Break the expensive ‘chase and replace’ cycle – choose loyalty

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For many successful companies, business intelligence is a critical source of competitive advantage. For example, Amazon famously uses customer data to inform its recommendation engine. It also uses this data to optimize its supply chain, inform product development and optimize its B2B offerings such as Amazon Web Services (AWS).

However, this isn’t the case in every industry.

Imagine running a business where you have incredibly limited information about your customers – you’re in the dark on information as simple as the name of more than 80 percent of your customer base. It’s hard to believe that such a business would be successful in today’s data-driven world.

Unfortunately, this is the reality for mobile network operators in Asia. In Southeast Asia, this lack of basic customer knowledge is an even greater issue, with mobile network operators lacking basic information on a staggering 92 percent of their customers in the region.

Worldwide, 71 percent of mobile phone subscribers are ‘prepaid’ customers, topping up their accounts when they are low on credit, sometimes with cash, and almost invariably without providing any personal information. And it gets worse. The cast of characters within that 71 percent of each network’s subscriber base is always changing, because these customers have virtually zero loyalty to their operator and constantly switch networks in search of a better deal.

A recent study by Strategy Analytics across eight emerging market economies (Argentina, Brazil, India, Malaysia, Mexico, the Philippines, South Africa and Thailand) found that, on average, operators were effectively required to replace their entire prepaid customer base every two years. In the markets studied for the report, the churn rate climbed highest in the Philippines, with 80 percent of the prepaid base changing every year. 

In developing economies, mobile network operators are ruled by the prepaid market. Across all the developing Asia Pacific markets, for example, the prepaid population makes up more than 80 percent of the subscriber market. In Malaysia, Thailand and the Philippines, prepaid accounts for more than 50 percent of operator revenues.  Despite this, prepaid remains the great mobile market that we don’t mention. It rarely features on conference agendas, even though its 5.7bn users dominate the global industry in subscriber terms and contribute about one-third, some $265 billion USD, to mobile service revenues. 

The Strategy Analytics report – Death by a Thousand ‘No’s – revealed a cycle of ‘chase and replace’ that actually serves to fuel the operator’s prepaid churn problem. Although subscriber acquisition costs (SAC) are relatively low in the prepaid market, Strategy Analytics found that, within the eight markets, some 90 percent of the SAC budget was focused purely on replacing customers that had churned to other networks. SAC costs were highest in India, Malaysia, the Philippines and Thailand respectively.

In total, operators across the eight territories featured in the report were spending close to $700m USD per year chasing and replacing lost subscribers.  This effectively means that all the operators in a country have the same basic business model. They chase and replace the same churning customers who – at the same time – are being actively encouraged by all operators to hop from one to the other with ease and anonymity. 

Just ten percent of that acquisition marketing spend was geared towards retention and loyalty – just ten percent geared towards breaking the chase and replace cycle. It seems as if the operators have accepted that the anonymity within their prepaid base means that they have no relationship with those customers to even try to develop.

However, the Strategy Analytics report believes that the simple choice between saying “YES” or saying “NO”at the right time could change the operator’s outlook completely.  Simply saying “YES” more often could break the cycle, reduce churn and actually grow the prepaid subscriber base rather than simply replace lost customers.

Currently, the operator culture is geared towards saying “NO” when a prepaid customer hits a zero balance – something that occurs for the average prepaid subscriber once every week. “NO”, you are out of airtime; “NO”, you don’t have the funds to make another call; and – most tellingly of all – “NO”, we do not know enough about you to trust you to repay any debt you incur. Every “NO” is an invitation to find another network, to find another deal, and to end a relationship before it has even been given a chance.

Short-term thinking and an economy characterized by an aversion to risk creates that situation. However, a customer hitting zero balance should be seen as an opportunity for retention and relationship building. Offering a prepaid customer short-term airtime credit, so that they can carry on making calls and accessing data services, will deter them from shopping around. And it represents a very low risk as the funds can be recovered at top-up.

Saying “YES” to that customer, at that time of need, can kick start a longer-lasting relationship where the operator gets to learn more about the subscriber and the customer gets access to more services. Currently, prepaid users are virtually invisible to their operators and this serves to feed the “NO” culture.

The operator that says “YES” to a small interest-free airtime credit extension, can start to build a financial identity for its customer based on payback behavior, and use machine learning to determine individual lending criteria based on real-time financial data. Operators adopting the “YES” culture can break the cycle of chase and replace by allowing customers to gradually borrow and pay back larger amounts of credit, in the process building trust, reducing risk and forging a relationship that creates a compelling reason to stay with the network. 

Saying “YES” can engender loyalty and drive subscriber growth – it’s a much better way to foster a relationship than saying “NO”.

Written by Vincent Toh, VP, Asia at Juvo

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