Mobile marketing can cut churn

The introduction of promotional services, such as O2’s Priority Moments, could have a dramatic impact on a mobile operator’s customer loyalty and drive down churn. In doing so, mobile marketing could become one of an operator’s core elements in retaining subscribers, subsequently placing infinitely more value on the role of mobile marketing than afforded to the service presently.
Churn costs mobile operators billion of dollars globally every year. But if mobile marketing can be used strategically by a mobile operator to tackle churn, it could potentially save an operator millions, if not hundreds of millions of dollars annually.
This is an alternative way of looking at the value of mobile marketing, and instead of focusing purely on the revenues derived directly from campaigns alone, it is looking at a vastly broader picture. Mobile operators are some of the biggest spenders of marketing dollars globally, focusing on customer retention as opposed to customer acquisition. Not surprising given that in developed mobile markets the cost of acquiring one subscriber is significantly greater than the cost to retain one.
While O2 has invested big in Priority Moments, it could yet prove to be one of the best defense mechanisms against churn. Other operators will inevitably follow suit, the only question is at what speed.
Priority Moments is a pull-based model (PBM), using messaging (via O2 More) and in-app notifications to drive traffic to the relevant sites. Messaging and in-app notifications will be critical in encouraging user engagement and, ultimately, loyalty.
Messaging will perhaps be the critical cog in the short- to mid-term. It has the volume, the immediacy (95% of messages are read within three minutes), the open rates (upwards of 98%), and can attract response rates of up to 50%. Most importantly though, it does not have the acknowledgement, or credibility, that an incredibly powerful channel should command.
The fact SMSes had been restricted to 160 characters, with seemingly little creativity, has been the major deterrent for the majority of ad agencies to promote messaging to their clients. But brands and companies are now recognizing for themselves the role that messaging can have, and are starting to develop their own mobile database.
Perhaps the key point is that the world of communication has fundamentally changed over the last couple of years. Social media has created a platform for the world to connect, while the likes of Google ads and Twitter have educated the digital world how to communicate in less than 140 characters. All of a sudden, the marketing world has been primed for delivering creative campaigns within the confines of a message.
Taking that a stage further, the permission-based marketing opportunity in the UK is huge. mobileSQUARED forecasts that there will be a total of 17.2 million users in the UK that will have opted-in to receive communications from a brand or company by the end of 2011. By 2016, that number will have rocketed to 36.7 million.
A breakdown reveals there will be 8.82 million users on operator opt-in databases – and also on third-party databases - and 8.4 million on third-party (brand/company) only databases. By 2016, operators will have the dominant share of opt-ins, with 20.73 million, compared to brand and company only opt-ins of 16 million.
Key then, is getting the entry level strategy accurate and developing a robust mobile database, while gradually advancing that towards a conversational model. Presently, as our research has highlighted, entry level PBM relies on a single, standalone message providing an update or a response, whereby the stream ends. Conversational marketing develops that stream, and encourages a response, whether positive or negative, and uses the response to develop that user’s profile.
Where existing services have fallen short to a certain extent, is that the communication has been limited by the brand. Once the service knows that a user is interested in a particular brand, they will only communicate with that user within the boundaries of a campaign – i.e. the brand decides when they will run the next campaign. That means a potential customer, having expressed their desire to hear from a brand, could be waiting months before the next communication.
The world cannot be run on a campaign basis. The world is social. And that social element must be reflected in how a brand or company communicates with its database. No longer can a brand think along the unilateral “I’m talking to you” lines, but adopt a bilateral conversational approach to ensure an ongoing two-way communication.
That also requires a fundamental shift in mindset away from the traditional campaign structure, towards an annualized – at least six months – strategy to develop relations with consumers using permission-based marketing. Companies should therefore set aside budget to achieve this, and evolve beyond the one-off campaign strategy.
The sooner the brand achieves this, the better. Consumers will not hang around waiting to be courted by various companies. Through the application of trends that mobileSQUARED has identified from other areas of mobile, wireless users will restrict the number of brands they permit to communicate with them. For example, the average mobile internet user frequently visits between six sites and ten sites, of which about five will remain fixed on their browsing agenda (such as Facebook, BBC, bank, sport/entertainment, work), with the remainder ‘floating’ sites based on the mood and preferences of that user at any given moment. An almost identical trend has emerged with app usage over the last 12 months also. This is a strong indication that mobile users have usage boundaries. In the same way websites and apps will jostle to feature in a user’s top 10, and ideally in their ‘fixed 5’ as opposed to the ‘floating remainder’, mobileSQUARED believes users will adopt a similar philosophy in terms of the brands they will grant access to their device.
But grant access to their device they will. In 2009, mobileSQUARED research, using Lightspeed Research, revealed that 10% of mobile users in the UK would welcome a follow-up communication from a brand after a purchase and would increase their spend on the back of it. A further 21% said they would welcome the communication and would remain loyal to the brand. And 35% said they would welcome the communication but it would not influence their spend with that brand.
This highlights that consumers are willing to interact, with almost one-third of the market openly declaring that it would increase their spend and/or loyalty. Permission-based marketing can develop to become one of the ultimate customer services tool a company has in their arsenal.
Permission-based marketing is bigger than a simple mobile marketing campaign, and therefore an additional revenue stream for a company. mobileSQUARED believes PBM will ultimately drive m-commerce, and most importantly, will increase subscriber loyalty.
The mobile operator opportunity
In relation to mobile operators, mobileSQUARED predicts PBM to play a central role in the company’s core business. Indeed, we believe the benefits of PBM at both the entry and conversational level will be experienced first by the mobile operators, because beyond just becoming an additional revenue stream, it will assist in the fight against churn.
Chief marketing officers are now starting to understand the overall value to an operator that PBM can deliver. This is indeed a critical first step, but actually demonstrating the true value will seal the deal.
Churn rate in the UK ranges between 1.1% and 5% per operator, with a national average of 2.9%. On an annualized basis, that means 1.047 million users will move operator. If we assume that each postpaid subscriber spends £25 (€29) per month (£300 per year), and prepaid subs spend £150 per year, churn will account for £441.36 million in 2011 in the UK.
A major rethink is required in how the entire mobile and marketing ecosystem view and position mobile marketing. It is not an incremental revenue stream, neither is it a value-added service, in the context of everything explored within this report it fits at the core of an operator’s strategy alongside voice and data. Perhaps a more appropriate term for PBM is that it is a subset of data.
Operators will be instrumental in demonstrating how effective PBM can be, coupled with the forward-thinking major brands such as Argos and Marks & Spencer, and encouraging other brands to follow suit. What’s more, the world must focus on O2 over the next 12-18 months to see if Priority Moments truly does have an impact on its churn rate.
Nick Lane is chief strategy analyst and head of client services at mobileSQUARED