In his dystopian novel “1984” George Orwell depicted a world where three almighty super-nations (Oceania, Eastasia, and Eurasia) fought a permanent war. Their citizens became hostages of this conflict.
The Spanish Telecommunications scenario holds some resemblance to this. As if a war was declared, the three ‘big ones’ (Orange, Vodafone and Movistar), have an openly declared war of attrition for the clients of an already saturated and commoditized market.
They fight aggressively to capture new consumers with heavy discounts for new contracts and difficult to avoid long-term agreements, and retaliate with even more virulence to retain them once they have expressed a desire to leave.
The Rotational churn wheel
Everybody is used to rotational churn and understand it’s not a good thing. Just in case, to explain it, I’ll use the time lapse of a year and only three kinds of users. The Newcomers, those who joined through the year; The Leavers,who want to break with you or are already leaving; and The Loyal Ones, those who will stay with you for another year. Loyals might stay because they love your company, or because they have a strong resistance to change. But, in a commoditized market, there’s not so much room for love.
We say you have rotational CHURN when you see a flow of Leavers who become Newcomers. They close their relationship with you to then turn around and reconnect to make use of a new, more desirable welcome offer. These people become our fourth kind of customer. Let’s call them The Mercs.They are smart consumers, and have learned to navigate through your offers.
Enter Compound Rotational Churn.
In a commoditized scenario, services are interchangeable. There’s not a difference in what’s being offered. In this scenario, a client can leave one company and join another, to reap the benefits of a new contract for the same service they already had.
What the new company understands as Fresh Newcomers are actually Trained Mercs. They were lured to the new company by aggressive offers, and they’re expected to be with the new company long enough to breach their recruitment investment. However, as soon as they exhaust their welcome promotion, they begin to leave in large groups. Or worse, they begin to extort their new host by making their retention people go into overdrive.
The Merc Infection
Once created, a Merc works like a virus. They will use all the company resources to infect their last Loyal Clients into new Mercs. Because being a Merc pays off, they are treated better than the people who stay… and they have become experts in translating telco ‘experiences’ into pure economic benefit.
Mercs feel they are cheating the system and love that feeling. In fact, they are more than willing to share that experience. It fills their narrative, and it’s a win of the humble consumer versus the corporate giant. It’s David vs. Goliath all over again.
Consider this: Each time a group of friends meet to have a beer, a Merc will brag about how they “cheated” to pay less. Meanwhile, a Loyal — who’s been with this company for 10 years — will feel duped by their company, and decide to become a Merc. (This was specifically my case as a consumer.)
So, each time you push with more aggressive client acquisition and retention campaigns, you feed the Mercs. And, as a virus, the Merc spreads in your client base.
This may sound weird, but for most of these companies, the tenure of its clients don’t matter. To put it more directly, A client is what a client pays. Companies’ relationships with their consumers are only about the money.The funny thing is, their clients are getting the message.
Let’s be clear: In a commoditized market, you cannot get out of the churning wheel simply by approaching your clients from the economic part of the equation.
Getting out of the Wheel
So, how does one stop this infection? The answer is easy to say, but difficult to accomplish. Here we go:
Focus on your Loyal Clients and start valuing client tenure in your company as the golden KPI.
- Do your Loyals feel rewarded?
- How do your Loyals feel when they learn that someone new to the company is paying less than they are for the same services?
- How does a Loyal who has been with you for the last ten years feel when you force them into a long-term contract and an expensive termination fee?
- How does a Loyal feel when another company offers them the same services for less than half of what they pay you?
Loyalty: A place to thrive or a prison?
Spanish big telco companies are accustomed to walling their clients in. These are the tools they’ve been using to do so: Long term contracts, pushing product bundles so clients have to keep them all; offering products that are easy to contract, but that require complex interactions to be dropped…
- What if we tried to work the other way around, by building a place where the client would love to stay?
- How can I make my loyal customers proud of being part of my brand?
- Which services are unique to my loyal customers?
- Which services do I provide to my loyal customer that are aspirational for other brands’ customers?
A different approach
Not everyone of us is moved only by money; very successful brands have built loyalty using a different approach:
Focusing on brand identity: How strongly they feel represented by your brand. TPO: Being part of this company is linked with supporting good causes. Ten percent of the total paid by its clients is dedicated to charitable causes decided upon by the brand clients.
Focusing on the brand experience: What kinds of unique services or proposals do they understand that you are providing them with? Amazon is the perfect example to follow for this kind of loyalty. Its services are unique, and clients would be hard-pressed to replace them.
Focusing on the incentives: How does your company reward clients? This is usually the part that telco companies connect to loyalty. But companies like Tesco Mobile have brought the game to the next level by linking their Tesco Clubcard to retail stores.
A decision to make
So you have now a decision to make before you go ahead and start to think again on how you structure your customer relationship. Take a step back and reflect on who your clients are. What are you pushing them to do? Are you already hostage to your Mercs? Is there a base of Loyals to reach for?
As it happens with most illnesses, the longer it takes to accept and understand that there’s an underlying infection, the harder it will it be to cure it.
Thanks to Oier Romillo Lartitegui.