Customer Link Analytics

A case study into the viral effect of churn and product adoption in the telecommunications industry

CONCLUSIONS PAPER

Insights from a webcast sponsored by SAS

Featuring:

Carlos Pinheiro, PhD, Head of the Analytics Lab, Telemar Norte Leste S.A. (Oi) Ken King, Director of Telecommunications and Media Convergence, SAS

SAS Conclusions Paper

Table of Contents
Fundamentals of Customer Link Analysis . . . . . . . . . . . . . . . . . . . . . . 2 Customer Link Analysis in Action: Reducing Churn . . . . . . . . . . . . . . 2 Of Those Who Churn, What Differentiates Leaders and Followers?. . . 4 How Do the Churners Compare to the Remainers? . . . . . . . . . . . . . . . 4 Considering Communities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Putting Customer Link Analysis to Work in Churn Propensity Models . 5 Customer Link Analysis in Action: Boosting Product Adoption. . . . . 6 Proving the Concept with Another Communication Service Provider. . 6 Not All Leaders Are Created Alike . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 About the Presenters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Customer Link Analytics

Churn is an inescapable reality in the telecom world. Customers come and go, swayed by the latest disappointments or the latest deals. This churn is costly. It is far more expensive to acquire a customer than to satisfy and retain an existing one. With the pervasiveness of social media, dissatisfied customers also have a big soap box to bash the brand. Its just better to keep them happy. Analytics has proven its value in identifying customers at risk for churn and helping marketers understand how to retain them. In developed markets, most major service providers have adopted churn propensity models that have succeeded in reducing churn for post-paid subscribers from about 3 percent a few years ago to about 1 to 1.5 percent today. We might not be able to attribute 100 percent of that decrease to analytic intelligence, but certainly the models have delivered dramatic improvements. How would you like to improve analytic model results even more say, make them up to 30 percent more accurate? You can, if you acknowledge that consumer purchase behavior and loyalty are increasingly influenced by friends and acquaintances. Imagine the power of understanding social relationships and using that information to better target the customers who count the most. What if you could identify community leaders the ones with the most clout so you could stop them from influencing 10 of their followers to churn? On the buy side, what if you could identify the leaders who influence 250 percent more product adoption than others? If you knew who those leaders were, you could target them wisely and extend the impact of your marketing and retention efforts. In a SAS-sponsored webinar, Carlos Pinheiro, PhD, of Oi, Latin Americas secondlargest telecommunications provider, shared research that dramatizes just how powerful social networks and their leaders can be and why marketers cannot afford to overlook this insight. Pinheiros propensity models for both churn and purchase behavior go far beyond demographics and transaction history. These models factor in a host of social network analysis metrics, such as weighted detail about the number, closeness and strength of connections among customers. When applied to marketing questions, this type of analysis is called customer link analysis.

In a superconnected world, consumer purchase behavior and loyalty are increasingly influenced by friends and acquaintances. Imagine the power of understanding social relationships and using that information to better target the customers who count the most.

Customer Link Analysis

Identify social communities based on relationships between customers. Measure and segment customers based on social influence metrics. Target customers based on changes within their social communities.

SAS Conclusions Paper

Fundamentals of Customer Link Analysis

Customer link analysis views relationships in terms of network theory consisting of nodes and ties. Nodes are the individual actors or entities within the networks, and ties are the relationships between them. In its simplest form, a social network is a diagram of all the relevant ties between the nodes being studied. The network diagram can be used to identify connections and commonalities that would otherwise not be apparent, to help answer various business questions. The power of customer link analysis stems from the unique view it takes on a customer, account or entity. Rather than focusing solely on the attributes of each node, customer link analysis considers the relationships and ties among nodes to be important. This perspective makes customer link analysis particularly well-suited for business problems where connections are key, such as identifying spheres of influence and where connections can be clearly identified, such as in subscriber call data. Customer link analysis goes much deeper than showing the ties among nodes. Depending on the sophistication of the analytical tools used, customer link analysis can differentiate between weak and strong links, close and remote links, influential relationships or not, and much more. Heres a small sample of available metrics: Metric
Degree Influence 1 Influence 2 Hub Authority Closeness Page Rank Betweenness Clustering Coefficient

What it reveals
The number of ties to another node in the network, as in seven degrees of separation. The relative weights of links and nodes to adjacent nodes, based on multiple factors. The weights of the nodes adjacent to nodes adjacent to a given node n. The number of important nodes to which a node points. The number of important nodes that point to a given node. The degree to which an individual is near all other individuals in a network, directly or indirectly reflecting the potential for contact or influence among them. The percentage of possible time spent by other nodes to node n, similar to the page ranking in a Google search. The number of shortest paths in which node n partakes, which clarifies how a particular node controls information flow into the network. A measure of the likelihood that two associates of a node are associates themselves. A higher clustering coefficient indicates a greater chance of clique connection.

Customer Link Analysis in Action: Reducing Churn

With this method of analysis, basically we look for what happened to the customers in a given time period did the customer decide to leave or remain then compare that to what happened in the next time period and the next, said Pinheiro. Suppose this customer decided to leave in Time 1, and in Time 2 a correlated customer decided to churn as well, and in Time 3, we can see what happened. If there appears to be a pattern of influence, we can consider the first node to be the leader, the person who can convince others to follow him or her, and the last nodes as the followers. Finally, the analysis can compare all churners and nonchurners to each other and to average customers in the customer base to isolate the attributes of customers in various categories. Analysts can then apply this knowledge back to the customer base to understand the likelihood of churn among connected customers as well as customers with similar attributes and relationship patterns. All of this intelligence can be used to create more effective retention programs. 2

Customer Link Analytics

Pinheiro walked through the process of a customer link analysis project for a European telecom provider. The process started by aggregating call data for two to three earlier months to build the social network, identify communities, and understand relationships within the communities. At a designated point in time Time 0 Pinheiro flagged customers who decided to churn and then analyzed what happened with related customers. In this particular example, the analysis built the network and calculated communities based on call records from September, October and November; flagged customers who decided to leave the company; and then looked at January and February data (Time 1 and Time 2) to see what happened with other customers in the churners communities. Did their departures have an effect on others? The data-gathering process looked at more than who is calling whom. Nodes and links were weighted by using data about the type of call (pre-paid or post-paid, incoming or outgoing, voice or text message, etc.), as well as call frequency and duration, average revenue per user (ARPU) and other factors. In the first time period under study, Time 1, approximately 81,000 customers churned. Of those churners, about 49,000 were active in the network; that is, they had frequent contact with others. These customers in turn were related to 624,000 more customers, suggesting a wide pool of potential influence. Of the nearly 50,000 active users who churned, 128 could be considered leaders, said Pinheiro, because after they churned, so did 134 of their connections. Those 128 leaders were connected to more than 1,100 of the companys subscribers, suggesting that the leaders could influence the behavior of about 11 percent of the customers to whom they are related. If you consider that these leaders can cause big damage in your customer base if they decide to leave, these are customers you definitely need to track, said Pinheiro.

With customer link analytics, you can quickly identify not only customers at risk for churn, but also the connections between customers and identify leaders, followers and other members of their social communities.

Figure 1. Among subscribers who churned, the leaders influenced the behavior of about 11 percent of their connections.

SAS Conclusions Paper

Of Those Who Churn, What Differentiates Leaders and Followers?

When Pinheiro compared churn leaders to average churners, he found some distinct differences. Leaders represented 24 percent more ARPU, had 33 percent more distinct connections (43 percent more strong connections), were 33 percent better ranked, had 44 percent more control of information flow (as measured by closeness and betweenness), and 71 percent more connections to the companys important customers. They were more likely to be post-paid subscribers, and they had 75 percent more contracts than the average churner. In short, the leaders are valuable, well-connected and central information controllers. And they dont mind change. Although they came in equal numbers from competitor A and competitor B, most of them left for competitor B.

Figure 2. Compared to the average churner, leaders are more valuable and well-connected, and influence more information flow.

How do followers those who churn after someone else in their network did compare to average churners overall? Pinheiros study found that followers represented 29 percent less ARPU but had 200 percent more distinct connections (115 percent more strong connections) and 127 percent more connections to important customers. In short, although the followers were less valuable to the company than churners in general, they were very well-connected to distinct and important customers and had strong links to their connections. That insight demonstrates the importance of understanding subscribers not just based on their value as individuals but as nodes in a social network.

How Do the Churners Compare to the Remainers?

According to Pinheiros study with this particular service provider, churners had 132 percent more distinct connections than customers who remained with the company (164 percent more strong connections). They had 61 percent fewer contracts and 25 percent shorter tenure with the company. 4

Customer Link Analytics

So although churners were well-connected to distinct customers, they showed distinctly less loyalty. Almost half of the churners had come from competitor B, so they know how to use portability in telecommunications and are more likely to use this capability in the future.

Considering Communities
Using a community detection capability within customer link analysis, Pinheiro identified 814,000 distinct communities. When looking at churn among all 28 million members in the social network under study, Pinheiro found the average rate of churn was 0.83 percent in Time 2 and 0.74 percent in Time 3. Those figures look pretty heartening. But when we looked at churn as related to communities, we saw that that the average rate of churn was 2.7 percent in T2 and 2.72 percent in T3, said Pinheiro. So we can consider that in some communities that have had churn in a previous time period, we will see more likelihood of churn in later times, even among those who would have been remainers. In this particular case, the difference was more than three times the average rate. This is food for thought, once again showing the power of connections and the importance of understanding these connections to know which customers to target for retention efforts. How do communities with churn compare to communities overall? As you might expect, churner communities represented 18 percent more ARPU, had 44 percent more members, and had 64 percent more distinct connections (42 percent more strong connections). Of note is the fact that these communities had 67 percent more off-net members, suggesting that connections who are competitors customers can exert an influence.

Putting Customer Link Analysis to Work in Churn Propensity Models

Pinheiros churn models incorporate social network analysis metrics along with traditional metrics such as demographics and usage nearly 80 attributes of customers and communities. Time 1 and Time 2 time frames were used to train the model using neural networks, based on 0.5 percent of the customer base as a sample. Time 3 was used to train the model to a particular variable, in this case churn, looking at pre-paid and post-paid customers separately. How well did the model do? Among those who churned [from post-paid services], the model was 86 percent correct identifying churners and 91 percent accurate identifying nonchurners, said Pinheiro. For pre-paid we got similar numbers: The model accurately predicted 87 percent of churners and 86 percent of nonchurners. By adding social network analysis metrics (degree, influence, page rank, hub, authority, closeness, etc.) to the individual demographic attributes and also information about the characteristics of the community they represent we were able to improve the overall accuracy of the model up to 30 percent. So in other words, the social metrics, including community metrics, work as good predictors in the predictive model.

SAS Conclusions Paper

Customer Link Analysis in Action: Boosting Product Adoption

The success of customer link analysis for predicting churn raises enticing questions for marketers. Could insight into customer connections and communities be used to improve cross-sell and up-sell? Could it be used to identify and retain influential customers who can be your best ambassadors, those who drive others to buy more from you? Yes, says Pinheiro. In fact, its even more relevant for marketing than for churn. For example, when Pinheiros own company, Oi, pitched a new service bundle to active residential customers, initially more than 26,000 of them accepted the offer. The question then became, How can we apply what we know about these customers to improve subsequent marketing efforts? The results from experimenting with three different groups were notable. The first target segment included customers whose call records showed that they had a direct connection with the early adopters. When that group received the offer, 13 percent accepted the new service bundle. Not bad. The second group represented prospects linked to the top revenue customers among the early adopters. Again, 13 percent of this target group accepted the offer. Most marketers would call that a good day. The third group was selected by applying customer link analysis to understand the sphere of influence of the early adopters. Which ones had more clout? When prospects associated with those influencers were targeted, the uptake rate soared to 30 percent. This is the stuff of which marketers dream: being able to more than double the uptake rate by pinpointing the right people to target, resulting in better results for less effort and investment.

Customer link analytics is the perfect tool to help you understand the viral effect in social networks and trigger better marketing and sales campaigns.
Ken King Director of Telecommunications and Media Convergence, SAS

Proving the Concept with Another Communication Service Provider

In another research project, Pinheiro looked at a network of 61 million nodes/ customers, of which 23 million were subscribers of the company under study. In a selected time period, 2.1 million of those customers adopted 4 million products. What can we learn about these adopters and their connections to improve lift on future marketing efforts? Customer link analysis showed that of those 2.1 million buyers, 45,000 can be classified as leaders; that is, they are also connected to active buyers. These 45,000 leaders were correlated to almost a million customers, of which 300,000 belonged to the company, said Pinheiro. They led 39,000 customers to buy similar products in T2 and 36,000 customers to buy similar products in T3. So, starting with these 45,000 buyers, leaders in this particular event, we see they can lead more than 75,000 customers to buy similar products afterwards. What would it do for your marketing if you could identify the customers who could influence several others to buy?

Customer Link Analytics

Figure 3. Social connections can be highly predictive indicators of customers future buying behavior.

Not All Leaders Are Created Alike

Pinheiro compared the 4,500 top buyers leaders to all 45,000 buyers leaders and found notable differences. During Time 2 and Time 3, top leaders influenced 11,000 and 10,000 customers to follow them in adopting products, compared to only 3,100 and 2,800 customers for buyers leaders chosen at random. How do buyers leaders compare to average buyers? In this project, the average buyer was correlated to 17 customers and didnt seem to exert any real influence with them. The average buyers leader was correlated with 21 customers and appeared to encourage product adoption for 1.3 customers. Top leaders were correlated with 23 customers (of which 15 belonged to the company) and influenced 4.8 customers to buy. The leaders were able to influence 26 percent of the customers they are correlated to, and the top leaders are able to influence 32 percent of the customers they are correlated to, said Pinheiro. Imagine the power of folding this information into your segmentation models. The viral effect appeared even stronger when you consider communities. Applying community detection methods to the 60 million members of the social network, Pinheiro identified 2.5 million communities in Time 0, then looked at how many of those communities were buyers in Time 1, Time 2 and Time 3. His research showed that in communities that had buyers, there were 11 percent more buyers than the average rate. When you combine Time 1, Time 2 and Time 3, buyer communities had 19 percent more buyers. So using the same concept as churn, communities that have previous buyers show an increased likelihood that the rest of the community will buy something in a period of time, said Pinheiro. Buyer communities were also more valuable than average communities in the network.

SAS Conclusions Paper

With customer link analytics, you can quickly visualize social networks between customers yours and your competitors and uncover leaders, followers and other members within social communities. Social network metrics from this analysis can enhance existing segmentation models, enabling you to discover how best to target influencers.
Figure 4. As with churn, social influence on product adoption is very evident in communities.

Conclusion
These figures can definitely prove how important it is to understand the viral effect on any sort of business effect, said Pinheiro. In this case, we looked at churn or product adoption. If you understand who are the leaders and who are the followers, you can establish better and more focused marketing and sales campaigns or loyalty campaigns to increase the effectiveness of your business actions. Communications service providers should be putting aside the concept that customers are only viewed by their individual attributes, and look at how they relate to each other, said Ken King, Director of Telecommunications and Media Convergence at SAS. These studies required pulling a lot of data together and bringing a lot of complex analysis to the question, but in the end the research was able to demonstrate some exceptionally strong benefit to understanding social connections.

Customer Link Analytics

About the Presenters

Carlos Andre Reis Pinheiro is one of the worlds most widely recognized experts on social network analysis in telecommunications. He has published several papers in international journals and written four books, including Social Network Analysis in Telecommunications. He is a sought-after speaker at TeleManagement Forum, the Analytics Conference Series and SAS Global Forum. Since 2000, Pinheiro has been with Oi, the largest telecommunications company in Brazil, where he heads up the analytics lab. Pinheiro holds a doctoral degree in computer science from Federal University of Rio de Janeiro, Brazil. He has conducted postdoctoral research in social network analysis at the School of Computing, Dublin City University (DCU), Ireland. Before joining DCU, he did postdoctoral research in optimization at Instituto Nacional de Matemtica Pura e Aplicada (IMPA) in Brazil, one of the worlds most prestigious mathematical institutes.

Ken King is Director of Telecommunications and Media Convergence at SAS, and a global expert on the use of advanced business analytics to solve complex business problems for the communications industry. He consults with SAS clients and industry thought leaders on topics such as churn management, social network analysis, product bundling, offer optimization, forecasting and operational improvements. SAS solutions are deployed in almost every large telecommunications service provider. King has more than 25 years of global telecom industry experience in designing, deploying and supporting voice and data networks. He has extensive experience in migration of communication networks from circuit to packet switching. His background includes roles in sales, marketing, product management, alliances, engineering, testing, training and technical support. King has a BS in computer and information science from the University of Florida and an MBA in product innovation management from North Carolina State University. He has dual Australian and American citizenships.

For More Information

To view the on-demand webinar: sas.com/sna-webcast To follow Ken Kings blog, including conversation from this webinar: blogs.sas.com/ content/sascom/author/kenking For more about analytics for the telecommunications industry, visit SAS on the Web at sas.com/industry/communications

About SAS
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