Lost Cellular Phone Customers
What do you do when your customer has left you to go to the competition? Do you give up? Or are there ways of enticing them back? BellSouth Mobility, a major cellular provider, had a big problem with churn. With over one million subscribers in their 28 cellular systems, they are growing at a rate of 45% per year. They are adding over 2,500 customers a day -- but they are losing over 500 customers per day as well. While business, on the whole, is very good, it is depressing to have to support this high level of customer loss.
BellSouth Mobility is not unique. On average, the cellular industry churn is about 18% of the customer base per year. It costs an average of $350 to add a customer. Active customers average only $60 per month in revenue. Customers who leave early may cost more than they are worth. Because of this problem, Ed Evans, Director of Field Operations for BellSouth Mobility, decided to investigate the reasons why customers were leaving so as to develop a program for getting them back.
Ed used one of BellSouth's markets with a population of one million, and 65,000 subscribers. In this market, BellSouth had a 65% market share. Their goal was to win back 10% of their lost subscribers. To begin with, they wanted to know why they left, whether they would come back, and what it would take to get them to do so.
They called a large sample of the lapsed subscribers. Here is what the customers said about their reasons for dropping the service:
12% -- No longer needed the service
Ed decided to concentrate his attention on the 34% who switched to the competition. He set up four focus groups of former customers who were currently active on the competitor's system. They asked each focus group member to compare the two systems, identifying advantages and disadvantages of each system. They asked them to explain why they switched, and whether they would be willing to switch back.
What they found out was quite interesting. Most of those leaving BellSouth felt that the BellSouth system coverage was better, customer service was better, and the billing system was better. So why did they leave? Here is what they said:
Many indicated that they might switch back, but that they were currently under contract. They would want a free phone or free airtime to return.
Armed with this knowledge, BellSouth made two decisions: they decided to give the fifty-cent credit for all dropped calls. Next, they tried a free phone or free airtime direct mail offer to 3,500 customers who switched to get them to switch back. The mail piece reaffirmed the advantages cited by the focus groups, and included a coverage map.
The results were disappointing, to say the least. After thirty days they had only a 3% response rate, resulting in only 1% reconnection. The effort cost them $800 per reconnected customer. It was definitely not a profitable test. To find out why it failed, they held focus groups of people in the promoted test group.
Everyone interviewed thought that the offer was a strong one, but they explained:
Back to the drawing board
To counter these objections, BellSouth tried a repeat of the same direct mail offer to 1,000 former customers. But, this time, they sent it only to customers who left 11 months before -- so that their contract with the other guys was about to run out. They followed up each letter with a telephone call.
The letter produced an 8% response rate and a 3% connect rate. The telephone call increased this to a 10% connect rate. The cost per customer dropped to $325 each. This, at last, was profitable. Since that time, BellSouth mails to about 1,000 every month, using the same selection criteria. The reconnect rates have stayed good. They are expanding the system to their other 27 markets.
Getting customers to come back begins with understanding the thinking of the customers. BellSouth skillfully used a number of tools that enabled them to come up with a winning strategy rapidly and at a reasonably low cost. Their methods included: