Telcos: The Importance of Branding in Building Customer Loyalty
Brand is an important factor in customer retention to reduce the downward pressure on telco service provider revenues and ARPU. Great emphasis is placed on improving service provider network performance and their complaint handling procedures to retain customers. However, although this is helpful, there are also many other methods a service provider can use to reduce churn. This article shares some common tricks and techniques used across industry to increase customer loyalty, by reference to four different types of Brand Bond.
These bonds are equally applicable to telco service providers, who can use the various techniques to encourage brand loyalty and reduce churn. However, to succeed, service providers will need rich insights into customer preferences to enable them to identify and tailor loyalty initiatives to maximize efficiency and effectiveness.
Four ‘brand bonds’ to build customer loyalty
Marketing specialist Ogilvy has defined four different types of “Brand Bond”, each of which represents a group of techniques to engender customer loyalty (and hence reduce churn). These will each be described in more detail below, followed by some suggestions as to how a telco service provider might deploy them.
1. The Emotional Bond: Building pride or love of the brand
Humans are often not rational. Many decisions are driven by emotion rather than logic. This offers brands many opportunities to create loyalty. By promoting values and behaviors that align with those of its target customers, a brand can engender feelings of pride or even love in its customers. This can be a very powerful bond, allowing a company to charge very high prices for its products and services. Such brands often, but not always, have very high marketing budgets. A few examples include:
Shared Values: The Body Shop emphasizes “cruelty-free skincare products” to specifically appeal to animal lovers.
While Pret a Manger’s commitment to poverty alleviation through the Pret Foundation appeals to customers with a strong social conscience.
Brand Glow: BMW drivers are signaling that they are dynamic and successful. Louis Vuitton owners may be signaling wealth and good taste.
Reputation: Brands such as Miele, Sony and Heinz are well known for producing high quality products, which many people choose to buy by default as the safe, reliable option, even when better value products may be available.
There are many other ways to create emotional bonds: Charismatic CEOs, exceptional customer service, and distinctive marketing can all strongly influence purchasing decisions.
The Structural Bond: Building barriers to churn
These bonds are very effective at preventing churn by creating exit barriers which are cumbersome to overcome. However, in many cases, the loyalty created is involuntary. Following are a few examples of structural bonds:
Retail Banking: Changing bank accounts is a famously frustrating process. Rearranging payments and deposits can be time consuming and complicated. No wonder that according to JD Power, in 2018 only 4% of US banking customers changed accounts. Even customers who are very dissatisfied with their bank’s service are reluctant to change because of the effort involved. As an incentive to overcome this barrier, many banks offer generous sign-on bonuses to attract new customers.
Apple: It is well known that Apple’s product ecosystem is tightly integrated, and this very effectively discourages churn. For example, the Apple Watch will only work with Apple mobile phones. So if a customer moves to an Android device, their Apple Watch becomes useless. In addition there are many other convenient features which would be lost if a customer replaces their Apple computer / phone / tablet with a non-Apple device.
Telco Service Providers: Lack of number portability is a very effective way to prevent churn. The inconvenience of informing all one’s personal and business contacts about a change of telephone number is a big incentive not to change service provider. This is why service providers have always dragged their feet when governments mandate number-portability requirements.
Although very effective at preventing churn, structural bonds can have negative consequences. A dissatisfied customer tied into a long-term contract may continuously spread bad word-of-mouth about the brand. In these situations it may be preferable to release the customer.
In fact, many structural bonds are slowly becoming less powerful. Some governments are introducing legislation to force businesses to expedite customer movement. Also, as businesses become more digital, account opening is becoming much easier. For example, many challenger digital banks enable accounts to be opened fully online; a traditional “wet” signature is no longer required. Of course, closing an account is rarely made easy.
The Financial Bond: Encouraging repeat business
Financial brand bonds are very common, particularly in service industries. They are particularly targeted at high-value customers whose repeat business is keenly sought.
Loyalty Schemes: Full-service airlines and leading hotel chains all offer loyalty schemes with increasingly generous terms for high-value customers. Free breakfasts and executive lounge access are a powerful incentive to keep business travelers tied to a single hotel chain.
Pre-payment Schemes: Many bars and restaurants offer financial incentives for customers to prepay a lump sum into a tied account. For example, a $500 deposit might be topped-up with an extra $100 credit. This is a good technique to encourage regular custom, while enabling businesses to charge a premium to less regular customers.
Of course, the problem with financial bonds is that they can often cost the company some money, either due to lower revenues or higher expenses. Hence the popularity of schemes which allow the customer to benefit from inventory that would otherwise go unsold, such as free hotel nights and airline seats offered at off-peak times.
The Social Bond: Creating communities
This fourth bond has become increasingly important over recent years as digital technology has allowed consumers to widely share and develop their experience with friends and online communities. Creating a sense of community is a very powerful way of ensuring loyalty.
Experience sharing: Nike offers Nike+, which allows users to upload data about their runs to share and compete with friends. Similarly, Spotify allows playlists to be conveniently shared with friends on Spotify. A Spotify subscriber engaged with friends in this way will be reluctant to move to a competitor, even if the value offered is significantly better.
Community Support: Many organisations facilitate systems to allow customers to offer mutual help and support. Customers who regularly contribute to such forums are offered explicit recognition and even invited to special events such as product previews or expert meet-ups. “giffgaff”, the UK mobile service provider, is built around community support.
Giffgaff Community Support
Lessons for Telco Service Providers: AI essential to understand customers
Most of the techniques described above can be adopted by telco service providers, and by addressing each of the four brand bonds individually, many other potential opportunities can be identified. When deciding which methods to adopt, it is important for the service provider to assess how well they will resonate with its customers. For example: What sort of brand value will create a strong emotional bond? What convenience feature will customers value enough to create a structural bond?
To answer these questions, the service provider needs to have an in-depth understanding of each of its customers. This is where holistic customer data analytics solutions, such as Huawei’s SmartCare solution, can help. By combining all the service provider’s customer information onto a single platform, service providers can use the latest AI techniques to create rich, meaningful insights into customer behaviour, context and preferences.
These insights can then be used to guide the development of meaningful brand bonds, for instance:
Emotional Bond: If a large proportion of customers are known to be fans of a particular sport, the service provider could seek to sponsor that sport, and through that sponsorship offer unique experiences or merchandise to its customers.
Structural Bond: Customers with only mobile service could be offered a preferential price to upgrade to a home broadband / TV package. Research shows that customers who take a package of services are much less likely to churn.
Financial Bond: Customers who regularly play specific online games could be offered free data consumption for those games.
Social Bond: Customers with similar interests could be invited to join themed and location-based chat groups to create a sense of community.
Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.