Telecommunications is surely one of the most competitive sectors on the face of the planet. Research shows that one third of all mobile phone consumers switch operators every year, and it costs the industry billions. Given that mobile network operators are some of the largest companies in the country, how are they using those big budgets to win customer loyalty?

By Rob Lewis, staff writer

This month KPMG completed a global study into customer loyalty in the telecoms sector. The findings show an industry rife with CRM failure - and it doesn’t look like things will improve any time soon. The latest popular strategy, of improving retention through offering bundled multimedia packages as offered by operators like Virgin, isn’t going to help either.

Telcos had hoped that multi-service telecom offers would generate stickiness through conveniences like unified billing. Yet the survey showed 84 percent of UK respondents said price remained the most important driver in deciding a contract, and 60 percent said they would switch to another carrier if just one of the bundled elements was cheaper or better.

“This has to be alarming for service providers, because it cuts to the heart of strategies carriers are using to attract and retain customers,” says Sean Collins, chairman of KPMG’s communications and media practice. “Customers just aren’t buying into bundling.”

Less is more

Despite the early optimism of industry technophiles, it seems that added services and extra functionality have made churn worse, not better. A report by Group 1 Software two years ago showed that despite the advent of 3G services mobile telecoms companies were losing customers twice as fast as they were in 2003. Defection rates had more than doubled in those two years, from 15.5 percent to a crippling 33.4 percent.

Churn is a fact of life for most sectors these days, even banking, but in telecoms it remains one of the greatest challenges of all. And to borrow a phrase from Alcoholics Anonymous, the industry’s addiction to self-defeating marketing has a way to go yet before it "hits bottom".

Customer dissatisfaction with the way mobile service providers are currently marketing themselves is at an all time high. KPMG’s findings came hot on the heels of a survey by the marketing delivery platform Pontis. 70 percent of mobile phone users consider the marketing offers they receive to be irrelevant, and almost as many were actively annoyed by them, particularly the 25-34 year olds who make up telcos’ biggest revenue stream.

“The approach most operators still take today is not working,” explains Guy Talmi, senior marketing director at Pontis. “They’re not only failing to attract new revenue streams, but even worse, it’s alienating their customer base.”

The study offers a glimmer of hope, however. Within the same 25-34 age group, almost half said they would be willing to change operators if one could provide them with a service more tailored to their lifestyles. For once, the industry has the chance to compete on something less mercenary than price.

“It clearly points to major opportunity for those operators who can harness vital information about a user’s interests and behaviour,” Talmi says. “If you can offer them the relevant services at the right time, a large number of users would be willing to change.”

More than just money?

Despite the fact it is a commonly held truth, the argument that price is the determining factor in mobile customer loyalty is not entirely sound. After all, most mobile phone users find their contract’s tariffs deeply confusing (if not their actual phones too).

“If you ask any customer, landline or mobile, how much it costs them to make a national call, a local call, call an 0845 number or an international destination, very few of them will be able to quote you a pence per minute rate,” says Andy Spellar, telecoms sector director at Graham Technology. “It’s because the customers don’t understand their price packages that they are so susceptible to a competitive offer.”

Price makes a difference, but not in the way you might think. It may be no more than the fact that historically, prices have been falling sector-wide for years, a trend which looks set to continue. In light of this, by its very nature a tied-in contract is always going to make customers jumpy around expiry time.

“Falling prices means that if telcos don’t rapidly switch their customers onto the best available price plan, then their customers are inherently at risk,” explains Spellar.

Instead, telcos are simply making their customer sign longer contracts – witness the rising popularity of the 18 month deal – which simply means they can ignore them for longer. Similarly, at the end of those 18 months, those customers will be faced with an even greater price discrepancy, as well as a more outdated phone. While it might boost short-term profits, it’s not a solution to the underlying problem.

At the same time, it seems certain that things cannot stay as they are. Prices will not fall forever. Eventually, they will converge, and the growing popularity of P2P products like Skype, together with all-you-eat fixed fee deals, suggests that is process is already underway. When it’s finished, telcos will have no choice but to concentrate on making customer experience a central differentiator.

To an extent, this is already happening: while the high churn rate continues to cost the industry billions, some operators are far better at retention than others – Vodafone reports that its own is only 14 percent.

“The question is, have companies invested in the appropriate systems for them to target the right customers with the right offer at the right time?” says Spellar. “Some have, but many haven’t. It’s a business decision they have to make. Do they risk churn, or do they risk doing something about it? But most don’t have the IT to support that kind of analysis.”

It appears the high churn rates in mobile phone users are at least in part a side-effect of the telcos’ own strategy. As the environment becomes more and competitive, it will take a degree of counter-intuitive courage to free up the resources for a softer, less aggressive CRM-orientated solution. But those companies prepared to make the investment in truly enhancing the customer experience will be the only ones that will survive.

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