Case Study Into Loyalty in the Mobile Network Market

Mobile Loyalty Background

The mobile telephone system is part of a global communication sector that has a number of distinct but interlinked elements. Whether one talks on a telephone, searches the net, emails, sends texts or downloads and participates in web-generated data sharing, one is using the mobile telephone network more and more, to the point where it and some of the competing companies appear to be reaching their service capacities. Or at least this seems to be the case when it comes to doing what these large providers should be best at: adding and keeping customers. Maintaining a loyal buyer base -- one that truly likes and advocates for the provider -- or at least happily retaining one beyond a small contract period is critical for any company that wants to be able to serve the global marketplace (Sharpley, 2009).

Underlying many of the customer service practices and promises is the notion that customers tend to be loyal and to retain their contract allegiance when they are treated fairly in relation to the promises made by their contract agreement (WDS, 2011). If these companies are going to keep their core base of customers, they have to demonstrate a capacity for giving them some of the basic elements that have been previously thought to be less important in the high-technology communication sector. But the truth is now hitting home. Customers want something more when it comes to personal treatment; they want it quickly, and they want it to come along with good prices, a fair representation of what they are buying and all of the newest of hardware (like handset) appeals (Tecmark, 2011). And if they don't get it, they are very likely to switch to another service, big or small, no matter where their previous allegiance was -- churning moves that are keeping the larger companies actively pursuing their buyers and that cost those companies a good deal of money (Genesys, 2009).

While these issues are important across nearly all segments of the telecom industry, they are particularly relevant to those in certain markets. Most significantly, established markets that have a grand selection of recognized and large companies that rely on an existing infrastructure for service and customer interaction seem most vulnerable to loyalty and retention concerns. It seems that customers in these markets are less willing to stay as happy as they used to be as the advantages jump from one company to another (Tecmark, 2011).

The United Kingdom is a premiere example of an established market. It has a number of well-known and large mobile sector providers, and it is restricted to some extent by the limitations of the carrying capacities and expectations of its infrastructure. As such, can serve as a positive example of where this market as a whole it heading in regard to what customer loyalty and retention means for the future.

MAJOR UK PROVIDERS

To understand the position of the UK, it is first necessary to review the infrastructure that already exists, including some of the specifics of where the major providers stand -- who they serve and what they are trying to do to keep their base. It should be noted that much of what they are doing changes quickly and can be seen by looking at contemporary online postings and similar resources. While these sites may not always be reliable, collectively the present a consistent picture of what is likely happening in the UK region (MobiThinking, 2012). Other resources, such as academic and corporate studies, offer insights too, many of which will be reviewed in the literature section that follows.

Each of the major five (now four since a significant merger has happened) carriers has its own approaches for generating loyalty or retaining buying customers, as will be discussed below. Overall, however, it can be said the all of the leading companies are learning that a key element of success in the future will be a requirement that they take very seriously their responsibility for learning about what these millions of individual consumers want -- and treating them respectfully through this learning process. The evidence appears to suggest that the main core of loyalty and satisfaction in an established market is very much "contract loyalty," which is more about companies living up to their promises more than a buyer's allegiance to a given corporate entity. This issue is becoming even more important in the face of "next generation access" where large and small companies alike are fighting to use their sensitivity to advancing capabilities to attract or keep their buyers (BuddeCom, 2012; Telecom, 2012). Yet, in return for this interest, there appears to be much more interest in judging whether the companies are actually doing what they promised -- something that was less important amongst trusted corporate names in the past (Wakefield, 2011; Bomsel, et al., 2003).

The section that follows provides an overview of what this means to the major corporate providers in the UK. Before looking at these specifics, it is worth looking at an overview of the "digitalbuzz" (2011) is in regard to the global future. This summary sets the tone of the market overall on several fronts, many of which will be seen to be mirrored in what the top UK companies are looking at:

(Our) infographic shows that over 1 billion of the world's 4+ billion mobiles phones are now smartphones, and 3 billion are SMS enabled (weirdly, 950 million mobile phones still don't have SMS [basic text] capabilities). In 2014, mobile internet usage will overtake desktop internet usage and already in 2011 more than 50% of all 'local' searches are done from a mobile device. 86% of mobile users are watching TV while using a mobile phone, 200+ million (1/3 of all users) access Facebook from a mobile device and 91% of all mobile internet use is 'social' related.

Locally related, socially oriented, entertainment focused. These components play into what companies have to do to keep their customers loyal even as their reach extends to new and emerging markets.

There are now four significant mobile providers in the UK. Until 2009 or so, there were actually five and much of the existing literature reflects this fact. With the merger of Orange and T-Mobile into one, which is now called Everything Everywhere, that conglomerate has positioned itself to be the segment leader in the UK, with a commanding lead in the number of core buyers. As of 2011, the percentage of market control by each of the leading companies was as follows (Telecoms, 2012):

Telefonic O2 -- 27%

Vodafone -- 24%

T-Mobile -- 21% (Everything, Everywhere Partner)

Orange -- 20% (Everything, Everywhere Partner)

Hutchinson 3 -- 8%

For comparison, a 2010 summary (Telecoms, 2012) noted that Everything Everywhere had a combined total of 33.5%. This has subsequently increased to approximately 41%. Vodafone has increased from 21.3% and Hutchinson 3 moved from 6.8% to 8%. It appears that the majority of this growth has come about at the expense of smaller providers. T-Mobile was apparently losing its share prior to the merger. Corporate announcements now indicate that the merged company will be called Orange in order to appeal to customers in the UK and in certain global markets where the name still resonates with credibility.

The major reason for the steady growth amongst these companies is directly tied to their access to certain handset products. Android, Blackberry and the iPhone are the leading products, though some resources dispute whether Apple is as prominent as it seems (Tecmark, 2011). For the most part, O2 benefited through 2007-2009 by having closed access to the iPhone high-value customers. Now that these products are gaining greater customer interest and carrier options, the market is spreading and the other companies are benefiting across the board. Higher churn rates for Vodafone and Orange were directly related to the fact that until recently they could not gain the kinds of high-value customers associated with the iPhone (WDS, 2011).

The future of the sector has been tentatively outlined in at least one private vender forecast that projects markets trends through 2015 (Telecoms, 2012). It is expected that the total number of users will grow from about

81.6 million in the end of 2010 to 91.4 million in the end of 2015. With the merger between Orange and T-Mobile, (our company) market research expects that the merged company, Everything Everywhere, will have approximately 32.2 million mobile subscribers in 2015. It forecasts that Telefonica O2 UK will have 24.6 million mobile subscribers in 2015 (26.9% market share). We expect that the number of mobile subscribers of Hutchison 3G UK will continue to increase, reaching 6.6 million by the end of 2015. (See http://www.telecomsmarketresearch.com/resources/UK_Mobile_Operator_Subscriber_Statistics_3.shtml.)

The success of O2 because of its handset advantage, however, seems to have given way to other sector practices (Wireless Intelligence, 2011). Prepaid-to-contract migration (moving from short duration agreements to longer term agreements) benefited O2 because their high-value customers wanted to maintain the iPhone advantages. However, with the implementation of the "Simplicity tariff," it has become easier for customers to stay with a provider even after their shorter contract periods have past. The tariff changes thus seem to be helping all providers, though it is clear that several of the carrier companies have been undertaking marketing and promotional efforts geared toward this practice as well. According to OfCom, 18% of all UK contract subscriptions in Q2 2010 were single-month agreements.

The cost factor for mobile businesses is very important in understanding all that they do and all that they want to do. It simply costs a great deal to gain or lose a customer, and the facts suggest that the UK is one of the nations with a very large cost disincentive. Estimates place the customer cost in the UK around $397, which may be upwards of $100 more than in U.S. Or other markets (Genesys, 2009). It is also the case that certain handset providers have their own large costs. It could be the fact that Apple iPhone costs are so high that companies want to look elsewhere to incentive lower churn rates (WDS, 2011).

Ernst & Young (2010), a globally recognized corporate management consultancy, has taken great care to monitor the telecom sector to provide business providers with useful information on critical business risks associated with these factors. For telecom companies to be successful in the future, they need to be aware of these risks so that they can respond accordingly. The 10 Risks Ernst & Young note cover operational, regulatory, innovation, privacy and even legal and investor considerations. The first risk, however, focuses directly on what they call Losing ownership of the client: "Losing ownership of the client was ranked as the number one risk in 2009 and retains its top ranking in 2010. In both the consumer and enterprise markets, no single entity owns the customer, with fixed and mobile networks having become a platform for access to a wide number of businesses and services" (Ernst & Young, 2010:9).

UK Mobile Customer Tactics

Customers who "churn" from their provider do so for a variety of reasons, only some of which have to do with the ending of their contracts. Statistics of various kinds show that some 60% to 70% of customers say that they are happy right before they leave their providers. Yet, something pushes them over the edge, apparently even though there are inconveniences associated with moving. The review of the literature in the next section will look more specifically at some of these specifics and what particular studies are suggesting.

Still, there are at least 10 recognized strategies for reducing churn among telecom businesses that many try to employ in various way. They include handset exclusivity (which is diminishing), service rewards, coverage claims, community privileges (which are discussed below), various subsidies, value-added services for businesses or individuals, over-and-above (free battery replacement) options, reward points or contract-specific promises. Many of these practices are more along the lines of traditional customer service activities. And they are clear in that they are undertaken for specific reasons that distinguish between loyalty and retention issues. Loyalty, again, relates to the propensity of a customer to not just like but to proactively advocate for a given company. Retention measures, on the other hand, are associated with a customer willingly staying with their contractor. Recognizing the differences and how they work together can be critical to understanding what may work for UK buyers.

Two particular practices from within the UK have been noted when discussing these anti-churning approaches. One centered on Orange's Wednesday free cinema tickets. Another on O2's Blueroom theatre privileges, where customers get special advance access to shows before the general public does. These activities are well-known practices that do generate loyalty for their companies. However, they do not seem to be as good at generating contract retention. Customers like to make it known that they are get these kinds of benefits, but that does not necessary mean they will stay with the provider for this reason alone. Wireless Intelligence (2011), says this of O2:

Its 'Priority Club' loyalty programme, launched in 2008, offers a myriad of benefits for contract customers, including the opportunity to buy advance tickets for concerts at O2-sponsored music venues. Subscribers in the highest spending bracket (over GBP80 per month) are entitled to VIP concert tickets, a six-month early upgrade option and a personal account manager.

Interestingly, within the refined and established UK market, traditional advertising and buyer click thru (the ability to purchase by using links in the promotion) are seen as more likely to be highly desirable and effective. The Mobile Marketing Association and LightSpeed Research conducted a study in 2010 and found that over 29% of European consumers responded to these mobile advertisements, or adverts. More specifically, in the UK, SMS advertising worked about 40% of the time (as opposed to having to go to a website). Offers that were time-sensitive and had a good deal were most effective. And buying applications, games and music was the type of consumer activity uses most appreciated, particularly for younger users. What this may mean to particular providers can be very important: "But getting mobile advertising right requires researching the unique opportunity offered by the different mobile media. For example, an advert delivered via the under-hyped opted-in SMS turns out to be the most likely to open a consumer's wallet" (LightSpeed Research 2010)/

But the question still remains about what works overall in helping to sustain both customer loyalty and retention? According to the various studies on the subject, the issue is tied to the type of the contract benefits in general and how quickly and efficiently the company responds to various challenges (Sharpley, 2009). But how does this happen if issues such as privacy and net-neutrality (or one might say web integrity) prevail? In the U.S. more than elsewhere, there are growing movements to keep government and business from fundamentally changing the way the Internet works. In particular, the issues center on whether companies should be able to capture private and detailed customer data in regards to their activities and then to use that data to target more advertising and promotions. The studies clearly show that the more they can do this, the better the response of their customers to various offers that can be made. But doing this is premised on there being a certain level of corporate trust. This issue is now being called into question across the UK companies. It appears that they are not truly offering all that they promise as a series of BBC reports on "notspots" (places where reception is weak) and past reviews on how companies charged unfair fees have damaged their reputations (Wakefield, 2011). Changes in operational regulations may ultimately help in this regard, but they may also make it harder for companies to distinguish themselves while still respecting their customer's privacy (Bomsel, et al., 2003).