Encouraging customers to pay less for mobile telecommunication services

Getting what you paid for: Fighting wireless customer churn with rate plan optimization

“…15,16,31 Dissatisfaction on pricing has become one of the major determinants of customer churn in the service industry. 1,32 Faced with high acquisition cost, high customer churn rate and the need to further defend their market position, wireless carriers are seeking improved customer retention strategies to better protect their customer base.…”

“…This is because customer acquisition cost is very high owing to heavy subsidisation on handset and aggressive multi-channel marketing programs. 15,12 With customer acquisition cost reaching over US $ 300 and average monthly revenue of about US $ 60, Canadian wireless carriers can only realize profi ts after serving their customers for at least half a year; therefore customer retention is important for them. 6,26 As Gerpott et al 13 argue, the long-term relationship between the wireless carriers and their customers are of greater importance to their success than they are in other service industries.…”

“…Although previous research has contributed to our knowledge by identifying churn determinants and their relationship to customer loyalty, satisfaction and retention in the wireless industry, 1,3,8 -13 and that research has also been conducted to model consumer ' s reaction to price adjustment of telecommunications services, 14 the idea of using rate plan optimization as a retention strategy is still a new concept to many wireless carriers. In their study of the Korean wireless market, Joo et al 15 have revealed that an alarming 40 per cent of customers are subscribing to non-optimal rate plans and suggested moving some of these customers to optimal ones for retention purpose. Subsequently, Wong 16 has found that approximately 46 per cent of the Canadian wireless customers are also using inappropraite rate plans.…”

“…18 Complicated pricing schemes, together with customers ' inability to predict their usage requirements, are the major causes for inappropriate rate plan subscriptions. 15 As noted by Gerpott et al , 13 one of the top two factors that affects customer retention is their assessment of the service pricing; customers have to believe that the prices charged are ' fair and good ' or they will churn. 12 This proposition is further confi rmed by Kim et al 1 who suggest that dissatisfaction regarding pricing remains important in infl uencing customers ' switching intention.…”

“…These fi ndings are slightly higher than the previous fi ndings of 40 per cent and 46 per cent for the Korean and Canadian wireless markets, respectively. 15,16 Other descriptive statistics are summarized in Table 1 .…”