O2 cuts churn with BI-based value deals

O2, now the leading mobile network operator in Ireland, is using business...

O2, now the leading mobile network operator in Ireland, is using business intelligence to focus its drive to provide value to customers for two simple reasons: cutting churn saves money and increases the lifetime revenue from a customer.

The meltdown of the banking system in 2007 hit Ireland hard, forcing firms to concentrate as never before on revenue management. O2 was no exception.

O2 also faces a more specific challenge, namely that of potentially becoming the undifferentiated "dumb pipe" that merely provides access to online products and services. To avoid that, it is using customer information to create more and better reasons for customers to choose O2.

Paul Tully, head of information strategy at O2 Ireland, says every customer lost costs the company €529 a year in lost revenue, excluding the cost of acquiring and replacing them.

O2's churn rate on prepaid customers is around 30%, and somewhat lower for postpaid or contract customers, Tully said. A churn rate of 10% means the company loses €90m a year, plus the cost of replacing them.

This makes a compelling business case for doing everything it can to keep customers, he told Computer Weekly at Teradata's customer conference in Berlin. Even the cost of a sophisticated business analytics system pales by comparison.

Creating and keeping customers is O2's mantra. "If you have no customers, you have no margin," says Tully.

O2 uses a Teradata business analytics system to comb through O2's 1,7 million subscriber accounts to identify customers who may be on the threshold of leaving. This may be indicated by a lower use of the phone, or more frequent calls to the calls centre or a change in the bill-paying behaviour.

Tully says O2 will not initiate a call to the customer to ascertain their intentions. But a call or email from the subscriber to the company may kick of a conversation to uncover any unhappiness or difficulty that could prompt the subscriber to go elsewhere.

Attracting and keeping high quality, high margin customers requires O2 to offer a more compelling value proposition than its competitors. The trick is to understand early what customers value, Tully says.

The company changed two offers as a direct result of the findings unearthed earthed by the BI system, he says. In the recession, many subscribers needed to count their pennies more carefully, so O2 offered subscribers the chance to limit their monthly bill, and provided an alerting service to warn them when they approached that limit.

It also introduced a 30-day notice account in addition to the 12 and 18 month accounts. This gave the customer a feeling of greater control over his or her destiny, he says, which made them feel happier.

But it could not have done this without knowing more about how and why it acquired customers, what was happening with the product mix, what drove customer loyalty and knowing how and where to contain costs, all of which emerged from the business analytics.

Ultimately O2 wants its subscribers be fans of the O2 brand, in the same way that people might support their national or local football teams. Achieving this intensity is hard in the fast-moving hyper-competitive mobile phone market.

Paradoxically, the rate of change in the sector may help O2, provided it is swift to respond to market events on an emotional rather than a technological or cost basis, provided these are at least competitive.

Tully notes for example that Bebo was the social network that everyone used two or three years ago, but AOL sold it earlier this month because FaceBook has eclipsed it. Even Microsoft has had to respond by introducing this week two mobile handsets aimed at specifically at Facebookers and Tweeters.

Tully says O2's commercial arm will no doubt take a view on whether to sell the Microsoft phones, but the trend information from the BI system shows clearly that people are spending more time online.The rising capability of handsets is one reason for the trend, but so too is the availability of apps that require an online presence. Tully won't be drawn on whether O2 plans to copy Vodafone's entry into the apps market through the 360 app store. Nevertheless, O2 is going all out to make itself a more compelling lifestyle partner for subscribers. Typical non-phone hooks include access to exclusive events, preferential booking for popular shows at for example, London's O2 venue, the former Millennium Dome, and the ability to send pre-game messages to favourite teams.

O2's BI system tracks subscriber take-up of all these propositions and feeds the results into the decision-making process so that the next offer becomes more targetted and possibly more effective.

Tully acknowledges that O2 has the information that could let it create a unique personalised offer for every subscriber. It may come to this, but presently O2 bases its offers on classes of users that could be as many as 200,000 or as few as 10,000, he says.

Two years after starting the BI trip, O2's service revenues are down 7% but data revenues are up 9%, and it has become the market leader in contract subscribers.

Tully is now sharing his BI experiences with colleagues in the UK as they ramp up their BI programme. So what three lessons would he pass on?

"First, focus on value to the customer. Second, join up all the information. Third, take small steps that create value for the business every two or three months. The big bang won't work because the market moves too fast, and smaller steps gives you greater agility," he says.

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