Blog | “The Elephant in the Boardroom” | Juvo
In highly-saturated prepaid mobile markets, churn is one of those metrics that nobody likes to talk about, and for good reason: we’ve found that some mobile network operators (MNOs) are losing up to 80% of their prepaid customers within the first 90 days.
This article was first published for Juvo.
5 Global Prepaid Churn Trends (That Nobody Wants to Talk About)
Prepaid churn is one of those decidedly un-sexy topics that MNOs don’t typically discuss, most likely for the most human of reasons: it’s a depressing topic. It’s also hard to quantify consistently, as these are the kinds of numbers buried in reports that are shared out behind closed doors.
That said, our business involves talking to MNOs all over the world behind those closed doors, and we’ve found some consistencies that cross markets and company size:
Telcos will see a substantial drop-off of customers in the first 30 days, and then slightly less for the next 60. In hyper-competitive markets, telcos can lose up to 80% of their prepaid customers in the first 90 days.
MNOs are paying to acquire the same customer multiple times, without knowing when that happens or who these customers are.
Because the high volume of initial churn is taken as a given, nobody bothers with customer loyalty programs until day 91 of a customer lifecycle.
Churn is hugely expensive: the CEO of Telefónica recently called it “the most expensive thing for a telco.”
An internalized oppression has developed around churn, in the way that anyone subjected to consistent unpleasantness over time takes on as their own viewpoint: telco industry vets are taking the prepaid churn metric as a “cost of doing business” state of affairs, and often can’t believe that things can get better.
This plot illustrates actual data from our telco customers: As we can see here, month one churn is roughly a third of all users. On average, our operators partners are also paying to acquire 3–5 users to keep one of them.
Here’s the good news: things can — and must — get better.
They’re Just Not That into You (Yet)
Telefónica’s CFO recently took to Twitter to announce the two most compelling metrics from their annual report: flat ARPU (average revenue per user), and decreased churn.
It says a lot about the state of things when a flat number is considered a huge win, but a win it is:
Churn and ARPU are the two metrics most often used to measure the telecom business (Subscriber Acquisition Cost completing the trifecta), and yet they’re two of the most challenging for the prepaid landscape: SIM cards are commoditized to the point that “business as usual” means trying to steal customers from competitors, often at the cost of margin.
This is to say that prepaid customers walking into a top-up location and seeing who has the best deal of the day is the norm here. They don’t care who that deal is coming from — and, up to this point, operators don’t often give them reason to care. This goes back to the internalized oppression around churn (“We’re going to lose most these people anyway”), and the cycle continues to repeat itself.
Operators with predominately prepaid customers are forced to offer more and more discounts or bundled services in light of the competitive and mobile usage saturation in the markets today. Without compelling customer loyalty or engagement programs, consumers rely on price and convenience to make their SIM-card purchasing decisions
Now, back to Telefónica: understanding that they also have a large postpaid business, their announcement nonetheless made an important point: the decreased churn and static ARPU was held up as a win in “customer satisfaction.”
It’s worth noting that “customer satisfaction” isn’t something that we hear telcos use when talking about prepaid churn, despite the fact that its inverse (“customer dissatistfaction” or, in most prepaid cases, “customer indifference”) is what churn is actually measuring. And this raises an interesting question: is it time for telcos to stop talking about churn as such, and start talking more about the positive signs of customer satisfaction? Metrics like ARPU, Customer Lifetime Value, and Net Promoter Score are metrics that more accurately reflect a customer’s relationship and loyalty to a telco — which is to say that, perhaps, it’s time to start addressing the core cause of churn, which is a lack of engagement.
Take the Elephant by the Horns, Gently — with a Friend
Engagement is what keeps customers around, and it’s what builds the relationships that lead to loyalty — which, ultimately, is what reduces churn long-term. Unfortunately, technology up to this point has severely limited a MNO’s ability to craft programs and services that foster engagement in their prepaid subscriber base, for one simple reason beyond the short stay: these customers are completely anonymous.
But the simplest problems aren’t always the easiest to solve.
Large telcos have untold amounts of customer data, but their systems weren’t put in place to use it toward an engagement end. Their prepaid data, in particular, isn’t organized or architected in a way that foster the kinds of engagement programs on which tech marketers like me are typically measured — making it a genuinely elephantine task to innovate.
This is why the GSMA, among others, are calling for partnerships between technology companies and telcos: tech companies have the nimbleness and the engineering power to both make sense of all this data and build a front-end user experience that fosters engagement (and accordingly gives the telco behavioral customer data), and the telcos have the data, the reach, and the scale to make a huge impact — both for the telco and for these consumers.
And this leads us to the biggest opportunity on the table: prepaid transformation. The vast majority of the mobile world is made up of prepaid subscribers who would have mobile purchasing power, if only they could access it. Forging partnerships that help migrate these unknown prepaid subscribers to known subscribers exhibiting post-paid behavior leads not only to improvement in all engagement metrics (most notably churn), but also makes revenue forecasting a lot easier.
In our case, we’ve found that giving people an initial way to stay connected within the first 90 days with risk-free airtime loans (no fees, no penalties) and prompting continued engagement through game mechanics (start at bronze level, work up to diamond level for longer airtime loans) has not only led to a 96% repayment rate, but initiates a loyal customer relationship that, naturally, drastically decreases churn and increases ARPU by giving these previously anonymous subscribers a path to a postpaid behavior model. Other companies worldwide are seeing similar engagement wins with mobile wallets, among other services.
What we’re doing goes far beyond traditional airtime lending, and for good reason: we’re looking to give telcos information (read: the financial identities of their customers) that can be used to migrate these customers upstream to more consistent airtime, smartphone financing, mobile financial services, and VAS. With that migration comes the customer loyalty that continued engagement fosters, and with that loyalty comes better acquisition and retention metrics.
In short, it turns out that once people are trusted with the opportunity of financial convenience (in our case, not having to go top up at a physical location every other day, without the risk of being charged fees or penalties for that convenience), they’re happy to take it.
And happy customers stick around.