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.

Engaging via a different credit pathway

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Jacquie Amacher, VP of Marketing at Juvo, argues that the critical relationship for a prepaid subscriber is with the company it buys its balance top-ups from.

Extending airtime credit to pre-paid customers has always been seen as something of an emergency service. But the latest thinking sees it instead as a means to a very different end.

If we take a typical pre-paid customer in an emerging market, the moment of truth for that customer, so to speak, is when they need to top-up. As a credit balance drops to near-zero, the customer heads to their usual agent or outlet to buy more airtime. As far as the operator is concerned, this is the time when, far too often, the moment of truth quickly becomes the moment of churn – because the power in the top-up process lies with the agent on the ground and not with the operator’s marketing and sales team.

In markets where more than 85 per cent of subscribers are pre-paid customers who need to top-up, that loss of power is a problem. In fact it leads to churn rates in emerging markets that touch 35 per cent per year as the agents push the consumer towards the network which is offering – that week – the best commission levels and incentives. These agent reward schemes often fluctuate from month to month as operators try to get an edge in the marketplace; but arguably they only serve to fuel churn.

To try to wrestle back control, and effectively put off the moment of churn, some operators use simple emergency lending to keep a customer connected for a limited period of time if their balance falls to zero. These loans are designed to get the customer through that period between the airtime credit running out and the funds becoming available to visit the agent. The thinking behind the emergency loan is simple – customers are less likely to swap SIMs and more likely to stay with a network that helped them in their time of need – no airtime credit and no money.

There’s another side to this though; the customer now has a debt to clear with the network, coupled with an interest charge to clear or fee to pay which immediately eats into their credit at top-up. What’s more, to limit the risk of the unsecured micro-loan and guard against a customer simply starting a new anonymous pre-pay agreement on a different network, the operators also use a variety of fairly restrictive emergency lending criteria. Typically these take into account the frequency and value of the top up as well as the tenure of the customer with the network. A long-term customer, with a good, frequent top-up history is a much safer bet than one who has just joined the network and carries no history. In fact many operators privately admit that as many as 90 per cent of their pre-paid base would not be considered eligible for emergency lending.

There are other flaws in the ways many emergency loans are currently offered. For example, often the offers are triggered by the time of the month, rather than the actual real-time credit balance. This makes some offers irrelevant and many others – given that the size of the credit extension is habitually set a very low level – almost worthless if the operator only targets those subscribers deemed to be a good risk.

Simply put, emergency micro-loans are an outdated approach that is neither dynamic, intelligent or personal; nor do the loans have a clearly defined strategic purpose – such as increasing customer engagement and opening a pathway to new services. They are simply a tool to put off the moment of truth rather than actually helping the operator to regain control. They are not even that efficient. The overly conservative nature of the program limits the addressable market, and therefore doesn’t make best use of a significant amount of actionable data sitting within the operator’s network.

Rather than generate revenue, we think the way micro-loans are typically managed today actually leaves significant operator revenue uncollected on the table. But with a different, properly integrated approach they can become a key part of a targeted operator solution that aims to combat churn, drive revenues, increase customer engagement, and create a pathway to financial inclusion for a huge number of undocumented pre-paid consumers.

Doing this effectively involves some key, game-changing principles:

  • Initiate direct contact via an operator branded app
  • Base the contact on real-time usage and behaviour data
  • Provide help from the first moment
  • Don’t always wait for the moment of truth – act early
  • Don’t charge interest on airtime loans

The idea is to trigger engagement right from the moment the SIM is activated. What’s more, right from that first moment, operators can apply tried and trusted programs from the retail world such as loyalty and reward programmes which will not be effective in building loyalty, they will also increase engagement and generate more customer data points. Simply by integrating the top-up process and credit extensions into a real-time app with a built-in loyalty and rewards program, operators are able to develop a direct relationship and achive a position of mutual trust with a customer who before was simply an anonymous number.

That early and often engagement is vital. Regardless of the subject of an app, market-wide statistics show that 90 per cent of customers who download an app and engage with it on a weekly basis during the first month are retained as long term users. Without that level of engagement, apps lose customers quite quickly. Indeed, financial services apps that don’t hit that weekly target retain less than five per cent of their users three months after their initial install.

We think that smart operators will therefore use that first month after SIM activation to quickly build a relationship with a new customer based on rewards and activities that can build progressive airtime credit extensions. All of this will drive engagement, and take the power in the relationship away from the agent, and place it firmly in the operator’s app. Another point to bear in mind: in highly competitive markets, many with 130%+ penetration rates, some operators lose a third or more of their newly activated SIMs even before the first top-up. This style of early engagement can stop that drain in its tracks.

Engagement can be further increased by developing membership style levels of user. It’s possible to encourage pre-paid customers to quickly transition through reward levels such as bronze, silver and gold and ensure that each move up the ladder adds more information to the operator’s dataset about that customer. The data collected and analysed from this engagement and interaction is then be used to fuel further offers, larger credit extensions and eventually other financial inclusion services.

This is what we term data science at work – driving a customer engagement, retention and loyalty program that delivers tangible results. In the Caribbean, Cable & Wireless was able to reduce churn by 50 per cent and increase ARPU by ten per cent in the first 120 days after installation of the app. Today, credit extensions are available to almost 95 per cent of the operator’s base and more than 25 per cent of its customers use the App every day. Those are powerful arguments for improving engagement with a pre-pay customer base.

The strategic use of credit extensions can help to effectively turn pre-paid customers into regular subscribers as well as help to build a range of personalised financial services that lock-in customers. But it doesn’t work if the credit is treated like as emergency-only service, and it doesn’t work if the customers are left open to other influences at the moment of truth. The way to do things differently is for operators to engage early, engage often and engage directly.

 

Jacquie Amacher VP Marketing at JuvoAs VP of marketing, Jacquie leads Juvo’s brand strategy and global communications efforts. She brings over 20 years experience in brand transformation and strategic marketing for both high growth companies and emerging technologies in the mobile technology marketplace. Jacquie was at the forefront of high profile product and digital service launches from leading-sector companies including Motorola and Verizon, and has served on the executive leadership team of two global advertising agencies.