T-Mobile and other telcos are likely celebrating that their efforts to minimize churn, such as data incentives and other freebies, have paid-off. But these efforts, while appearing fruitful, are short-sighted. Major telcos have seen historically low churn rates in 2021, with carriers like T-Mobile posting 0.98 percent churn for the first quarter and 0.87 percent for the second quarter for postpaid or premium plans. Compare that to five years ago when T-Mobile’s churn rate was above one percent and 10 years ago when it was above two percent.
Most telcos feel pressured to post low churn rates to appease investors, but this isn’t the right metric to use.Although retaining customers is key to profitability and the cost of acquiring customers is about five times the monthly average revenue per customer, churn isn’t where telcos should be focusing. Instead, the focus should be on growing average revenue per customer with additional value-added products and services. More new customers could be drawn in by this strategy, but that should be more of a bonus rather than the goal.
Offers like a free year of Netflix may draw in new customers or keep them hanging on for a little longer, but they won’t foster loyalty and in fact, they can be dilutive of profit to the business. It’s the overall brand experience and customer service that retains customers for the long-term. And by improving the experience and building loyalty, churn will also likely shrink in the process.
Telcos have their work cut out for them to shift deeply entrenched strategies away from churn and towards cultivating a large base of loyal customers who are excited to connect more of their lifestyles to the brand, like entertainment and streaming, their appliances or even home security. But customers are smart and increasingly open-minded about trying new services if they see value in them, and telcos should be guided by three foundations as they pursue this mission:
- Good customer experience drives loyalty, not bells and whistles like a free year of Netflix
- Light, ethical, accessible and dataful (LEAD) experiences are great experiences
- Experiences should be integrated across many channels, in line with customer usage and expectations