Case study: Customer retention in social networks
In recent years, in mobile communications as in many other industries, the key focus of customer marketing has shifted from acquiring newcustomers to retaining customers. This is because many markets have become saturated and nowadays virtually anybody who would like to have a mobile phone contract has one. Industry experts estimate that average acquisition costs per customer are around £150–200. Incurring such high acquisition costs is clearly done in the expectation that there will be some form of customer lock-in and that the customer will produce a stream of revenues through which the company regains their initial subsidies. However, churn rates (the percentage of customers switching providers) in the mobile telecommunications industry are quite high, with industry experts estimating that in advanced economies around 10 to 20% of postpaid and 20 to 30% of prepaid customers are switching operators every year.
The case study shows how mobile phone companies can use social network analysis to identify two types of subscribers:
- Influential subscribers who are likely to infect other subscribers if they leave. Typically churn influencers have been shown to take 1 to 2 additional subscribers with them if they churn.
- Subscribers who are under pressure to churn as well because some of their peers have already churned. Using social network analysis typical existing churn models can be improved by 30-40% for subscribers most at risk.
The case also discusses how companies can use these insights in their retention efforts.
Customer retention case study (Case-related questions & problems for use in class room discussions can be found at the end of the case study.)