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Sunday, 26 February 2012 16:00

Reducting Churn and Lowering Customer Acquisition Costs in SMB

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Edge Strategies found in a study[1] commissioned by Microsoft recently that those customers using rich email (messaging services that include group calendaring, file sharing and desktop conferencing) and other communication and collaboration services were significantly less likely to churn than customers using only basic email.

In addition, the study found that rich (Business Class) email customers are less likely to switch providers in order to obtain lower priced broadband services as compared to customers using only basic email.

Key findings include:

  • Customers who use business class email and other online communication and collaboration services change providers half as often as those using basic POP/Webmail.
  • SMB customers are increasingly comfortable with cable and traditional telecom service providers as a source for online services and applications; particularly those related to email, IP communication and collaboration.
  • Wireless service providers are becoming increasingly accepted by SMBs as a source for acquiring online services (relative to a similar study conducted by Microsoft with Edge Strategies in 2008[2]).
  • Users of basic POP/Webmail are more likely to change providers on the basis of price than those using higher value-added services.

The study also indicates that churn reduction is an evolutionary process, which requires that the service provider proves its capabilities to meet customer requirements for support and reliability at each stage of their relationship. This is necessary for them to earn the right to provide the next level of critical business service. Customers who elect to upgrade bandwidth with their service provider are themselves less likely to churn than others, and are more likely to consider acquiring additional services from that provider. Once the SMB customer is successfully using rich email, a further significant reduction in churn takes place, and the process of churn reduction continues as additional services and applications are added.

Propensity to Change Providers

In order to quantify the effects of using rich email on the likliehood of changing providers, our sample of SMBs were asked how many times they have changed providers in the past three years. We then clasified companies based on the types of email they have been using during this period and compared their switching rates. Companies not in business or using email for the full three year period were eliminated from the analysis. The findings were clear. The churn rate for those who use basic email services was 37% higher in the previous three years than the average churn rate for all broadband customers, whereas the churn rate for rich emal users was 31% below the average.

It is certainly the case that other factors come into play. For example, those who use rich email on their own servers also have a slightly (10%) lower than averge churn rate. However, many of these customers have already upgraded to premium or business class broadband, which itself demonstrates the relationship between higher service levels and churn reduction. The strongest impact on churn by far, however, is seen when a customer uses rich email provided directly by their broadband service provider. Here, the relationship between the service provider and the customer appears to take on a whole new meaning. At this point, the customer has determined that their service provider is worthy of managing critical business services and 

                       

 Business Class Email Subscribers switch ISPs 2

Reasons for Changing Providers

Another goal of the study was to specifically understand what motivates customers to change broadband providers. Again, significant differences were discovered between companies using basic email services vs. those using rich email. While most customers had several reasons for switching providers, those using rich email were much less likely to switch in order to obtain lower priced broadband services, and much more likely to switch for higher bandwidth or to get services that their previous provider did not offer.

We believe that there are several underlying reasons for the reduced churn associated with rich email use:

  • Customers who chose to subscribe to rich email, communication and collaboration services have developed confidence in and are comfortable with their service providers based on past experience or recommendations from others.
  • Service providers who offer rich email and collaboration services are considered more business oriented, and are more likely to be at the forefront of providing the services that the customer may need in the future.[3]

Customers who subscribe to advanced services know they are being “locked in“ to some extent, and as a result, are careful who they choose as their provider for advanced services – particularly those services and applications that may require employee education, retraining, data migrations or changes in the way they work.

Conclusion

This research offers further evidence that churn reduction for service providers is a journey that evolves with the availability and successful delivery of new services. Churn rates decline as customers move from basic email to premium broadband to rich email, and further decline as additional critical business online services and applications are added.

Service Providers therefore should strive to move customers to adopt advanced services as quickly as possible using the customers’ desire for and use of premium broadband as an indicator of both the need for these services, and a disposition to consider the service provider as a potential source. At the same time, they must develop the capacity to successfully onboarding these customers while providing a great end – to end- user experience in order to successfully realize the benefits of successful churn reduction and reduced customer acquisition costs that result from in person and online word of mouth.

For more information about the study, contact Bob Kazarian This email address is being protected from spambots. You need JavaScript enabled to view it. .



[1] These findings are based on research concluded in January 2010 with small and medium business customers in the USA, UK, France and Germany.

[2]Edge Strategies “Channel Preferences Study 2008”.

[3] Opinions based on interviews with SMB customers participating in the Channel Preference and Churn Study (2009)

 



 

Read 1120 times Last modified on Sunday, 26 February 2012 23:54