Reducing churn in East African telecoms industry

Posted on July 21, 2015 12:01 am

Customer churn is spreading beyond the banking and telco sectors costing African business more than $2 billion a year according to some research estimates I have seen. Customer churn or the propensity of the customer to jump from one mobile operator to another as their service provider of choice.It is now affecting utilities, travel, insurance and a host of other industries, according to a survey of consumers in 10 Sub Saharan Africa countries.Around 400 out of 3,000 participants of the survey respondents were from East Africa with figures showing 87 per cent of local consumers have at some point switched a service with almost five out of 10 having changed suppliers in the last 18 months.It shows that switching suppliers is a habit for East Africans with those in the 24-40 year old bracket the worst offenders switching 60 per cent more often than any other age group in the past one and half year.The highest income bracket in the research also switched the most often indicating that something other than price, as a proportion of disposable income, is the driver for churn.

The number one reason for switching is price followed by service problems which highlights IT’s role in fostering customer loyalty.Indeed churn has become enemy number one for business and the index results are a clear wakeup call for business and they need to know when services are going wrong and which customers are affected.Without that insight, they run the very high risk of that customer switching at some stage and the index found that the cost of poor IT can have long term implications.Many factors including financial incentives are used to attract new customers, but the continuous cycle of cost cutting and financial kick-backs are not a healthily long-term business strategy.Companies in East Africa spend substantial amounts of money attracting new customers, but often end up losing them because of poor service, an outage or a frustrating experience with the help centre according to the findings.Optimizing the IT infrastructure can make a difference, utilizing automated service assurance and help desk processes can make a marked difference in the customer experience and drive greater customer loyalty.

In South Africa, Kenya and Tanzania,Telephone companies, banks and insurance companies have the highest historical churn rates with 54 per cent, 51 per cent and 49 per cent respectively.With the advent of mobile technology and increased connectivity, tele-operators are finding that managing “customer churn” is an increasingly complex and in some cases, expensive exercise.It is not unheard of for a customer to have more than one SIM card for different uses in East African countries for example, to sign up for a data plan with one operator while being a customer for cheap international calls with another and yet another for local calls. This way, consumers in Africa seek to reap the benefits of attractive tariffs on campaigns and contracts promoted by the operators.In another study done by industry experts, the customer churn rate in East Africa was an estimated 27% in 2014 compared to a relatively low and stable market in Western Europe where it was less than 10%. Similarly, the need to be online and connected was a key determinant for customers in moving from one operator to another, leading to many telecommunications companies to fret over customer loyalty and pricing.

As East Africans become more digital and connected, the importance of being able to retain customers and their prolonged interest is becoming a critical issue for marketers in the mobile operator space.How telecom operators like Tigo, MTN, Safaricom and Vodacom keep their customers loyal to existing plans, contracts and how to engage and spend more, thereby increasing their Average Revenue per User,is the fundamental question that keeps the managers at those companies awake at night.With a high customer attrition rate, telecommunications operators like MTN and Safaricom inevitably face the cost versus revenue conundrum that plagues markets with large customer churn rates.The economics of servicing a reduced ARPU base, means operators are less inclined to innovate, create new products and solutions. East African customers in the long run get lesser value for money with limited technology and services innovation, reduced options and variety and almost negligible reduction in tariffs.

Recognizing this cycle of reduced value, marketers at East Africa’s network operators have focused on building customer brand loyalty and “stickiness” through a very simple solution with Safaricom being the specialists.For example it has introduced successfully mobile games to entice and ensure retention of customers, through increased interaction and social sharing.The popularity of games at Safaricom, East African’s largest mobile operators with more than 20 million subscribers, has made the operator re-look their marketing strategy for retention within specific demographics of customers.The service enables Safaricom subscribers to play mini-games on their mobile phones, to score game points, and to exchange these game points for prizes.Reward points called Bonga points have also worked well for Safaricom in customer retention.One of the major obstacles for Mobile Network Operators in East Africa is that over the top communications services such as instant messaging and Voice Over Internet Protocol are challenging their traditionally controlled services such as voice calls and short messaging services, plummeting the usage levels of these core services.

The mobile gaming trend is likely to further develop in East African region due to increased smartphone penetration and connectivity, along with accessibility to communications bandwidth, leading to two out of six smartphone users having played a game on their device according to data in my possession.As technological advances continue to make rapid developments and setting trends in the mobile phone market, mobile games will be among the stable of initiatives riding on the wave of the ever changing and fluid 4G services industry.In East African country of Kenya alone, the so called in-game advertising spend market size was a staggering US$10million in 2014 and that is expected to grow between 22% to 29% per annum.Time has come for tele-operators in East Africa and African in general re-think how to engage customers through play, increasing interaction and building a relationship. Increasing loyalty, customer spending and learning more about the customer has become a game and archaic marketers need to recognize the value and learn to play.Effective communication is one way to reduce churn and telecoms need to be proactive in addressing difficulties and issues faced by their customers which will help build trust and reliability as well as ensures a strong working relationship.

Contador Harrison