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Determinants Churn

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Determinants
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   Journal of Competitiveness 52 Relevant Drivers for Customers` Churn and Retention Decision in the Nigerian Mobile Telecommunication Industry Sulaimon Olanrewaju Adebiyi, Emmanuel Olateju Oyatoye, Bilqis Bolanle  Amole   Abstract  The need for better support marketing decision on customers who are likely to leave a service provider for a competitor is very essential to the survival of most telecommunication firms. The application of logistic regression to the study of customer churn and retention decision in the Nigerian telecommunication industry falls into proactive methods, which helps in a better un - derstanding of the needs of subscribers, to be able to predict their churn and retention decision in the industry and enhance better marketing strategies with a research driven policy guide for the operators in the industry. The purpose of this study is to ascertain the relevant drivers of cus - tomers` churn and retention in the growing Nigerian mobile telecommunication industry. Con - sidering this issue, the logistic regression models have been used as the evaluating method. Four hundred and eight questionnaires have been used in this study. The population of this question - naire consists of subscribers of mobile telecommunication in the six selected campuses of higher institution of learning in Lagos-state, Nigeria. The data collected was analysed by STATA 12 software. The results showed that the coefficients of mobile number portability (MNP) services and dubious promotions are positive and significant. Furthermore, low coverage and unwanted calls and SMS are positive and significant. This implies that the better the availability of MNP services, the greater the likelihood of customers’ churn. More so, an increase in quality of calls provided by mobile telecom firms will increase the likelihood of customers’ loyalty by retention.  The study recommends strong institutional measures for the overhaul of mobile services provi - sion towards an improved service delivery in Nigeria. Keywords: Drivers, churn, retention, telecommunication, mobile number portability, logistic regression     JEL Classification: C21, L10, M2, M31 1. INTRODUCTION  Telecommunication seems to be an inseparable part of our everyday life, as mobile phone phones are now playing a great role in enhancing effective communicate both at individual and at or - ganisational level, and from one place to another place. The importance of communication to human life cannot be overemphasized, as it has been observed that an average human being keeps mobile phone at arm’s length all the time, even while sleeping (Oyatoye, Adebiyi & Amole, 2015). The mobile phone is not only used for making calls, among many other functions, it is used for communicating through text-messages, multi-media messages, social media as well as internet facilities. The opportunities that lie in the telecommunication market seem endless and ▪  Vol. 8, Issue 3, pp. 52 - 67, September 2016 ISSN 1804-171X (Print), ISSN 1804-1728 (On-line), DOI: 10.7441/joc.2016.03.04  53 the growing demand for mobile telephony systems is creating a worldwide market. Hence, ac - tors in this industry are seeking the most profitable markets throughout the world (Hossain & Suchy, 2013). IBM Corporation (2010) has described churn as the process of customer turnover (switching or termination of contract with network providers) which is not restricted to a telecommunication market. It occurs wherever stiff competition provides incentives for customers to switch provid - ers, especially with mobile number portability (MNP) implementation, which gives a legal back  - ing to customers’ switching (porting) behaviour from one service provider to the other without losing their srcinal number which might have even been the barrier in switching out-rightly before the period MNP was implemented, for the fear of losing contact with those who know the old contact number or those on the same network service provider (Oyatoye, Adebiyi & Amole, 2015). However, it should be noted that churn is more familiar in the telecommunication indus - try as this was not experienced in Nigeria before 2001. Thirteen years later, four major players struggle to secure the patronage of customers from the same market in providing the essential service of effective communication and the implementation of MNP. This empowers subscrib - ers to switch their network providers without losing their srcinal/known number. Therefore, churn has become an issue of major concern for all stakeholders, as it affects firms’ revenues, profitability, and survival as well as questions quality service delivery in competition, which in turn, enhances satisfaction of subscribers.Customer churn (often referred to as customer attrition in other industries) in mobile telecom - munication is the movement of subscribers from one service provider to another. It is the pro - pensity of customers to cease doing business with an organisation. Customer churn, sometimes known as customer attrition or customer turnover, is the loss of existing subscribers to another company or service provider (Kerdprasop, Kongchai & Kerdprasop, 2013). Business sectors consider customer churn seriously because the cost of retaining current customers has been found from research to be much lower than acquiring new ones (Syam & Hess, 2006).Many subscribers frequently churn one provider to another in search of better rates or services (Kolajo & Adeyemo, 2012). Thus, as it applies to this study, customer churn is the loss of existing subscribers to a competitor or shift of preference to other competitors (Jie & Xu, 2009). This phenomenon when it does occur, has the potential to result in considerable loss or profit to a company. As such, the prevention of customer churn, especially the profitable ones is central to the survival of businesses.Losing customers or customer churn has been suggested to be one of the problems that many firms may face in the 21st century (Chih-Fong & Yu-Hsin, 2009). This is because, churning of good customers has irrecoverable disadvantages for a famous company. This study examines the relevant customer’s churn drivers (mobile phone subscribers), churn rate and present the moti -  vation for churning among service provider by subscribers. In fact, customer`s churn, which is the decision of customers to terminate the relationship with a provider, is a major concern for telecommunication firms in most countries in the world (Portela & Menezes, 2011). Thus, if a customer terminates a membership agreement with one telecommunication company in this era of MNP and become subscriber of another competitor while he/she maintains the srcinal number, this subscriber is called a churn customer.   Journal of Competitiveness 54 In fact, considerable increase of business competition in the Nigerian mobile (GSM) telecom - munications industry in the last eight years that the Etisalat service provider joined the Nigerian telecommunication market. Besides, the implementation of mobile number portability (MNP) in 2013 has greatly increased the switch from one service provider to another. These have also increased the churn rate of customers and seriously affected the financial performance of the telecommunication firms and costs of implementing their promotional strategies to fight the competition. This has led several researches to note that customer churn is the main reason of loss of profits in the telecommunication industry, as signaled by losses in current and potential revenues, marketing costs, brand image, and so on (Ahna, Hana & Lee, 2006; Qian, Jiang &  Tsui, 2006).Churn behaviour is a common problem faced by telecom companies as it reduces the revenue, profitability, and damages the brand image of the business (Adebiyi, Oyatoye, & Kuye, 2015).  Apart from these, the privatisation/liberalisation of the Nigeria telecommunication market in 2001 has increased the number of operators from one to five and equally increased competition.  This has afforded customers to choose among service options, the service provider that will provide the best service. Lu (2002) notes that customers exercise their right to choose among the existing providers and thereby switch (port) from one company (operator) to another. Moreover, MNP gives the legal right to dissatisfied customer to switch (port) to any other competitors  without losing the srcinal number that the service subscribers is identified with.For his part, Geppert (2003) defines churning as the movement of customers from one service provider to another in search of better and cheaper products and services. In relation to this, Richeldi and Perrucci (2002) contend that customers become churners when they suspend their subscription or spend less and/or move to the next competitor.Churning behaviour is synonymous to customer turnover. As Neslin, Sunil, Wagner, Junxiang and Mason (2006) notes that customer churn is “the propensity of the customer to cease doing business with a company in a given period of time”. In this context, Ghosh (2007) introduced the cross-buying concept, while Eppen, Ward, Ward and Kipp (1991), argued that customers who signed up for more than one service within a single company tend to be more loyal than those  who contract for one service. This cross-buying behaviour increases the loyalty and reduces churn attitude. Moreover, churn management represents a proactive approach to retain cus - tomers. It involves identifying likely churners based on demographic and behavioural customer data, targeting these customers with a retention campaigns and other factors (Neslin, Gupta, Kamakura, Lu & Mason, 2006). This study focuses majorly on pre-paid services in the Nigerian telecommunication industry, since the issue of churn is dominant to this group, especially with MNP policy implementation in Nigeria. Consequently, the study provides answer to the research question, which seeks to understand,  what are the major drivers of customers` churn and retention in the Nigeria mobile telecommu - nication industry?  55 2. LITERATURE REVIEW 2.1. Customer Churn In this study, we rely on the operational definition of churn as given by Alberts (2006), churn occurs when a customer has permanently stopped using/recharging his SIM-card as early as possible. It is also the rate of movement of subscriber within a system (GSM operators). Thus, churn situation is when a number of customers switch/port their preferences among network providers.  According to Modisette (1999), churn can be categorised into three types;Involuntary churn: This occurs when subscribers fail to pay for service and as a result the provider terminates service. Termination of service due to theft or fraudulent usage is also classified as involuntary churn.Unavoidable churn: This occurs when a customer dies or moves or is otherwise permanently removed from the marketplace, travels outside the country without roaming, and possibly permanently relocates to places outside the outside network coverage. Voluntary churn: Termination of service relationship by the customer, leaving one service operator for another because of better value or dissatisfaction with current service pro -  vider.In reality, it is most unlikely that a service provider could differentiate unavoidable and volun - tary churn and predict them separately through secondary data (database) of the telecom op - erators. However, questions may be asked through primary data instruments (questionnaire or interviews) to get information on the reasons or motives for a subscriber to make voluntary or involuntary churn. This rather can be analysed using logistic regression. 2.2 Churn Drivers  According to Hamelin, Nassali and Harcar (2010), a number of researchers and academics have studied factors that may cause churn. However, it is important to investigate why customers are leaving before selecting the appropriate churn-reduction mechanisms. For Fox and Poje (2002), a better price is the main factor but not the “prevailing reason”. In fact, as it has been observed, offering a lower price does not necessarily mean higher customer loyalty. They also reveal that customers churn to the competitor who best matches their needs in terms of service features, technology, and service quality. The probability that a subscriber will change the actual carrier depends on the satisfaction level reached in addition to factors relating to service attributes,  which include call quality, tariff level, handsets, brand image, income and other relevant factors. In addition to these service attributes, Kumar (2007) has indicated that the transparency level of any company is highly associated with customer satisfaction. When a specific firm adopts trans - parent marketing strategies, communicates transparent tariffs and makes information available, it increases the customer confidence and satisfaction. Geppert (2003) summarises in his article the most important factors which explain the churn attitude:Price: Higher prices than those of competitors, changing fees constantly or lack of transpar - ency regarding services and products provide customers with high incentives to switch. 1.2. 3. 1.
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