Telcos: the next frontier in customer loyalty?

Traditionally, telecommunication companies (telcos) have been focusing their customer lifecycle management in acquisition and churn prevention. Today, an increasing number of telcos realise that price wars and tactical promotions only offer a temporary solution to churn, according to Alexander Meili, European strategy director for ICLP, who feels the time is right for loyalty programmes to take centre stage in the telecoms sector.

According to Meili's latest blog article, research by both ICLP and other companies has shown that 30%-40% of telcos have a loyalty programme of some kind in place, although there are regional differences (e.g. 60% in the Americas compared to 25% in Europe). And there is a growing trend toward implementing advanced loyalty programmes, mainly offering points-based programmes based on both customer spend and tenure.

Mobile telecommunications is probably the most competitive mass consumer market in the world. Today a large part of the population already owns a cell phone and subscribe to a mobile service provider. Due to its high saturation levels, the following challenges need to be considered:

• How can you generate customer loyalty in a highly volatile and competitive market?
   
• How can telcos keep customers when the market primarily competes on price?

In terms of loyalty marketing, a mobile phone service provider must act on three different levels:

1. Focus on keeping your current customers loyalty;
    
2. Increase usage of loyal customers through more value added services;
    
3. Gain new users.

Designing a loyalty proposition for a mobile telco is different from other industry sectors. In particular the key is the difference between prepaid and the contract customers.

For the contract market, the challenge is to get the customer to subscribe to a contract for a given length of time (often up to 24 months at a time). The ultimate goal is to keep the customer and have them renew when an existing contract period expires. Modern loyalty and rewards programmes are meant to prevent existing subscribers from cancelling their subscription with the company and switching to a competitor.

The prepaid market (known as Pay As You Go, or PAYG), has some unique challenges. Here it is even more important to earn customer loyalty because it is essentially a 'throw away' market. It is very easy to switch between operators, resulting in an even more competitive market where customers can change network more often, and are often heavily influenced by friends and family.

Another industry-specific peculiarity is seen when it comes to the type of loyalty rewards offered. ICLP's online survey in the DACH region in April 2011 asked 500 consumers what kind of incentive they would expect from a mobile operator's loyalty scheme. The study found that customers tend to want service-oriented rewards, such as new handsets (32%), points (22%) and shopping vouchers (20%).

But the key to success lies with differentiation but, as most providers are already delivering service rewards, they should be looking to differentiate in some other way. ICLP suggests that telcos - and in particular mobile telcos - should take the following approach to their loyalty offerings:

1. Added-value benefits (e.g. bundled membership packages), moving away from discounting, and making it harder for competitors to cost or benchmark the programme.
    
2. Merchant-funded rewards and shopping platforms, with cash-back options that a customer is unable to get elsewhere.
    
3. Integrated social interaction with other customers through fun and engaging online platforms.
    
4. Voice of the Customer (VOC) programmes, such as online customer-helping-customer forums.
    
5. Currency-based programmes to help increase both ARPU and MOU, either through points or unique code marketing.

Of course not all loyalty activities are guaranteed to succeed. In the past, ICLP has seen many telco loyalty programmes fail due to a lack of strategic planning or market testing. But, in the mobile telco market at least, there are many ways that lead to Rome; some are more aggressive (i.e. offering benefits or rewards), while others are more subtle (i.e. customer recognition), but success always depends not only on the content of the programme but on how you deliver it.