Need for Indian Telecom Service Providers to Adopt Loyalty Programs

Need for Indian Telecom Service Providers to adopt loyalty programs

1. India is the fastest growing mobile telephony market in the world. The telecommunication industry is growing at a neck break speed with leading players lapping up mobile subscribers by millions. The country's telecommunication market is the 4th largest in the world in terms of wireless subscribers and 5th largest in terms of total telecom subscribers. After growing its wireless (GSM and CDMA) subscriber base at a CAGR of over 122% during the period January 2004 to January 2007, the country is expected to take the number to 500 m telecom subscribers by the end of March 2010.

2. The problem is that despite the average use of mobile phones being the highest at 287 minutes a month, India has average revenue per user (ARPU) of around $8 (approximately Rs 350). Australia has the highest ARPU of $33 followed by Singapore with $32 and China at $12. The global average ARPU is a little over $ 21. Information technology research firm Gartner predicts that the ARPU in India is set to fall even further to $3-5.

3. Low ARPU is caused by the intense competition and the inherent price sensitive nature of the Indian market. In a bid to target low-end users and increase penetration in the Hinterland, players in the industry slashed prices, thereby causing low ARPU.

4. Despite the low ARPU, the Indian telecom players are compelled to provide highly proficient customer support because customers tend to compare customer support of one service provider with another and also of the telecom service category with another (e.g. Credit card customer support, DTH customer support etc.) thus raising the bar.

5. Thus, with low ARPU and high Avg. costs per customer, the challenge is to play the volumes game by increasing the total subscriber base. This however, is easier said than done.

6. Due to undifferentiated products, call rates and services, customer acquisition becomes a tough task. At the same time, churn rates of about 3-5%; ensure that the net addition to subscriber base remains low.

7. Owing to current absence of number portability and the very fact that existing customers (if satisfied) are easier and more economical to retain than acquire new customers, Service providers require loyalty programs.

8. However, these loyalty programs must focus on subscribers with high CLTV and go beyond conventional segmentation of prepaid/postpaid, consumer/corporate and voice/data users.

CLTV & its application to designing of Loyalty programs

Customer Lifetime Value Analysis -- Customer lifetime value analysis treats customers as investments, and calculates their net present value depending on projections of the lifetime profitability of the customer. Predicted customer profitability and the predicted relationship life span of the customer are the primary factors for the analysis. Maximum lifetime profit for minimum investment is what is sought via CLTV analysis. The costs of acquiring and keeping a customer must be evaluated by the stream of profits the customer is expected to bring.

On a very basic level, the formula for calculating CLTV for a particular customer is

Estimated Average Lifetime Value = (Avg. periodic revenue earned from a customer x Estimated number of times the customer is likely to reorder) - Avg. Periodic cost company incurs to service the customer

Once a detailed CLTV formula is arrived at (which is unique to the marketing situation), the next step would be to segment customers by their CLTV slabs. Analyzing the behavior of these segments will be the key to designing loyalty programs that ensure profitability and customer retention. In the presence of limited marketing budgets, CLTV helps you to concentrate your resources on those customers whose behavior you can most easily change, and whose changed behavior will be most profitable.

Challenges & Opportunities in the drawing up of the Loyalty program

1. Devising a formula for calculating the CLTV specific and unique to the Indian Telecom sector.

2. Customer segmentation based on CLTV will pose as a huge challenge.

a. We may already have extensive information about our subscribers. Analysis and making sense of this information will be tricky.

b. Also, this will involve re-evaluation of existing segments to some extent. People shift between segments. Segments also change their behavior and new segments may be coming into their own, even as we discuss this.

c. Additionally, analysis of ex-customers vis-Ðo-vis existing ones could give out sum results though this again may be bulky.

3. With a widening and more varied range of competitors, how can we ensure a quality of user experience that will delight customers more than that of our competitors?

4. There must be a clear shift in the company-focus from merely topline growth to profitable customer retention. This means, every function- front office, customers support, back office, product development etc., must all collectively and simultaneously aim for customer loyalty.

5. Mobile data growth is predicted to outstrip Voice growth. Currently, Voice generates 87-90% of the revenue for operators. However, the VAS market is estimated to grow at an annual rate of 30-40 per cent. SMS (including SMS info services like cricket scores, stock market updates, jokes, dating etc.) contributes a significant part of non-voice service revenue (around 65 per cent -- the highest in the world), while caller-line identification (CLIP) accounts for eight per cent of VAS revenue. The remaining 27 per cent are from services such as caller tunes, games, ring tones, mobile entertainment and multimedia messaging. The diversity of data services demands more sophisticated customer loyalty processes than Voice & SMS.

6. Prepaid customers are less likely to respond to our loyalty initiatives than post paid users. Yet, prepaid amounts to a significant portion and cannot be ignored.

7. Most existing loyalty programs focus on providing their customers with the cost advantage. For eg.- our loyalty program for prepaid customers 'Lifetime Idea' focuses on providing a 1 year validity at a nominal rate. However, research by Nokia has shown, that cost if of less of an influence on customer loyalty than network quality and operator influence. "Both consumers and businesses say that they are more likely to stick with a telecom operator based on the quality of the consumer experience than on the cost of its service" Amdocs Global Customer Service Experince Survey, 2006. Thus, enriching customer experiences