2016 Acquisition and Retention Study. Drivers of customer retention

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1 2016 Acquisition and Retention Study Drivers of customer retention

2 2016 Acquisition and Retention Study Drivers of customer retention 2 About the 2016 Acquisition and Retention Study The Nokia 2016 Acquisition and Retention Study has been designed to help mobile operators understand current trends in consumer behaviour, in order to make more informed decisions when developing acquisition and retention strategies. The focus of this extensive study is to uncover the core drivers of customer retention by providing detailed and granular insights around consumer perceptions, causes of dissatisfaction and the likelihood to churn across several scenarios. This year s study marks the ten year anniversary of the global consumer survey, which now covers fourteen countries and 20,000 online respondents. As well as the quantitative online survey being supplemented with secondary research and qualitative in-depth interviews with operators, the 2016 study also includes insight from 140 consumer interviews. Research for the 2016 Acquisition and Retention Study was carried out by KAE on behalf of Nokia between December 2015 and January KAE is a strategic marketing consultancy that specializes in global research within the telecommunications industry. This study includes specific insights on: The key drivers for churn across global markets The factors leading to increased data and Wi-Fi usage Current security concerns and the likelihood to churn because of security breaches Consumer attitudes towards new operator revenue opportunities, such as mobile advertising and connected devices. The findings from this study have been organised around key themes, which all have an impact on acquisition and retention. Each of the reports in the 2016 Acquisition and Retention Study series will provide insights on these themes. Global Summary Report Drivers of customer retention Trends in new sign-ups Security Choosing a mobile operator Value-added, bundled services and connected devices Mbile advertising Data allowance, voice and messaging

3 2016 Acquisition and Retention Study Drivers of customer retention 3 Customer Care is the fastest growing retention category Introduction Customer acquisition and retention are critical ingredients to operator success. So it s important to know what specific elements of the customer experience have the most meaningful impact on customer acquisition and retention. Where should an operator focus its efforts? The answer to this question is shifting. In the Acquisition and Retention Study, we identify the most impactful attributes within each of the four retention categories: Network, Cost & Billing, Customer Care and Service & Device Portfolio. Since our 2014 study, Network and Cost & Billing have become less important for customer acquisition and retention, and good customer service and support have become more important to most operators long-term success. Further, individual attributes within the Cost & Billing and Service & Device portfolio categories support this trend toward building trust with customers. This report will explore how the current scenario is changing and why securing a long-term trusting relationship with customers is becoming key. NETWORK QUALITY COST & BILLING CUSTOMER CARE SERVICE & DEVICE PORTFOLIO The global impact of each of the four retention categories: Impact on retention in % 35% 44% 15% 6% % 45% 15% 6% % 40% 24% 10% 2016 Cost & Billing Despite falling from 45 percent in 2014, Cost & Billing still has the greatest impact on customer retention, with a 40 percent impact on consumer s consideration. An individual being able to find the right rate and plan structure that suits their needs is the single most important attribute globally. However, attributes such as transparency and understanding of rate structures are increasing in importance, which points to the importance of trust and relationship. There are some differences between mature and transition markets in general, as well as some standout countries. Network Network has the next biggest impact on customer retention, but it has declined significantly. It has experienced the largest drop in importance since 2014, falling from 34 to 26 percent this year. This drop in importance has largely been driven by mature markets. This is due in large part to the advancement of technology between 2014 and 2016, making it less of a differentiating factor across the operators. Within this category, Internet is the single most important attribute and, overall, the second most important attribute across all the retention categories. Customer Care The importance of Customer Care has grown significantly over the past few years, increasing from 15 percent in 2014 to 24 percent in The growth in importance of Customer Care is just as relevant in both mature and transition markets. There is a direct and distinct correlation between dissatisfaction with a customer s experience in Customer Care and their likelihood to churn. For other categories, consumers tend to be more forgiving. Service & Device Portfolio Despite not being the most significant driver of customer retention, Services & Device Portfolio is not to be underestimated, increasing from a 6 percent consideration in 2014 to 10 percent in The primary driver of this increase is the device attribute. However, we can also see the general trend towards strengthening the customer relationship in the rise of two other attributes: the level of aftercare provided, as well as the expertise of personnel when recommending devices.

4 2016 Acquisition and Retention Study Drivers of customer retention 4 Cost & Billing is the biggest driver for retention Cost & Billing is the most important factor for the majority of the 14 markets surveyed in the study. This is with the exception of the US, which rates Network over Cost & Billing, and Turkey, which positions both equally. Globally, the Cost & Billing category accounts for 40 percent of consumers consideration to stay with their operator. Calling Plans & Rate Structure Within Cost & Billing, the two most important attributes are Calling Plans & Rate Structure and the Contract. In some markets these two important attributes alone account for half of the impact on retention overall. The most important aspect of Calling Plans & Rate Structure is the availability of suitable pricing plans to choose from when taking a contract. The next in importance is how easy it is for consumers to understand what is included in their monthly allowance when they exceed these limits. The demand from consumers for easy-to-understand rates and packages is reflected also in the Contract attribute. How transparent the terms and conditions are is a key consideration, along with how easy it is to change the package within the contract. Impact for consumers on post-paid plans Behind the Cost & Billing category for post-paid plans are six different attributes. Each attribute has a different degree of significance, and this varies on a country-by-country basis. The six attributes impacting Cost & Billing within post-paid contracts are: Billing & Cost Control, Calling Costs, Calling Plans & Rate Structure, Contract, Device Costs and Mobile Data/ Internet Costs. The most impactful variable is Calling Plans & Rate Structure, which accounts for 18 percent of consumer consideration. This is shortly followed by Contract, which has a 14 percent impact on consideration. Despite the other attributes within Cost & Billing not having such a significant impact on consumer retention, combined they still equal ten percent of the consumer s consideration. This is equal to the importance consumers place on all the attributes within the Service & Device Portfolio category. Impact for consumers on prepaid plans The Cost & Billing dimension for prepaid consumers is the same as for post-paid consumers, except for the Contract attribute, which is absent in prepaid plans. Consumers on prepaid plans place less importance on Cost & Billing than those on post-paid plans, with an overall impact of only 33 percent. Despite this, the category still impacts consumers decision to stay with their operator more than any other customer experience dimension. Exploring the single components of Cost & Billing for prepaid, the attribute Calling Plans & Rate Structure is equally important for prepaid and post-paid consumers. However, prepaid consumers place more importance on core cost elements such as Calling, Mobile Data and Internet Costs than post-paid plan subscribers. Operators should clarify and simplify their offers. They are completely illegible. Consumer, France Unlike other industries, in mobile telecommunications tariff and plans structure are crucial factors to keep customers. Operator, Japan Global Billing & Cost Control Calling Costs Calling Plans & Rate Structure Contract Device Costs Mobile Data/Internet Costs

5 2016 Acquisition and Retention Study Drivers of customer retention 5 Cost & Billing has the biggest impact in Japan, Mexico and Canada Impact of Cost & Billing by country The overall importance of Cost & Billing varies by country. It is most important in Japan, where it accounts for 53 percent of the consumer s consideration, closely followed by Mexico where it accounts for 47 percent. This is compared to consumers in Turkey and the US where, although still a key consideration, Cost & Billing has equal or less impact than attributes within Network. Generally, Cost & Billing has more influence in mature markets, where as in transition markets such as Brazil, South Africa and Turkey, Cost & Billing has less than a 34 percent impact on retention. The exception to this is Mexico, where specific market forces are influencing consumer attitudes and behaviour. Japanese consumers place the most importance on Cost & Billing Japan is unusual compared to the other countries surveyed in the study as consumers here place little importance on Network. This could be due to the fact they are used to high quality service across all of the operators, so it is not such an important factor when considering switching. Instead 53 percent of consumer s decision to stay or move away from an operator comes down to their experiences around Cost & Billing. The main attributes impacting retention are Contract and Calling Plans & Rate Structure, which are more relevant to Japanese consumers than any other dimension. Calling Plans & Rate Structure - the most important attribute in Mexico Although it has slightly decreased in importance since 2014, Cost & Billing is still the most impactful category for retention in Mexico. Unlike Japan, Calling Plans & Rate Structure is the single key attribute driving the higher importance of Cost & Billing. Mobile Data/Internet Costs and Billing & Cost Control respectively represent 7 percent of the overall impact on customer retention, followed closely by Contract and Calling Costs at 5 percent. Impact of Cost & Billing by Country Japan Mexico Canada France Saudi Arabia Spain Germany Russia UK Italy Brazil South Africa Turkey USA 34% 34% 33% 33% 40% 40% 40% 39% 38% 37% 36% Prices have decreased recently. Before plans used to be expensive and with less benefits - less data and less minutes. Consumer, Mexico 45% 47% Transition markets Mature markets 53%

6 2016 Acquisition and Retention Study Drivers of customer retention 6 The impact of Network has been decreasing since 2013 Globally, Network accounts for 26 percent of the overall impact on customer retention. This dimension is the second most important factor for 8 out of the 14 markets, the most important dimension for US consumers and equally important to the category Cost & Billing in Turkey. Internet is ranked as the second most important out of all attributes, although Network Coverage and Voice also significantly impact retention. For most consumers, the speed and consistency of their internet connection determines their views on Internet. The importance consumers place on a reliable and dependable service continues across the Voice and Messaging attributes. Transition markets place more importance on Voice and Internet The Network category is composed of four different attributes: Internet, Messaging, Network Coverage and Voice. The most significant of these is Internet, which accounts for 13 percent of a consumer s decision to stay with their operator. Messaging is the only attribute within this category that, for both mature and transition markets, has minimal impact on retention. Voice still has a relatively significant influence in transition markets with a 9 percent impact on retention. Network is less relevant in mature markets, where the category represents only 24 percent of the overall impact on retention. For these markets, Internet is the most important attribute, with Network Coverage and Voice following closely. Global Transition Internet Messaging Network Coverage Voice Internet Voice Messaging Network Coverage 4G users are more concerned with the speed and reliability of their internet connection The overall impact of Network for 4G and non-4g consumers is similar. Despite this, a more thorough analysis underlines subtle differences. Mature Network quality and coverage is normally the main issue when choosing an operator. Operator, Brazil Internet Messaging Network Coverage Voice 4G consumers place a significantly higher importance on Internet, which is a key differentiator of the faster network. Non-4G users consider Internet, Network Coverage and Voice to be almost equal in importance.

7 2016 Acquisition and Retention Study Drivers of customer retention 7 The US places the highest importance on Network Impact of Network across countries The importance placed on Network varies by country. Consumers in the US place the highest importance at 34 percent, closely followed by Brazil, Russia and Turkey, all at 33 percent. This is compared to consumers in Japan, Canada and Spain where, although still overall a key dimension, Network is less important than Customer Care. Three of the four transition markets rank Internet and Network Coverage as the primary reasons for choosing a mobile operator. By contrast, the lower impact of Network on most mature markets, bar the US, reflects better mobile infrastructure and more advanced information and communication technologies. When consumers are shopping around, they probably already have their mind made up on network. Operator, USA Impact of Network by Country USA Brazil Russia Turkey Germany France Mexico Saudi Arabia South Africa Italy UK Canada Spain Japan 26% 26% 26% 26% 25% 25% 21% 21% 16% 34% 33% 33% 33% 31% Transition markets Mature markets US consumers place the highest importance on attributes within Network The US is the only market that places more importance on Network than Cost & Billing. Although there has been a drop in importance between 2014 and 2016, the category has maintained its position at number one, with Internet and Network Coverage the driving attributes. Messaging and Voice for US consumers are the same as the global average, with further emphasis on the consumer s need for access, speed and convenience of mobile data across a wider domestic geography. Voice is the single most important attribute in Russia Russia is the only country that placed increased importance on Network and registered a higher impact for Voice on customer retention than any other network attribute. Despite the importance placed on calling dimensions, Internet follows closely, representing 12 percent of the overall impact on a consumers decision to stay with their operator. Messaging and Network Coverage are in line with the global average and have a marginal impact on customer retention.

8 2016 Acquisition and Retention Study Drivers of customer retention 8 The importance of Customer Care is rapidly increasing Customer Care has been growing in significance, increasing from 15 percent in 2014 to 24 percent in Of course, the level of significance varies across countries, but broadly speaking, a clear growth trend can be seen. Customer Care as a category is comprised of three aspects: Self Care, Request & Complaint Handling and General Customer Service. Each holds varying degrees of significance across mature and transition markets, as well as on a countryspecific level. Globally, however, Request & Complaint Handling alongside General Customer Service, play the most significant roles in driving the overall importance of Customer Care. These two attributes have an 8 and 9 percent impact on retention respectively. Looking into Request & Complaint Handling, this is formed of seven different aspects. The most significant aspects are resolution of customer s complaints, with a 7 percent impact, and competence of staff, with a 6 percent impact. The aspects that have the least impact are Resolution of Request and Waiting Time. Global General Customer Service Request & Complaint Handling 7 Self Care Top seven request and complaint handling variables (% importance) Resolution of complaint Competence of staff Information about status of complaint 6.8% 6.4% 5.6% Speed of response Friendliness of staff 5.4% 5.5% Waiting time 2.1% 0.5% Resolution of request Customer care is becoming very influential on retention. If we do not respond to customers concerns properly, they will often leave us. Operator, Japan

9 2016 Acquisition and Retention Study Drivers of customer retention 9 Customer Care is equally important across mature and transition markets, but for different reasons Transition markets place a greater emphasis on Request & Complaint Handling The overall importance of Customer Care across mature and transition markets is identical, with a 24 percent impact on retention. However, differences exist between the individual attributes. In mature markets, the most impactful attribute is Request & Complaint Handling, accounting for 8 percent of a consumer s consideration. However, it is closely aligned with the further attributes of General Customer Service and Self Care, both of which account for 9 percent and 7 percent respectively. Within transition markets, the splits across attributes are slightly more pronounced. Request & Complaint Handling is the most important factor, having an 11 percent impact on retention. The next most impactful factor is General Customer Service, accounting for 7 percent, closely followed by Self Care, which stands at 6 percent. An example that differs from the global average is South Africa, where consumers place less importance on attributes around Cost & Billing. The categories of Customer Care and Service & Device Portfolio have more of an impact on customer retention. It is again the attribute of Request & Complaint Handling that is driving this higher importance within the Customer Care category. The attributes of Self Care and General Customer Service are in line with the global average. Mature General Customer Service Request & Complaint Handling Self Care 7 General Customer Service Transition Request & Complaint Handling Self Care If I have an issue I expect the operator to listen to my problem and solve it within a day. Consumer, South Africa

10 2016 Acquisition and Retention Study Drivers of customer retention 10 The impact of Customer Care in the UK has increased since 2014 The impact of Customer Care varies by market Customer Care should be taken seriously across all markets. However, clear variations can be seen on a country-by-country basis, with a number of markets placing a greater emphasis on Customer Care as a driver. Customer Care has the highest impact on retention within the UK, at 29 percent. This is closely followed by Spain, at 28 percent, increasing from a 2014 level of 18 percent. South Africa is at 27 percent. At the opposite end of this spectrum are Germany, Japan and Russia, where the impact of Customer Care on retention is only 17 percent. Interestingly, there is a clear divide in the transition markets. On one hand, South African and Brazilian consumers place a greater emphasis on Customer Care, where it has an impact of 27 percent and 24 percent respectively. However, in Turkey and Mexico, the impact is much less, with Customer Care having a 20 percent impact on retention in Turkey, and a 16 percent impact in Mexico. Impact of Customer Care by Country UK Spain South Africa Brazil Canada USA France Italy Saudi Arabia Turkey Germany Japan Russia Mexico 29% 28% 27% 24% 24% 24% 22% 22% 22% 20% 17% 17% 17% 16% Transition markets Mature markets Retention is now more dependent on customer service, which is taking precedence over network quality. Interestingly, when a customer starts to adopt 4G, network credentials become important, but very quickly customer service becomes more important as it relates to churn. Operator, UK The impact of Customer Care on UK consumers has increased dramatically since 2014 As the quality of their networks becomes less of a differentiating factor between the operators in the UK, the quality of Customer Care is having a more significant impact on retention. The Customer Care category now has a 29 percent impact versus 13 percent in 2014 and 17 percent in As a customer s relationship with their operator becomes closer, Request & Complaint Handling has grown to become the single most important attribute that consumers in the UK consider, and the attribute driving the importance of this category. For General Customer Service and Self Care, although still impactful, these attributes are less of a consideration compared to the global average. This shows that although UK consumers don t place any more importance on General Customer Service or Self Care, when they do have a request or a complaint it needs to be handled by their operator quickly and efficiently.

11 2016 Acquisition and Retention Study Drivers of customer retention 11 Service & Device Portfolio is largely driven by device portfolio Aftercare and expertise are key for consumers Despite growing in importance since 2014, Service & Device Portfolio is still the least significant category to customer retention. Globally, the two attributes within this category, Device Portfolio and Bundling & Value-Added Services, combined only have a 10 percent influence on consumers. This increase of 4 percent, since 2014, is due to the growing weight consumers place on the attribute of Device Portfolio. The actual range of devices is an important part of an operator s proposition, but increasingly crucial is the advice and expertise of staff during and after purchase. The most important aspects within this attribute are the level of aftercare offered by the operator and the level of expertise in recommending a handset. This highlights the importance for operators to have good processes in place to support their customers, with knowledgeable staff to help inform customers on the best decision for their needs. While there are some interesting nuances emerging from the analysis of customers tenure with their operator, the category of Service & Device Portfolio has a consistently low impact on customer retention across the fourteen different markets. Top seven device portfolio variables (% importance) Level of aftercare Level of expertise in recommending a handset Range of handsets offered Operator-exclusive products Include additional device Mobile insurance Old handset Global 6% 8% % 11% Bundling & Value-Added Services Device Portfolio 14% 18% 20% Compared to other markets the device plays a big role in acquisition. Introductory offers are almost always linked to new devices. Operator, Germany Around half of new acquisitions are smartphone, and all smartphones offer 4G. Operator, Mexico

12 2016 Acquisition and Retention Study Drivers of customer retention 12 Devices are important but supportive, competent and experienced staff is too Device Portfolio is more important for long term customers In direct opposition to customers who have recently switched providers, those who have been with their operator for over six months place very little importance on the availability of Bundled & Value-Added Services. This further highlights the fact that offering these services is more of a customer acquisition strategy, rather than a customer retention strategy. Rather, consumers who have a longer tenure with their operators are more concerned about their operator s Device Portfolio. This shows that to retain customers, operators need to consider not only their handset portfolio, but also the level of aftercare they provide and the expertise of their staff, to ensure a high standard of customer care and assistance. 6 months or more Bundling & Value-Added Services Device Portfolio New customers care more about Bundling & Value-Added Services There are three key strategic reasons why operators bundle services. The first is to acquire new customers with differentiated offers; the second is to increase retention through stronger ecosystems; and the third, is an opportunity to diversify revenue streams. The research shows that for newly acquired customers, bundling or the possibility of bundling is more of a consideration than for those who have been with their operator for longer. This makes sense as customers who are lured over to a new operator by differentiated bundled offers would clearly be interested in additional services, such as home telephone and broadband, or value-added services, such as music streaming or TV-on-demand, which may be provided by a third party. 0 to 6 months 11 When choosing a new contract the device is more important because some phones aren t compatible with 3G or 4G. Why have a plan that has internet when your phone can only handle basic data. Consumer, Saudi Arabia 4 7 Bundling & Value-Added Services Device Portfolio

13 2016 Acquisition and Retention Study Drivers of customer retention 13 Consumer attitudes are constantly evolving Operators have always competed to provide their customers with the best overall experience. In previous years this has mainly centred on providing a high quality network service at a competitive price. As advancements in mobile technology makes this less of a differentiating factor for consumers, securing stronger relationships through better customer care and support is now becoming important to long-term success. It is beyond question that innovation will continue to play a primary role in shaping market forces, but especially in mature markets, reliable and efficient mobile networks are having a decreasing impact on retention. As mobile technology and infrastructure systems evolve, this trend is likely to continue also in transition markets. In this scenario, consumers decision to stay with an operator is still affected by Network attributes such as the quality of calls and the speed of mobile internet. However, consumers are increasingly influenced by attributes such as the clarity and transparency of contracts, the support and experience of the staff and the effectiveness and competence of customer care representatives. The industry has already received the message. Conversations with operators revealed that, especially in mature markets, the need to design outstanding customer experiences is essential. Indeed, operators are refining their customer retention strategies, moving from a reactive to a proactive approach, aimed at preventing customers from experiencing issues in the first place. Moving away from being perceived exclusively as mobile network providers, operators have the opportunity to establish themselves as trusted partners in a wide range of industries and applications. Transparency, knowledge and customer care will have increasing relevance in building strong relationships of trust with customers. Retention is now more dependent on customer service, which is taking precedence over network quality. Interestingly, when a customer starts to adopt 4G, network credentials become important, but very quickly customer service becomes more important as it relates to churn. Operator, UK We transitioned from the old school mentality of having a retention queue where if a consumer was annoyed, we would try and solve it to really making sure consumers don t experience issues in the first place. Operator, USA

14 Drivers of Customer Retention Report Cost & Billing is the key factor driving retention For more information from the Nokia 2016 Acquisition and Retention Study, please visit: Nokia is a registered trademark of Nokia Corporation. Other product and company names mentioned herein may be trademarks or trade names of their respective owners. Nokia 2016