With the saturation of the European mobile communications market, operators now need to focus on customer retention instead of acquisition, according to IDC's new report, 'Customer Retention Strategies in the Western European Mobile Market, 2002'.
The assertion is emphasised by the fact that many operators are already curbing their high subscriber acquisition costs (SAC) and churn levels. Pre-paid service was the main catalyst behind their strategies, as they believed having a large subscriber base would be profitable. However, the market changed when 3G licenses were awarded and operators realised that they needed to increase revenue and concentrate on their so-called profitable customers.
"Operators had accumulated large bases of pre-paid customers in excess of 60% who were not spending money. Pre-paid has led to more headaches than operators had initially expected - higher SAC and increased churn," said IDC senior analyst Paolo Pescatore.
The IDC report observes a number of key challenges currently facing operators in the mobile communications market:
- Identifying who the pre-paid customer is
- Identifying whether pre-paid customers have churned or not
- Migrating users from pre-paid to postpaid services
- Enticing new customers without high subsidies seen in the boom era
- Retaining profitable customers
"As in the 3G world of offering a cocktail of services rather than one killer application, retaining customers is all about putting in place a cocktail of measures to increase retention," Pescatore continued. "Consumers are price sensitive as they want a good service at a low price, and they want to be able to personalise their services. Increasingly, the focus will also be on the ownership of customers and the value operators offer them. That value will involve a financial cost, but the revenue opportunity should exceed the initial cost."
The main retention tools are loyalty schemes, personalisation of services, strong brands, customer service, and portals encouraging usage of handsets.
"In reality, no individual tool is more important than the others. Operators should implement all of them, gaining every opportunity to retain customers. In the long term, it will become important for operators to develop and offer additional services for existing and new customers as well as good customer service. Being able to offer the services consumers want will be decisive in retaining customers."
The report highlights some of the acquisition tools operators have used and which strategies they can deploy to retain customers more effectively.