Telecom: Customer Segmentation

March 31, 2010

Our Hyderabad Head Trainer, Mukta Phadnis reports:

Ever wondered what made Uninor, Aircell, enter into Indian market when there already were 12 mobile operators in India, including two government-owned companies?

It is expected that the Indian mobile market will double in the next three to four years and there is nothing called one-size-fits-all for a 1.2 billion India. Uninor, Aircell followed customer segmentation strategy and are targeting only those customers who will benefit from its services.

Customer segmentation is nothing but division of customers into homogenous groups of people having similar characteristics in order to adjust the portfolio of products and services, but also sales and public relations etc., to their various needs.

Now it’s a bigger challenge for other leading GSM telecom operators in India namely Airtel, Vodafone, Reliance Communications, Tata DoCoMo, and Loop Mobile to retain existing customers and grow their customer base amidst  the stiff price war posed by the new entrants in the market. Geographic segmentations, Psychographic or Lifestyle Segmentation, are just the first steps towards an integrated customer segmentation based strategy

For most customer segmentation analysis various types of cluster analysis is used. Cluster analysis is well-defined statistical technique that group people according to the proximity of their ratings. Correlation and Regression can be used to study for psychographic segmentations. Factor analysis is also a powerful technique to identify the statements and groups of statements that account for much of the variance in the attitudinal data set. These techniques can help you identify the most important statements  (i.e., attitudes, perceptions, values). Then, these statements become the inputs to the final segmentation analysis. Many different methods can be used to cluster or group the statements at this point.

Let’s take a critical business decision of retaining just the high-value customers (assuming that some will attrite any way). If we knew which customers of ours were likely to quit to a competitor, and which of these are really worth keeping, we could intervene in a timely manner and take steps to retain them. This will ensure ongoing revenue from them, reducing costs of replacing them with the new customers and maintaining market share.

So where does analytics come in? Analytics will help build predictive models to identify high value customers at every point of interaction. Once the high value customers and potential attritors are identified, one can devise strategies to retain only those customers that are profitable

Telecommunications companies hold rich data on their customers. Personal information, demographic information is gathered while subscribing to a new connection. Call detail records like Call volume, Usage, Calling Patterns, Roaming Behavior can be used to study customer behavior.

A statistical model can be built that evaluates customer and classifies them on a matrix of profitability and loyalty. Those that are high on profitability and on loyalty can be rewarded for their behavior with incentive schemes. Those lower on the loyalty axis but high on profitability can be enticed with discounts on essential services.  Effort can also be made to retain them by excellent customer service. Those high on loyalty and low on profitability can be made more profitable by being offered spends promotions that encourage them to spend more. While as a company, fewer resources should be spent on those low on both loyalty and profitability. The retention metrics for the company therefore, is not how many customers are retained but how many profitable customers are retained, and how much the per customer profitability is increased in a time period

Telecom operators operate in highly dynamic markets; customer preferences change quickly based on fashions, trends, competitors’ actions and the products, services and packages the provider offers hence ongoing market research and analytics becomes paramount to the success.

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