Report sponsored by BriteBill, An Amdocs Company, postpaid churn currently ranges from 5% to 32% per year.

The report analyses the links between a consistent customer experience and churn rates in 36 service providers across 24 countries. This revealed an enormous 27-point gap between the best performing and worst performing service providers. The reasons for this gap might not just be due to variations in customer satisfaction, but also to the service provider’s attitude to churn. Any service provider can reduce their churn rate almost overnight if they are willing to invest enough money into customer retention efforts. But therein lies the problem: if they are already losing money, can they really afford to spend such significant sums?

The cost of churn is substantial

Calculating how much to spend on acquisition and retention is something of a black art. If too many customers are lost, revenues will plummet. If too much is spent, margins will suffer unduly. But big money is at stake. Research by Tefficient  shows that the average service provider in a mature market typically spends 15-20% of service revenues on acquisition and retention activities. That’s pretty staggering. To put it into context, McKinsey says average CAPEX spending on infrastructure (networks and IT) is 15% of revenues.

What makes the situation even more challenging is that since there are few new customers in mature markets, service providers must acquire them from their rivals. And, with more service providers chasing the same group of out-of-contract customers, the Subscriber Acquisition Cost (SAC) of recruiting new customers is rising. With SAC a key metric for shareholders to measure the health of their investment, this can be daunting for service providers.

Deutsche Telekom, for example, revealed that its SAC increased by 8% across five of the markets it operates in – Germany, Greece, Romania, Czech Republic and Slovakia – between FY2016 and FY2017. If Deutsche Telekom is spending an industry average proportion of revenues on acquisition and retention, an 8% rise equates to an extra 1-1.5% of revenue being swallowed up, simply to maintain their customer base – wiping out a substantial proportion of any revenue growth they manage to achieve. In a double-edged blow, Deutsche Telekom also revealed that its retention costs fell by 34% over the same period.

Deutsche Telekom’s figures exemplify that service providers need to focus on retention, not acquisition. An acquisition focus fuels churn by only focusing on the customer until the contract is signed. A retention focus ensures customers receive a consistent experience and are nurtured throughout their journey, paying dividends in terms of far higher customer lifecycle values.

There can be huge differences between the cost of retention and acquisition. Take Canada’s BCE and Telus, for example. They revealed in 2017 that it cost almost 50 times less for them to keep an existing customer than to acquire a new one, with retention costs of C$11.04 and C$11.74 respectively, while average SAC in Canada weighed in at a whopping C$521.

Billing should be a retention tool, rather than a churn agent

It seems like a no-brainer. Retaining and nurturing existing customers should be our priority, with SAC fueling net additions and not just replacing churning customers. Of course, the $64,000 question, as always, is how can service providers retain more of their customers?

This is a complex question that doesn’t have a simple answer, but often the reason for churn lies in the most obvious, simple and prosaic of things.

Take the humble bill, for example. Currently, it’s more of a churn agent than a retention tool. The change in tone from the warm messaging of sales to the harsh, impersonal tone of billing can create a jarring effect on customers. Customers often find bills boring, hard to understand and stressful. According to a study by the   in June 2018, one in six mobile users haven’t even checked their bill in the last six months. When asked why, 18% or 1.3 million mobile users said they couldn’t be bothered.

It’s hardly surprising. Even if charges are correct, they are often confusing and unclear because of factors such as device leases, proration (billing for part of a month), billing in advance for some services and in arrears for others, overages, confusing and vague descriptions of charges and so on. And while we may have spent many millions upgrading IT systems to support the digital customer experience, outputs such as the bill are frequently overlooked. Too often, the bill remains old-fashioned, poorly designed and unengaging, creating an inconsistent digital experience for customers.

Taking a fresh approach to bills, however, can pay measurable dividends. Cricket Wireless, for example, a wholly-owned subsidiary of AT&T, rolled out a campaign called ‘Let’s Look Inside Your Bucket’. They used a video-based approach to communicate information, offers and a good dose of humor. It was incredibly successful, leading to a massive 37% reduction in early customer churn.

Three has taken a different approach. They focused on using bills to demonstrate the value delivered to individual customers by revealing how much they’ve saved using its Feel At Home roaming offer.

Sprint’s Mark Edwards, Director Applications Development, says that his company recognizes how important the first ten days of the customer relationship are, and has been working to ensure consistency between what’s promised in the sales cycle versus what’s delivered and what’s billed for. This means working to ensure the customer understands their charges, which in turn reduces enquiries and increases satisfaction.

So, what can service providers do to transform their bill from a source of stress, dissatisfaction and churn into a retention tool? The TM Forum says it boils down to three things:

  • Communicating billing information accurately, clearly and concisely – the aim of the bill is to provide answers, not generate questions.
  • Demonstrating value – rather than being a source of negative information (a demand for payment), bills should be a way of demonstrating value and savings.
  • Communicating new information – with customers increasingly unreceptive to promotional material, the bill provides a regular opportunity to make them aware of new products and services that are relevant to them.

The challenge is to remove inconsistencies in the customer experience by changing the bill from a 1990s paper artefact into a digital era asset, thereby transforming it from a churn agent into a valuable retention tool.

The TM Forum notes that service providers who can do this will have customers that “have a lasting positive impression that takes them beyond contract renewal time and sees them advocate their service provider”. And I’m sure we can agree, that’s a win-win for everyone concerned.