Driving Effective Customer Retention for Communications

Driving Effective Customer
Retention for Communications

Introduction

PEGA IS AT THE FOREFRONT
OF THIS SHIFT TOWARD
MAXIMIZING CUSTOMER VALUE
WITH A MARKET-LEADING
NEXT-BEST-ACTION
MARKETING SOLUTION
In a world where penetration rates for services like mobile have reached more than 100% in many countries,
Communications Service Providers (CSPs) are shifting their sales and marketing investment from attracting new
customers toward maximizing customer value through improved revenue and retention.

Pega is at the forefront of this shift with a market-leading Next-Best-Action Marketing solution that combines
sophisticated predictive and adaptive analytics, real-time decisioning and a guided user experience to help
CSPs improve retention and drive incremental revenue. Today, Pega Next-Best-Action Marketing is powering
initiatives for major CSPs like Vodafone, O2, Orange, Cox, Maxis, BSkyB, MTS and Time Warner Cable, helping
them drive additional revenue and margin from their existing customer base. For example, at the largest telco
in the UK, the solution is part of a multi-stage initiative where they are already generating an incremental 24M
GBP of annual operating margin in the initial phases.

As CSPs shift focus from customer acquisition to retention and margin, we have identified a few key best-
practices related to retention. These best-practices are partially enabled by technology, but also enabled by CSP
leadership’s ability to think “outside the box” in pursuing efforts to reduce customer churn.

Follow Bob’s Customer Journey
Bob is your typical customer. He can be lured by competitive
offers, or retained by a service provider that anticipates his
wants and needs. Bob’s journey is a multi-channel scenario
that demonstrates how a service provider can engage
customers and use Pega Next-Best-Action Marketing to
drive very relevant, customer-centric experiences.

DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER:

Creating the 1:1 Business Case for Retention
Marketing organizations are most familiar and comfortable with segmentation
marketing strategies, where subscribers are broadly grouped and labeled. Once these
groups are created, then packages or strategies are offered to each group. These
mass segmentation strategies may work reasonably well for subscriber acquisition
(they cast a wide net), but in retention – where you have intimate knowledge of the
customer – using mass segmentation sacrifices massive amounts of profitability.

As an example, imagine we create a segment called “Medium Value” subscribers
and attach a “Medium Value Offer” to it for retention. We then present the offer to five THIS INDIVIDUAL
subscribers in the segment as shown in the accompanying chart. In all cases but one,
the “Medium Value Offer” is not aligned with the overall value of the customer. For
APPROACH OPTIMIZES
two of the subscribers (#1 and #4) we spend MORE than necessary, and for another PROFITABILITY BY
two (#2 and #5) we are unlikely to be able to retain them. Only in one case (#3) does MAKING EACH OFFER A
the offer fit. In a large subscriber base, this over/under-investment costs millions
PERFECT FIT AGAINST
of dollars in lost margin since we spend too much money (overinvest) for some
subscribers, and spend too little (underinvest) for others, resulting in a lost save. RETENTION VALUE.

OUR “MEDIUM VALUE”
SEGMENT OFFER

“WOW - “NO, THANKS” “PERFECT” “SEEMS LIKE A “NO WAY”
I’M THAT GREAT DEAL!”
VALUABLE?”

OUR “MEDIUM VALUE” CUSTOMERS

Leading CSPs take a radically different approach by starting the entire process with
the value of the customer. They use real-time decisioning combined with a guided
interaction to present a specific retention budget and the most appropriate basket of
offers for each subscriber at the moment of truth. This individual approach optimizes
profitability by making each offer a perfect fit against retention value. The retention
budget should be thought of as a 1:1 business case that considers subscriber metrics
(such as lifetime value and influencer score), and corporate and departmental metrics
(such as corporate retention budget, quarterly net add performance and even contact
center queue time).

1

Starting Retention at “Hello”
When CSPs first implemented their retention initiatives they applied them against
subscribers that were dissatisfied and trying to leave. This strategy, exemplified in the
elite contact center “Save Group”, is an example of reactive retention. It is a fine place
to start, but it’s likely the most expensive retention strategy, since it requires changing
the subscriber’s mind.

More advanced CSPs are now realizing that it is more cost effective to make sure
customers never get on the exit path in the first place and are implementing two new
types of retention strategy, preemptive and proactive. Preemptive strategies are those
applied before there are any recognizable churn signals from the customer, and proactive
strategies are those applied when initial churn signals first appear like complaints in
service, reduced usage or repeated technical support events. Sometimes these events
are not evaluated directly, but combined into predictive churn models.

LEAVING? Not thinking about it Thinking about it Doing it Did it

RETENTION
Preemptive Proactive Reactive WinBack
STRATEGY

Executing preemptive strategies requires the ability to effectively predict customer
lifetime value since CSPs will likely want to execute more expensive preemptive
strategies first against their highest value subscribers. The point of preemptive
strategies again is that they are executed without considering likelihood of churn, and
executed in the name of providing an excellent customer experience.

Since proactive strategies are applied against early warning indicators of churn, they
introduce a new requirement – predicting likelihood of churn. The way leading CSPs
NOW, WITH PREEMPTIVE
accomplish this is finding common behavior patterns that are reliable churn/attrition AND PROACTIVE
indicators from historical data. Once this data is analyzed and patterns are discovered, STRATEGIES, CSPS ARE
it can be applied against current subscribers to find those that need proactive churn
strategies applied.
INTEGRATING THESE
STRATEGIES AND THEIR
To execute on preemptive and proactive strategies also creates a new requirement OFFERS INTO EVERY
for the organization. The offers associated with these strategies must be presented at
the right time. With reactive retention and win-back, the presentation of offers could
CUSTOMER TOUCH POINT
be limited to a small subset of a specific channel, such as the “Save Group” desktop.
Now, with preemptive and proactive strategies, CSPs are integrating these strategies
and their offers into every customer touch point, regardless of channel. A centralized
source – a “decision hub”– provides every channel with the right offer at the right
moment in the customer lifecycle.

Finally, with all retention strategies, a critical factor in driving effectiveness is taking
a customer-centric approach to determining ‘propensity to buy’ when presenting
products and services. This propensity modeling significantly improves acceptance
rates, and in assisted channels has the follow-on impact of driving more agent
confidence and higher initial present rates as well.

2

Focus on Decisions, Not Data
Conventional wisdom is that large data management initiatives (e.g. Master Data
Management or “MDM”) are a prerequisite for effective retention. For some IT
departments and system integrators, their (somewhat self-serving) position is that the
data has to be (nearly) complete and (nearly) perfect before it can be safely used. The
result is months of delay waiting for “data improvement” and “data quality” initiatives
to complete before the business gets a solution.

Leading CSPs are finding out that they can get good retention results even on
incomplete and imperfect data. By starting with limited data values that are just good
enough to make sensible recommendations or automate retention decisions, they get
business results. Here are a couple of best-practices these companies use regarding
data volume and quality:

``They construct a minimal set of data that supports the highest value decisions and
then use predictive analytics and decision strategies to confirm the key data elements THE REAL-WORLD
that will deliver actionable results. This is usually a fraction of what’s available – out
of a 1,000 customer data elements, only 5-25 may actually wind up in a good quality
EXPERIENCE GAINED,
predictive model and decision strategies may focus on 50-100 key fields overall. AND THE POWER OF THE
``They make sure the decision strategies automatically prompt for missing data ANALYTIC CAPABILITIES
elements that are used as input to the rules or predictive models embedded in IMPLEMENTED CAN
that strategy.
ACTUALLY SIGNIFICANTLY
``They set up the solution to statistically analyze data and make it either useful (after ACCELERATE THE DELIVERY
dealing with outliers, missing values, weird distributions, etc.) or automatically reject
the offending data element.
OF DATA QUALITY RESULTS.
``If after (automated) data analysis not enough data remains to create and support an
accurate predictive model, they simply deploy a model with known lower predictive
performance. These CSPs find that even models with low predictive capability are
likely superior than assumptions or guesswork. They also find that using these lower
quality predictive models as seed models for more advanced adaptive capabilities
significantly speeds time to market without sacrificing performance.

With this approach, CSPs are turning conventional retention strategies around, taking
an incremental approach and using the business results of the early phases of their
retention solution implementation to fund additional data quality initiatives. The real-
world experience gained, and the power of the analytic capabilities implemented can
actually significantly accelerate the delivery of data quality results.

3

Who Owns Retention?
Finally, leading CSPs are realizing that their existing functional organizational
silos do not enable a holistic approach to retention. Since sales, marketing and
service organizations are all compensated based on different customer metrics, it
is difficult to get the entire organization thinking about retention across the entire
customer lifecycle. So leading CSPs are changing their organizational structure,
and empowering a senior leadership position focused on “Base Management” or
“Customer Value Management”. The individual in this role executes across functional
organizations, and is totally dedicated to using analytics, decisioning and CRM best-
practices and technology to drive incremental margin per subscriber and maintain low
levels of customer churn.

4

Conclusion

CSPS NEED TO DISCOVER
MORE EFFECTIVE WAYS
TO RETAIN THEIR BETTER
CUSTOMERS LONGER IN ORDER
TO ENSURE PROFITABILITY.
In its most basic form, the subscription business model employed by CSPs is driven by
three major levers – acquisition cost, monthly margin and customer tenure. Over the
next few years, competition is likely to significantly drive up the cost of acquisition, as
CSPs spend more in marketing and subsidies to attract an ever shrinking pool of new
customers. It is also likely that the multiple competitors in every market will continue
to put pressure on monthly margins. As acquisition cost increases, and margin
decreases, CSPs need to discover more effective ways to retain their better customers
longer in order to ensure profitability.

The above ideas represent what is likely only the beginning of the road toward much
more sophisticated retention best practices. Technology advancements, in the form
of core computing power able to analyze massive amounts of data; the emergence of
social influence as a major factor in defining customer value; and the advancement of
technology solutions that put real-time decisioning power in the hands of front-line
employees are all contributing to rapid advancement of the state-of-the-art solutions.
CSPs that fail to start down the path toward applying more advanced thinking to
retention will be left behind.

5

About Pegasystems

Pegasystems, the leader in business process management and software for customer centricity,
helps organizations enhance customer loyalty, generate new business, and improve productivity. Our
patented Build for Change® technology speeds the delivery of critical business solutions by directly
capturing business objectives and eliminating manual programming. Pegasystems enables clients
to quickly adapt to changing business conditions in order to outperform the competition. For more
information, please visit us at www.pega.com.

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© Copyright 2012 Pegasystems Inc. All rights reserved. All trademarks are the property of their respective owners.

2012-12

Driving Effective Customer Retention for Communications

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