The prepaid business is a constant race against time, with customers at their highest risk of churning during low balance periods. Mobile operators have to change their relationships with prepaid customers in order to change the churn dynamics, and doing this effectively requires an understanding of the biggest challenges. We listed three main challenges we have seen over the years working with telecom companies across different continents.
1. Limited number of signals for churn risk identification
Prepaid customers can leave at any time without any interaction with the company. Unlike the postpaid service model, there is no clear moment in the customer lifecycle (such as end of services or handset leasing contracts) which can help Telco’s to identify potentially risky users and take action to retain them.
2. Identifying risky users early
Customers with high potential to churn need to be identified as early as possible. That’s because the majority of users in a company’s customer base with a high likelihood of churning could already be unreachable. For example, customers could already have switched to a competitor’s SIM. The majority of prepaid service providers already have propensity churn models which yield highly accuracy rates. However, it is important to understand that even if you are able to identify a group of customers with a high likelihood to churn in the next 2 weeks, it could already be too late to reach the majority of those users. That is why the majority of retention campaigns have a low impact.
3. Having an impact on risky users
Simply identifying risky users is not enough. To have a real impact on their bottom line, companies need a deep understanding of the main churn drivers and what tactics / offers could motivate users to remain. Prepaid customer base managers will frequently use so called “spray & pray” tactics when running retention campaigns – sending a single promo offer to a large share of the customer base as frequently as possible through a single channel and hoping that this will have a significant impact on total churn rates.
These tactics often lead to a deteriorated margin in the customer base and are a waste of the company’s marketing budget, as a large share of customers receive these “promo” offers even if they were not even at risk of churning. Since it requires considerably more money, time, and effort to obtain new customers than it takes to retain existing ones, businesses should concentrate on cultivating their ordinary customers so they become extraordinary customers. Competition is also intense in almost every business sector. Once a customer is lost to the competition, they rarely return, which means the investment of both financial and human capital that was made is lost as well.