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!"§==Mobile=
Understanding how to increase loyalty among your prepaid subscribers
Budapest, September 27, 2004
Prepared by:
Andras Kondor
VP CRM, T-Mobile International
!"§==Mobile= page 2
Attractive margins and simple business modell attract competition
Margins in prepaid attractive Prepaid market is simple
Postpaid Prepaid
Price CostsPrice Costs
Illustr
ativ
e
No billing required
No credit check, bad debt and financial costs
Only basic customer service needed
Focus on voice and sms makes proposition simple and cover most current needs
!"§==Mobile= page 3
Prepaid customers want, cost control, cheaper price, but no contract
Conclusions Part of prepaid customers will never migrate to postpaid, as their
fundamental needs cannot be met with postpaid (e.g. no contract or cost control)
By design, prepaid attracts more low value customers – prepaid in itself is not less profitable for similar customer
Source: Ovum, “The Future of Prepaid”, 2003.
Prepaid and postpaid customer needs are different.Prepaid and postpaid customer needs are different.
Prepaid has no contract Prepaid is cheaper for low
usage – customers pay only for what they use and not more
Prepaid has cost control No credit checks Anonymity (not in all
countries) Easy to buy, no hassle
Postpaid is cheaper for high usage
Subsidised handset More roaming possibilities
Reasons for purchase and usage of pre-paid:
Reasons for purchase and usage of postpaid:
In TMO 1.5% of targeted customers
migrated to postpaid on specific campaigns
We know less about PrePaidcustomers and they are more
difficult to contact
!"§==Mobile= page 4
Prepaid market is challenging for incumbent operators
How to compete with new and/or prepaid focus operators?
How to operate in a less traditional, less information rich environment?
!"§==Mobile= page 5
Prepaid market is challenging for incumbent operators
How to compete with new and/or prepaid focus operators?
How to operate in a less traditional, less information rich environment?
!"§==Mobile= page 6
Know the value of your customers
CLASS 4
CustomerContribution
CLASS 2
GrossContribution
CLASS 1
Revenue
CLASS 0
NetContribution
CLASS 3
Acquisition& Renewal
Costs
Directcosts
CustomerDrivenCosts
CompanyDrivenCosts
TotalProfit
Per
Con
tract,
Per
cu
sto
mer
Per
seg
men
t
Measuringcustomer
usage
Measuringprice
efficiency
Segmentscoring
Customerreporting
Renewaloffer
definition
To be implemented
Prepaids and postpaids valued the same way
Already implemented
!"§==Mobile= page 7
Evaluate value performance against targets and use it for derivation of future measures
Historic Customer Value
Value creation How well did we drive/improve value in our customer
base over time? How did potential strategic moves (e.g., changes in
customer retention model, commission schemes, etc.) influence value creation?
Customer portfolio Who are our most valuable customers and what
describes them? Did we focus our activities on the most valuable
customers? Did we optimize our measures with respect to
management of low/negative value generating customers?
Channels Do we have the right channel mix with respect to
acquisition/retention and active marketing? Where should we consider/apply alternative
commission schemes (e.g., risk sharing) to lower acquisition/ retention cost? Service
Do we have the right service models for the existing/current customer portfolio?
Offering What are value creating propositions/offerings?
Systematic analysis of customer base
Value
Contract length
0 ?
!"§==Mobile= page 8
Focus to keep especially top and high value prepaids
Prepaid value creation
0%
20%
40%
60%
80%
100%
Low
Med
HighTop
Customers
Contribution
Top
Hi
Mid
Low
Value segments
Illustr
ativ
e
Top and high value prepaids create a lot of value
!"§==Mobile= page 9
Conclusions:
Prepaid has many positive sides to TMO
Higher contribution margin per minute than in postpaid
Upfront payment from customer
Easy to sell (no contract)
Reduced exposure to fraud
Lower SAC and CRC
Shorter payback period for TMO
Higher contribution margin
Benefits Concerns
But no contract and lower usage
But no commitment
But attracts more low value customers
But more inactive customers
But lower ARPU
15%
45%55%
65%
85%
55%45%
35%
Low Med High Top
Postpaid Prepaid
Prepaid has also significant amount of high and top value customers
Prepaid postpaid split by customer value segment:
Prepaid has many advantages over and above postpaid (e.g. upfront payment)
We should not force migration to postpaid
We have been relatively passive in trying to overcome the concerns (e.g. lock-in instead of contract)
Source: Ovum, “The Future of Prepaid”, 2003. DWH analysis delivered by Irene Dziergas on October 2003.
Illustr
ativ
e
!"§==Mobile= page 10
Base retention on three dimensional segment strategy
Segments are established based on fundamental customer knowledge
Value
Needs(Motivation)
Churn probability
Customer strategy formulated on the segment level, but executed and measured for individual customers
Knowledge Segments
!"§==Mobile= page 11
Differentiate treatment by value segments across functions
Top
Hi
Mid
Low
Marketing
Value segments
Call Centre POS
Differentiation
Apply customer value approach in defining customer experience for all pre- and post-paid customers at all touch-points
Create a memorable positive experience especially at early lifecycle, which forms a strong foundation of satisfaction
Minimise the negative experiences (e.g. credit suspension and exchange of faulty handsets)
Differentiation by value replaces differentiation by pre/postpaid
!"§==Mobile= page 12
Increase loyalty along the customer lifecycle
T-Mobile
Competition
Acquisition Retention
Segment based strategy needed to
increase the loyalty gap over the contract
lifecycle
T-Mobile
Competition
Differentiated customer treatment: Implement premium service Implement new joiner differentiation Implement improved bad debt
management
Loyalty actions and programmes: Provide tangible benefits to customers
to stay and bind them also emotionally Enhance positive customer experience
and brand perception Measure effect of loyalty processes;
form the basis for improving the customer experience
Overall strategy
Source: IM14
Differentiated customer treatment: Diminish difference between pre- and
postpaid Provide web-based service support
Loyalty actions and programmes: Provide tangible benefits to customers
to stay and bind them also emotionally Provide additional benefits for more
commitment Value tenure
Prepaid focus
!"§==Mobile= page 13
Prepaids get benefits based on their tenure and value
10 points/year of tenure (each month)
1 point/2 minutes of incoming call
1 point/each 50HUF (€0.20) of turnover
Gold Limit: 420 points
Prepaid Gold
10 points/year of tenure (each month
1 point/2 minutes of incoming call
1 point/each 50HUF (€0.20) of turnover
Gold Limit: 2,250 points
Prepaid Platinium
Benefits: Handset discounts Usage (voice, sms, content) discounts Special customer treatment
Example: T-Mobile Hungary
!"§==Mobile= page 14
Prepaid market is challenging for incumbent operators
How to compete with new and/or prepaid focus operators?
How to operate in a less traditional, less information rich environment?
!"§==Mobile= page 15
Develop segment based development strategy and leverage contact potential by increasing contact rates
Top
High
Medium
Low
Segment 1 Segment 2
Segment 1 Segment 2
Customer development strategy Contact strategy
High value content
Value for money content
Voice
&
SMS
Illustr
ativ
e
Ø 0,5 Ø 1.0
!"§==Mobile= page 16
"COC mapping" allows to identify and target individual (cross-/upsell) offerings based on usage of current customer, offer, and channel data
CH1
Channels
Offers
Customers
CH2
C4
C3
C2
C1
CH1
P1 P2 P3 P4
Whomdo we sell a given
offering?
Which offeringsdo we sell a given
customer?
''COC cube''
Each single cube provides info on an individual customer's (C) propensity to provide additional value by using a given product (P) when offered via a given channel (CH)
Example COC info includes: For customer C2,
offer P2 is most compelling, economically most attractive when provided via channel CH2
Within current base, X customers show
high usage affinity foroffer Y, yielding profit potential of Z
Which channel to
use?
!"§==Mobile= page 17
Focus on e-mail, and SMSGet and update e-mail addressesSecure permissionGather information on customer preferences
Customer development will be based on e-channels
0
5
10
15
20
25
30
35
40
0,1 1 10 100
Cost per order [EUR; log. scale]
co
ns
um
er c
ha
nn
el p
re
fere
nc
e [
%] Channel evaluation
SMS
MMS
Outbound Call
inbound CallOutbound Call
!"§==Mobile= page 18
A number of initiatives to support targets
Cornerstones Killer initiatives Description
Increase ARPU
Increase quality of acquisition
Retain high value customers
“More value for commitment” tariff
Top-up rewards
Ease of Top-up
“More value for commitment” tariff
Youth tariff/options
Lock-in offers
Prepaid tariff linked to direct debit
Loyalty programmes
• Digressive tariff or access to specific loyalty tariff plan upon minimum commitment of time or usage
• Depends on competitive environment
• Additional free credit depending on top up value(free credit for high value) / frequency (free credit for minimum amount in pre-defined timeframe) or channel (direct debit)
• Reward proportional to trigger
• Top up channels: e-Top-up / ATM• Top up abroad within TM /partners countries• Direct SMS upload
• Digressive tariff or access to specific loyalty tariff plan upon minimum commitment of time or usage
• Depends on competitive environment
• Specific rat-plan (adapted off-peak, mobile to mobile rates, SMS rates), specific top up voice data ratio
• Time lag effect
• Top up: buy monthly allowance (in credit) for several months• Bundle: buy monthly allowance (in usage) for several months
• Access to post-paid like tariffs• No contract, but direct debit
• Reward (handset renewal, free credit, free usage, other partners) upon usage / revenue s.a. Kläxchen/TMA, Nectar/Vodafone UK
1.1
2.2
2.3
2.1
1.2
3.1
3.2
3.3
1
2
3
Acquisition
Retention & win-back
Development &
service
!"§==Mobile= page 19
A quantitative assessment of value generation, planning and targetting along the lifecycle is needed
Acquisition
Retention & win-back
Development & service€
!"§==Mobile= page 20
Conclusions
Focus on high value prepaids Know the value of your customers Differentiate them based on their value Provide them with tangible benefits along the lifecycle based on their
value
Customise your development plan Develop customer specific cross/upselling Leverage e-channels Control the lifecycle