Telcos: the next big thing in loyalty?

11 January 2012

We think the time is now right for loyalty programmes in the telecommunications sector.

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. In short: we think the time is now right for loyalty programmes in this sector.

Own and 3rd party research has shown that 30-40% of telcos have a loyalty programme in place, although regional differences apply (e.g. Americas: 60%, Europe: 25%). The same research has also shown that there is a growing trend to implement more advanced loyalty programmes (mainly with points-based schemes on 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 arise:

  • 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:

  • Focus on keeping your current customers loyalty
  • Increase usage of loyal customers through more value added services
  • Gain new users

Designing a loyalty proposition for a mobile telco is different to 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. The ultimate goal is to keep the customer and have him to renew when the contracted period expires. Modern loyalty and rewards programmes are meant to prevent existing subscribers from cancelling their subscription with the company and switch to a competitor.

The other market we have to look at is the prepaid market (Pay As You Go – PAYG). Here, it is even more important to get customer loyalty because it’s a ‘throw away’ market. It is very easy to switch between operators resulting in an even more competitive market where customer can change network more often and are often influenced by friends and family.

Another industry specific peculiarity is seen when it comes to the type of loyalty rewards. ICLP’s online survey in the DACH region (April 2011) asked 500 consumers what kind of incentive they would expect from a mobile telco loyalty scheme. It highlighted that a majority of customers want service rewards, i.e. new handsets (32%), points (22%) and shopping vouchers (20%). The key to success lays in differentiation. As most providers are already delivering service rewards, they should be looking to differentiate in another way.

At ICLP, we suggest telcos, and in particular mobile telcos, should take the following approach to loyalty:

  • Added-value benefits (e.g. bundled membership packages) – moving away from discounting = and making it harder for competitors to cost/benchmark
  • Merchant-funded rewards and shopping platforms, with cash-back possibilities a customer is unable to get elsewhere
  • Integrated social interaction with other customers (fun and engaging online platforms)
  • Voice of the customer programmes (e.g. customer-help-customer forums)
  • Currency-based programme schemes to increment ARPU and MOU (either through points or unique code marketing).

Not all loyalty activities are guaranteed to succeed. In the past, we have seen many telco’s with failed programmes due to lack of strategic planning and market testing: Orange Davantage, Swisscom Joker, Sprint Premier and T-Mobile Bonus – just to name a few.

In the mobile telecommunication market, there are many ways that ‘lead to Rome’ – some are more aggressive (benefits/rewards), others are more subtle (recognition) – however success depends on how you deliver the programme and the content of it.

 


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