ON THE JOURNEY TO PROMOTING LOYALTY WITH PREPAID CUSTOMERS

5 Strategies that Drive Customers loyalty with Prepaid Service O erings

Ra Kretchfi mer

Writte n by

Every so often, work becomes personal. This is one of those times.

It all began with a phone conversation with one of our partners, who casually mentioned that they were experiencing 40% yearly churn in their prepaid business. This astounding figure means that four out of every ten new customers were leaving the service. The fact that service providers experience high churn in prepaid services is not new. However, having the number thrown in my face so bluntly served as my call to action. I decided to put together a small, global task force of service providers to find out what can be done. My task force included: Ganesh from India, Kayden from Singapore, Zaqi from Indonezia, Jennifer from the UK and John from the U.S. Out of consideration for the privacy of my partners, I am not using real names or titles in this eBook. If youre struggling to achieve loyalty and reduce churn with your prepaid customers, this eBook can help you take the necessary steps. It discusses loyalty and the challenges in achieving it, the motivations and strategies that can help you increase it and reduce churn. I have also included a lot of examples because I believe that nothing beats real life experiences. I want to thank you for taking the time to read this eBook. I hope you find it a useful addition to your personal arsenal.

Sincerely,

Rafi Kretchmer

Director, Product Marketing, Amdocs Revenue Management

Contents
1 2 3 4 5 6 7 8 9 10 11 12 Introduction Looking for Loyalty Prepaid is Big Business Prepaid and Loyalty the Challenges Better Pricing offerings Dont Hold Back Package for Choice Promotions Hybrids Mixing it Up In Closing About the Author About Amdocs 4 5 6 8 10 12 14 16 18 19 20 20

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Glad to see youre with me on this journey. At first glance, prepaid services and loyalty may seem contradictory: that you can have one or the other but not both. Lets take a closer look. Under examination, new directions will reveal themselves and beckon you to step forward. This eBook encapsulates concepts, strategies and successful implementations for building loyalty with prepaid customers. Lets get started.

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2 LooKInG For LoYALtY

This word Loyalty keeps coming up
Where to begin?
Before setting out on my journey mapped out across the globe, I wanted to be sure that I completely understood what it was that I was looking for. For this reason I gathered the entire task force for a conference call. Its very clear that the quality service providers need to combat churn is loyalty. But what exactly is loyalty? My task force had a number of responses that reflected a wide variety of directions but no one, clear answer. In Asia Pacific (APAC), Ganesh and Zaqi claimed that loyal customers were the ones that bought the 3, 6 and 12 month packages that the provider offered. Jennifer countered that it was not about the length of the package but the amount of money that they were topping up each time. John, from a service provider on the other side of the world in the U.s., claimed that they measured loyalty in terms of a relationship with the consumer, who keeps coming back for more. In the midst of the confusion, I think they are all right. It seems to me that the term loyalty has become so widely used that we no longer question its real meaning or intention. Yet in order to effectively enlist this quality into our ranks, we must understand it first. so what does loyalty mean? After piecing together the bits of information and ideas, I finally came up with this model. In the world of service providers, a loyal customer is one that consistently purchases and consumes the service over time. In other words:
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Loyalty Long term, profitable relationship

the idea of long term encapsulates the period of time during which the consumer consumes the service. Profitability is directly linked to the spending amount and top-up value. Finally, a key part of loyalty is the relationship of recurring business transactions. the loyalty that service providers seek is the effective combination of these aspects. But, this is easier said than done. As we continued our discussion, the conversation turned to the challenges of achieving loyalty with prepaid services. Before I recount the challenges, lets take a quick look at the prepaid services business.

3 PrePAID Is BIG BUsIness

Since the initial launch of prepaid mobile services in 1995, the market has sky rocketed. today, 72% of the worlds 4.7 billion mobile connections are prepaid (Global Market report). this market has steadily grown and is expected to continue through 2014.
Subscriptions (mil.) Africa/Middle east Asia-Pacific europe Latin America north America Total 2008 547 1,265 615 381 34 2009 678 1,609 654 435 36 2010 791 1,920 682 479 38 2011 882 2,182 701 512 40 2012 951 2,338 715 538 43 2013 1,003 2,550 727 558 46 2014 1,043 2,676 736 575 50

In addition, many customers want to ensure they have a choice and are not tied down by a contract to one service provider. As a result of the latest global economic crisis, developing countries are now seeing a sharp increase in the consumption of prepaid services as well. the reason is simple: no contract. Customers who feel insecure about their future may continue to spend today, but they will shun long-term financial commitments.

Prepaid services are more resilient in recession times

the economic recession has highlighted the value of prepaid services. During the course of my research, I have spoken with numerous service providers that have made significant changes in their business focus from primarily postpaid to include prepaid as well. Prepaid services are more financially resilient in recession times but not immune. Many markets have experienced declines in subscriber numbers, call rates and average revenue per user (ArPU) spend. Forbes Magazine conducted a survey in november 2008 when the recession broke out, which indicated that consumers will reduce their mobile spending significantly less than other areas such as groceries or eating out. Interestingly, customers are actually spending more on voice calls due to their desire to talk more with friends and family during uncertain times. Lets take a closer look at some of the threats that service providers are facing across the globe.

2,842 3,412 3,909 4,317 4,635 4,884 5,080

source: Informa telecom & Media Global mobile prepaid market overview and forecasts, 2010-2014\ Informa telecoms & Media/ February 2010

so why are people choosing prepaid? there are a number of main reasons:

some just dont have a choice. In some parts of the world, the mass population simply does not have a bank account. In these cases, prepaid is the only option. the most common reason is that customers want to control their spending, especially if they are on a tight budget. this explains the prevalence of prepaid services in emerging economies.
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3 PrePAID Is BIG BUsIness

Africa continues to have the worlds highest proportion of prepaid customers of all subscriptions. these markets are typified by low ArPU with larger markets experiencing fierce competition. Competition is driving the pricing down in the Americas and Asia Pacific as well. subscribers in these regions often have multiple sIMs enabling them to select the lowest price on a daily basis. european service providers have been hard hit by the economic crisis forcing them to focus on migrating customers to prepaid services for customers who are anxious to monitor their spending more closely and self-control their budgets. Yet despite cutting telecom spending due to the recession customers have continued and even increased their talk time. special assistance has been offered to subscribers who have been laid off. the U.s. market has been late to adopt prepaid services for mass consumption. However, the 2009 recession changed that. Consumer groups have been advising the U.s. population on how to cut the family cell phone bill in half by switching to prepaid services. service providers are experiencing growth in customer churn. the overwhelming reason for churn is the availability of a lower prepaid tariff from a competitor. responding to this threat by simply lowering your tariff can easily lead to a price war, which is devastating to profitability. to sum it up: prices are constantly under pressure and churn is on the rise. Promoting loyalty can be your key to reducing churn and improving profitability.

Prices are constantly under pressure and churn is on the rise

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4 PrePAID AnD LoYALtY tHe CHALLenGes

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Back at the task force meeting, we all agreed that loyalty has always been a challenging goal to achieve. the prepaid business model just made it a whole lot tougher.
During our meeting, John from the U.s. told us about some of the issues that his organization was facing. His organization had previously focused on postpaid business and took pride in providing great service through call centers, a helpful approach, detailed billing information and personalized promotions. their success was largely attributed to the continuous interactions with customers, which were leveraged to create a positive personal experience, learn more about the customers needs and improve the service.

A US

With the economic crisis of 2009, customers developed a new aversion to commitment
then the economic crisis of 2009 came and things changed. Customers new aversion to commitment forced the organization to take a long hard look at prepaid business, since these business models fundamentally mean no contract. With the new business strategy, their previous strength in customer interaction became virtually irrelevant. John and his colleagues found themselves scrambling to find ways to stand out and retain customers in a world without direct customer access and limited information.

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4 PrePAID AnD LoYALtY tHe CHALLenGes

Customers kept jumping back and forth depending on the lowest price of the day
In Asia, Ganesh was experiencing a different problem. His organization had always focused on prepaid services, which are the prevalent choice in his part of the world. With a fair pricing policy, business had grown consistently from one year to the next. then a new competitor entered the arena using pricing to gain market entry. It did not take long before the two organizations found themselves in a price war. With no binding contract, customers kept jumping back and forth depending on the lowest price of the day. During our conversation, Ganesh mentioned that they were struggling to regain control and create a sustainable retention policy based on good business practices. John and Ganesh brought examples of the tough challenges that service providers are facing in the competitive prepaid marketplace, which make loyalty a tough goal to achieve. Heres a quick recap of the prepaid challenges to achieving loyalty:

1. 2. 3. 4.

no direct interaction with the customer, which really hampers your ability to provide a stellar experience. Limited customer information to serve as input for creating the most fitting offering. In most cases, your customers have a limited budget, making price the key decision factor. there is no long-term contract technically ensuring that the customer comes back for more.

now, lets take a look at what you can do in your prepaid business towards the goal of loyalty.

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5 Better PrICInG
I landed in New-Delhi and a rush of hot air rose to meet me. the familiar sights of the streets greeted me on the taxi ride from the airport to the hotel and I got to thinking about the implications of price and pricing strategies on loyalty.
Its undeniable that price is a key decision factor, especially in low income regions. the next morning, I met Ganesh for a meeting. I was especially interested in discussing pricing strategies that go beyond the lowest price offer to provide another clear benefit to the customers: better pricing, not just cheaper.

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Service providers get long term commitment and the customers get pricing protection and a sense of security
Having studied the subject deeply, Ganesh was able to provide a number of great examples. In India, reliance, Airtel, Vodafone and others are offering a lifetime guarantee of prepaid rates. their Malaysian counterparts, Maxis and Digi, went a step further. In addition to long term rate guarantees, they extend the prepaid balance validity period for up to a year if a customer tops up by a certain amount. these simple approaches provide clear benefits to both sides: the service providers get long term commitment and the customers get pricing protection and a sense of security. However, as Ganesh was quick to point out, simplicity is also a weakness. these approaches are easy to copy and
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5 Better PrICInG
once the competition introduces similar offerings, the differentiator is lost. Yet, if youre the first in your market, you can make a huge impact before the competition catches up. I want to pause on the last point for a second. Be First. this principle is probably more important to your success than any single strategy that you implement. this leads to my second principle to be first, you need to Be Creative. Focus on your assets, explore the possibilities and give them what they want before they even know they want it. In our pricing strategy discussion, consumption behavior information is an asset. Packages that are in tune with these behavior patterns can promote loyalty and increase consumption. A great example of this is the short Call Package offered by true in thailand. true decided to target the area in their subscriber base that was making frequent short calls. taking a seemingly backwards approach, they implemented a stepped prepaid plan where subscribers pay a reduced rate for the first minute of each call.

Subscribers will reward service providers that get it right

Ganesh also mentioned what his organization fondly dubbed as the night owls. After recognizing that a large group of prepaid subscribers were predominantly active during late evenings and night times, his organization decided to implement a reduced rate night tariff. they were unprepared and pleasantly surprised by the positive feedback and increase in consumption that followed this product launch. Vodafone enjoyed success with their stop the Clock offer across prepaid markets in Ireland, the UK and the netherlands. With this plan, customers pay only for the first three minutes of the call and the remaining minutes up to an hour are free of charge. As you can see, innovative pricing strategies are strong differentiators and encourage longer call durations. By tuning into your customers needs and understanding their consumption behavior, its possible to create better pricing, avoid the lowest price trap and promote loyalty.

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6 oFFerInGs Dont HoLD BACK

Of

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The scenery transitioned sharply as I continued my journey and headed over to small and sophisticated Singapore. recent approaches taken by local service providers made this the perfect place to discover the right approach to offering strategies designed to promote loyalty.

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Offering a strong brand device to prepaid customers may be a good way to gain loyalty
I met up with Kayden, a marketing manager at one of singapores service providers. Kayden told me that he had gone to his boss and proposed that they offer the iPhone to prepaid customers. the immediate response from his boss was laughter followed by a complete dismissal of the idea. so Kayden proceeded to explain that offering next generation services such as web browsing, GPs navigation and email services to their prepaid customers is the right way to go. He further argued that since the iPhone was such a strong brand, offering it to prepaid customers may be a good way to gain their loyalty. According to Kayden, it was this part of the explanation that finally made his boss sit up and take notice. the initial reaction that Kayden got from his boss is understandable if we take a look back. Historically, prepaid customers were perceived as risky due to their transient nature and denied the range of services offered to postpaid customers. As the markets matured, providers slowly started to introduce more services to prepaid customers.

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6 oFFerInGs Dont HoLD BACK

3G networks unleashed their power enabling a host of new service capabilities
then third generation (3G) networks unleashed their power enabling a host of new service capabilities including video calling, mobile broadband, high-speed downloads and mobile television. service providers, like M1 in singapore, CAt telecom in thailand and telkomsel in Indonesia, quickly realized that offering such services to prepaid customers creates strong market differentiation. A great example is the meteoric rise of a myriad of social media platforms, which present a new source of service opportunities. Kayden confessed that he has become addicted and constantly checks twitter updates on his personal cell phone. smart in the Philippines has taken advantage of the trend by launching the smart Buddy service that enables prepaid users to upload pictures from their phone to their Facebook account. orange in the UK offers prepaid subscribers free access to Facebook, Bebo and Myspace. Giving prepaid subscribers access to the latest services and handsets provides a better customer experience, which is the cornerstone of building loyalty. As Kayden summed it up, All we have to do is predict what will be huge tomorrow and offer it as a service starting today.

All we have to do is predict what will be huge tomorrow and offer it as a service starting today.
today, prepaid customers are no longer perceived as second best. As a result, service providers are offering the latest and greatest to prepaid customers as well. the hot new technologies and communications trends are what many customers want. offering these services to your prepaid customers are your opportunities to increasing consumption, growing your business and promoting your brand.

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7 PACKAGe For CHoICe

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With Kaydens summary line fresh in my mind, I departed from Singapore and flew over to Indonesia thinking about selections and choices that we should be offering prepaid customers. the rich color schemes of Indonesia resonated as reminders of the diversity of customer consumption behavior.
suddenly, I remembered the story about the first Ford Model t automobile. the one where you could have any color you wanted provided it was black. We have certainly come a long way since then as consumers.

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You need to figure out what your customers want

today, we want to choose what suits us best. We expect to be offered a selection. As service providers, the first step is to realize that this is your subscribers expectations. the seconds step is trickier you need to figure out what they want. the next morning I met with Zaqi. they had just finished a segmentation project focused on creating specialty packages based on consumer consumption patterns. their data clearly indicated that their business subscribers were using increased amounts of data services, while students were heavy sMs users. the obvious solution was to create a business package offering unlimited data and a student package offering unlimited sMs usage.

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7 PACKAGe For CHoICe

Zaqi also mentioned additional service providers in the region that were adopting this type of approach. Zem in Pakistan is offering prepaid customers a wide variety of packages offering benefits to different timeof-day, sMs and voice consumption preferences. Its simple, elegant and offers subscribers flexible options to choose from. With visibility into what theyre paying for and control of the package, the customer experience is much better and drives loyalty.

But maybe you dont need to figure out what your customers want
Maybe, you can leave it up to them. Zaqi told me that Jennifers organization had decided to take an interesting approach to packaging. so we called her to get the information. Jennifer stated that her organization operates in a mature market with savvy customers that know what they want. therefore, they had decided to implement an a-la-carte approach. they will offer voice, sMs, data and other types of services in the form of unlimited building blocks. each customer can select the mix that they want. Jennifer mentioned that Cricket Mobile in the United states offers a similar plan, of unlimited, daily price plans: $1 a day for unlimited voice, $2 a day for voice and sMs, and so on. Customers can change their package on a daily basis, and there is no charge on days where the phone is not used.

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8 ProMotIons
My next stop brought me face to face with Jennifer in London to discuss promotion strategy. the dignified architecture served as a stately background to Jennifers flamboyant creative streak, which her organization puts to good use in their marketing strategy.

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Dont be shy, shout about it

As we started our meeting, Jennifer stated that many organizations do a great job figuring out their pricing, offerings and packaging and have them all set up and ready to go. only to become shy when its time to launch. Her advice is Dont be shy, you want to get creative, make a bold statement and shout about it. Promotions are one of the most exciting and challenging areas that service providers need to deal with. Jennifer claimed that the biggest change in their approach happened with the realization that their previous strategy was quite successful in attracting customers it was failing to keep them that was the issue. their campaigns used to be blanket promotions such as 50% off sMs today that targeted a wide range of subscribers. the issue was twofold: A large customer segment didnt consume the specific service being promoted so the promotion was wasted on them; and another segment already used the service so often that the promotion was meaningless.

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8 ProMotIons
During an intensive strategy session, Jennifers organization identified the need for their promotions to feature a benefit thats directly tied to the consumption habits of a specific service. the promotion that they decided to launch offers four free minutes for every four minute call that the subscriber makes, targeted at customers who were typically making shorter calls. they got a huge boost to the promotions effectiveness by delivering real-time top-up updates in sMs notifications. According to Jennifer, response from customers was overwhelming.
Heres how it works. As soon as the duration of a voice call exceeds four minutes, the customer receives an automated sMs. the message contains the four minute bonus top-up and the updated prepaid balance. Digi in Malaysia is another example of a consumption based promotion. they recently launched the rM1 promotion, where prepaid customers receive reduced rates on sMs and voice calls once they spend a certain amount on sMs during the day. Maxis in Malaysia decided to take a different approach and provide a nonusage reward for service consumption. their prepaid customers received points for any call over three minutes they made during a specific set of dates. the points are used to enter a drawing for an exclusive handbag the more points the greater the chance. Another option is to use the student segment and raffle iPod devices. this type of promotion ties the excitement of a chance to win with your service. real-time alerts should be used to increase the involvement and drive consumption. the key is finding the right reward which your audience will crave. this campaign promotes loyalty by establishing a relationship over time and building your brand identity. Jennifers strategy uses focus and creativity as the keys to successful promotions. Leveraging consumer behavior information and the technology infrastructure, you too can create powerful tools to drive loyalty.

Tie the excitement of a chance to win to your service

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9 HYBrIDs MIxInG It UP
Feature a benefit thats directly tied with the consumption of a specific service
John promised me a special treat for our meeting in New York. I was aware of the tough time that U.s. service providers were facing since the economic crisis and was very intrigued to find out what new ideas popped up in the land of opportunity.
Its no secret that the prepaid businesses model brought financial uncertainty to service providers. over a cup of starbucks coffee, John started our discussion by examining the prepaid and postpaid business models. the inherent difference between the two models is that there is no contract in prepaid service you simply pay for the services and consume them. Johns answer to this complex question is very simple the creation of a hybrid model that combines the benefits of postpaid services but without the contract. Customers automatically recharge their accounts at the beginning of the month, in exchange for a monthly package allocation. tracfone in the United states implemented this type of model and offers prepaid monthly plans starting from as low as $9.99. t-Mobile has also enjoyed success with their FlexPay model, which offers customers a monthly allocation of minutes in return for a fixed monthly fee. If customers use all the minutes in the bundle, they can simply recharge their prepaid accounts with whatever additional amount is needed. others, including Virgin Mobile, At&t, Boost, Vodafone and telstra, have decided to follow suit and adopt hybrid models as well.

Is there a way to get the best of both worlds?

Postpaid services offer a full monthly allocation of services such as voice minutes, sMs and data in return for the fixed monthly payment. the benefits of the postpaid are obvious the consumer gets the convenience of a monthly quota without worrying about topping up the account and the service provider has a regular revenue stream. Prepaid services, on the other hand, do not require a commitment or contract. this provides consumers with the flexibility to quit or change service providers at any point in time. so, is there a way to get the best of both worlds? this is the question that John had come to tell me. Prepaid monthly plans starting from as low as $9.99
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The hybrid model provides an opportunity to adapt postpaid loyalty strategies for prepaid customers
John was very excited about the hybrid model concept. He realized that the hybrid model provided an opportunity to adapt their successful postpaid loyalty strategies for prepaid customers. this was the break he has been looking for to promote loyalty among their prepaid customers. As a first step, they were introducing prepaid family plans offering free calls and sMs between family members regardless of whether theyre prepaid or postpaid. Digi in Malaysia and Cosmofon in slovenia have launched their family offer based on this hybrid model. this blending of prepaid control with a postpaid experience can serve as a powerful differentiator and drive customer loyalty.
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10 In CLosInG
During this journey, I learned one very important lesson from my task force partners: tough problems call for bold and creative actions. With the right attitude and the strategies outlined in this eBook you will be able to tackle the challenge of growing loyalty among your prepaid customers. Prepaid customers are not all the same their reasons for choosing prepaid are as varied and many as they are themselves. they used to be considered inferior to postpaid in both revenue and margin terms but this is no longer the case. so its important to gain these prepaid customers and keep them. For service providers, the greatest strength of prepaid is its own weakness when it comes to loyalty there is no contract. so service providers have to work harder to give customers the experience they value in order to maintain their loyalty. Without the experience, youre just competing on price. so how do you get the experience right?

Be focused. see the service from your customers eyes. What do they value short calls or long calls? talking or texting? Data or ease of use? Be creative. Differentiate your service using all the tools at your disposal devices, packaging, distribution, adjacent services (like banking). When you know what your customer is looking for, all that remains is to find novel ways to provide it. Act boldly. Unless you can differentiate and provide your customers with value, the stark reality is that prepaid customers will choose based only on price. You cant afford not to deliver differentiation.
And lastly,

Be focused, be creative, act boldly, and always strive to be the first to make the move

Be first. All of the above sounds like an awful lot of research. But with the help of my task force, youre already on your way. Dont get stuck in analysis paralysis get out to the market. On a closing note, I would like to take this opportunity to thank my task force and everyone who shared their experiences and insights. This eBook would not have been possible without your help.

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11 ABoUt tHe AUtHor

12 ABoUt AMDoCs

Rafi Kretchmer is responsible for defining the business strategy and product direction for all of Amdocs revenue management products, which includes the areas of billing, mediation and partner settlement. With his expertise in communications and enterprise systems management, rafi regularly writes white papers and articles, briefs industry analysts, and accepts speaking invitations to major industry events such as Mobile World Congress and tM Forum Management World, as well as thought leadership events with strategic customers.
rafi holds a Masters degree in Law from the Bar-Ilan University (Cum Laude) and a Bachelor of Arts degree in Business Management from the University of Derby.
How to Promote Loyalty with Prepaid Customers rafi Kretchmer

Amdocs is the market leader in customer experience systems innovation. the company combines business and operational support systems, service delivery platforms, proven services, and deep industry expertise to enable service providers and their customers to do more in the connected world. Amdocs offerings help service providers explore new business models, differentiate through personalized customer experiences, and streamline operations. A global company with revenue of $2.86 billion in fiscal 2009, Amdocs has approximately 18,000 employees and serves customers in more than 60 countries worldwide.
For more information, visit Amdocs at www.amdocs.com.

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