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Driving Effective Customer
Retention for Communications
Introduction

 PEGA IS AT THE FOREFRONT
 OF THIS SHIFT TOWARD
 MAXIMIZING CUSTOMER VALUE
 WITH A MARKET-LEADING
 NEXT-BEST-ACTION
 MARKETING SOLUTION
 In a world where penetration rates for services like mobile have reached more than 100% in many countries,
 Communications Service Providers (CSPs) are shifting their sales and marketing investment from attracting new
 customers toward maximizing customer value through improved revenue and retention.

 Pega is at the forefront of this shift with a market-leading Next-Best-Action Marketing solution that combines
 sophisticated predictive and adaptive analytics, real-time decisioning and a guided user experience to help
 CSPs improve retention and drive incremental revenue. Today, Pega Next-Best-Action Marketing is powering
 initiatives for major CSPs like Vodafone, O2, Orange, Cox, Maxis, BSkyB, MTS and Time Warner Cable, helping
 them drive additional revenue and margin from their existing customer base. For example, at the largest telco
 in the UK, the solution is part of a multi-stage initiative where they are already generating an incremental 24M
 GBP of annual operating margin in the initial phases.

 As CSPs shift focus from customer acquisition to retention and margin, we have identified a few key best-
 practices related to retention. These best-practices are partially enabled by technology, but also enabled by CSP
 leadership’s ability to think “outside the box” in pursuing efforts to reduce customer churn.




                                                   Follow Bob’s Customer Journey
                                                   Bob is your typical customer. He can be lured by competitive
                                                   offers, or retained by a service provider that anticipates his
                                                   wants and needs. Bob’s journey is a multi-channel scenario
                                                   that demonstrates how a service provider can engage
                                                   customers and use Pega Next-Best-Action Marketing to
                                                   drive very relevant, customer-centric experiences.




DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION        WWW.PEGA.COM        SHARE THIS WHITEPAPER:
Creating the 1:1 Business Case for Retention
 Marketing organizations are most familiar and comfortable with segmentation
 marketing strategies, where subscribers are broadly grouped and labeled. Once these
 groups are created, then packages or strategies are offered to each group. These
 mass segmentation strategies may work reasonably well for subscriber acquisition
 (they cast a wide net), but in retention – where you have intimate knowledge of the
 customer – using mass segmentation sacrifices massive amounts of profitability.

 As an example, imagine we create a segment called “Medium Value” subscribers
 and attach a “Medium Value Offer” to it for retention. We then present the offer to five      THIS INDIVIDUAL
 subscribers in the segment as shown in the accompanying chart. In all cases but one,
 the “Medium Value Offer” is not aligned with the overall value of the customer. For
                                                                                               APPROACH OPTIMIZES
 two of the subscribers (#1 and #4) we spend MORE than necessary, and for another              PROFITABILITY BY
 two (#2 and #5) we are unlikely to be able to retain them. Only in one case (#3) does         MAKING EACH OFFER A
 the offer fit. In a large subscriber base, this over/under-investment costs millions
                                                                                               PERFECT FIT AGAINST
 of dollars in lost margin since we spend too much money (overinvest) for some
 subscribers, and spend too little (underinvest) for others, resulting in a lost save.         RETENTION VALUE.




                                                                       OUR “MEDIUM VALUE”
                                                                       SEGMENT OFFER




    “WOW -       “NO, THANKS”   “PERFECT”   “SEEMS LIKE A   “NO WAY”
    I’M THAT                                GREAT DEAL!”
    VALUABLE?”




                   OUR “MEDIUM VALUE” CUSTOMERS


 Leading CSPs take a radically different approach by starting the entire process with
 the value of the customer. They use real-time decisioning combined with a guided
 interaction to present a specific retention budget and the most appropriate basket of
 offers for each subscriber at the moment of truth. This individual approach optimizes
 profitability by making each offer a perfect fit against retention value. The retention
 budget should be thought of as a 1:1 business case that considers subscriber metrics
 (such as lifetime value and influencer score), and corporate and departmental metrics
 (such as corporate retention budget, quarterly net add performance and even contact
 center queue time).




DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION            WWW.PEGA.COM    SHARE THIS WHITEPAPER:
                                                                                                                     1
Starting Retention at “Hello”
     When CSPs first implemented their retention initiatives they applied them against
     subscribers that were dissatisfied and trying to leave. This strategy, exemplified in the
     elite contact center “Save Group”, is an example of reactive retention. It is a fine place
     to start, but it’s likely the most expensive retention strategy, since it requires changing
     the subscriber’s mind.

     More advanced CSPs are now realizing that it is more cost effective to make sure
     customers never get on the exit path in the first place and are implementing two new
     types of retention strategy, preemptive and proactive. Preemptive strategies are those
     applied before there are any recognizable churn signals from the customer, and proactive
     strategies are those applied when initial churn signals first appear like complaints in
     service, reduced usage or repeated technical support events. Sometimes these events
     are not evaluated directly, but combined into predictive churn models.


     LEAVING?      Not thinking about it   Thinking about it     Doing it              Did it

     RETENTION
                       Preemptive             Proactive          Reactive            WinBack
     STRATEGY


     Executing preemptive strategies requires the ability to effectively predict customer
     lifetime value since CSPs will likely want to execute more expensive preemptive
     strategies first against their highest value subscribers. The point of preemptive
     strategies again is that they are executed without considering likelihood of churn, and
     executed in the name of providing an excellent customer experience.

     Since proactive strategies are applied against early warning indicators of churn, they
     introduce a new requirement – predicting likelihood of churn. The way leading CSPs
                                                                                                             NOW, WITH PREEMPTIVE
     accomplish this is finding common behavior patterns that are reliable churn/attrition                   AND PROACTIVE
     indicators from historical data. Once this data is analyzed and patterns are discovered,                STRATEGIES, CSPS ARE
     it can be applied against current subscribers to find those that need proactive churn
     strategies applied.
                                                                                                             INTEGRATING THESE
                                                                                                             STRATEGIES AND THEIR
     To execute on preemptive and proactive strategies also creates a new requirement                        OFFERS INTO EVERY
     for the organization. The offers associated with these strategies must be presented at
     the right time. With reactive retention and win-back, the presentation of offers could
                                                                                                             CUSTOMER TOUCH POINT
     be limited to a small subset of a specific channel, such as the “Save Group” desktop.
     Now, with preemptive and proactive strategies, CSPs are integrating these strategies
     and their offers into every customer touch point, regardless of channel. A centralized
     source – a “decision hub”– provides every channel with the right offer at the right
     moment in the customer lifecycle.

     Finally, with all retention strategies, a critical factor in driving effectiveness is taking
     a customer-centric approach to determining ‘propensity to buy’ when presenting
     products and services. This propensity modeling significantly improves acceptance
     rates, and in assisted channels has the follow-on impact of driving more agent
     confidence and higher initial present rates as well.




    DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION             WWW.PEGA.COM             SHARE THIS WHITEPAPER:
2
Focus on Decisions, Not Data
 Conventional wisdom is that large data management initiatives (e.g. Master Data
 Management or “MDM”) are a prerequisite for effective retention. For some IT
 departments and system integrators, their (somewhat self-serving) position is that the
 data has to be (nearly) complete and (nearly) perfect before it can be safely used. The
 result is months of delay waiting for “data improvement” and “data quality” initiatives
 to complete before the business gets a solution.

 Leading CSPs are finding out that they can get good retention results even on
 incomplete and imperfect data. By starting with limited data values that are just good
 enough to make sensible recommendations or automate retention decisions, they get
 business results. Here are a couple of best-practices these companies use regarding
 data volume and quality:


     ``They construct a minimal set of data that supports the highest value decisions and
        then use predictive analytics and decision strategies to confirm the key data elements        THE REAL-WORLD
        that will deliver actionable results. This is usually a fraction of what’s available – out
        of a 1,000 customer data elements, only 5-25 may actually wind up in a good quality
                                                                                                      EXPERIENCE GAINED,
        predictive model and decision strategies may focus on 50-100 key fields overall.              AND THE POWER OF THE
     ``They make sure the decision strategies automatically prompt for missing data                   ANALYTIC CAPABILITIES
        elements that are used as input to the rules or predictive models embedded in                 IMPLEMENTED CAN
        that strategy.
                                                                                                      ACTUALLY SIGNIFICANTLY
     ``They set up the solution to statistically analyze data and make it either useful (after        ACCELERATE THE DELIVERY
        dealing with outliers, missing values, weird distributions, etc.) or automatically reject
        the offending data element.
                                                                                                      OF DATA QUALITY RESULTS.
     ``If after (automated) data analysis not enough data remains to create and support an
        accurate predictive model, they simply deploy a model with known lower predictive
        performance. These CSPs find that even models with low predictive capability are
        likely superior than assumptions or guesswork. They also find that using these lower
        quality predictive models as seed models for more advanced adaptive capabilities
        significantly speeds time to market without sacrificing performance.



 With this approach, CSPs are turning conventional retention strategies around, taking
 an incremental approach and using the business results of the early phases of their
 retention solution implementation to fund additional data quality initiatives. The real-
 world experience gained, and the power of the analytic capabilities implemented can
 actually significantly accelerate the delivery of data quality results.




DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION              WWW.PEGA.COM         SHARE THIS WHITEPAPER:
                                                                                                                             3
Who Owns Retention?
     Finally, leading CSPs are realizing that their existing functional organizational
     silos do not enable a holistic approach to retention. Since sales, marketing and
     service organizations are all compensated based on different customer metrics, it
     is difficult to get the entire organization thinking about retention across the entire
     customer lifecycle. So leading CSPs are changing their organizational structure,
     and empowering a senior leadership position focused on “Base Management” or
     “Customer Value Management”. The individual in this role executes across functional
     organizations, and is totally dedicated to using analytics, decisioning and CRM best-
     practices and technology to drive incremental margin per subscriber and maintain low
     levels of customer churn.




    DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION      WWW.PEGA.COM       SHARE THIS WHITEPAPER:
4
Conclusion

  CSPS NEED TO DISCOVER
  MORE EFFECTIVE WAYS
  TO RETAIN THEIR BETTER
  CUSTOMERS LONGER IN ORDER
  TO ENSURE PROFITABILITY.
  In its most basic form, the subscription business model employed by CSPs is driven by
  three major levers – acquisition cost, monthly margin and customer tenure. Over the
  next few years, competition is likely to significantly drive up the cost of acquisition, as
  CSPs spend more in marketing and subsidies to attract an ever shrinking pool of new
  customers. It is also likely that the multiple competitors in every market will continue
  to put pressure on monthly margins. As acquisition cost increases, and margin
  decreases, CSPs need to discover more effective ways to retain their better customers
  longer in order to ensure profitability.

  The above ideas represent what is likely only the beginning of the road toward much
  more sophisticated retention best practices. Technology advancements, in the form
  of core computing power able to analyze massive amounts of data; the emergence of
  social influence as a major factor in defining customer value; and the advancement of
  technology solutions that put real-time decisioning power in the hands of front-line
  employees are all contributing to rapid advancement of the state-of-the-art solutions.
  CSPs that fail to start down the path toward applying more advanced thinking to
  retention will be left behind.




DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION           WWW.PEGA.COM       SHARE THIS WHITEPAPER:
                                                                                                             5
About Pegasystems

Pegasystems, the leader in business process management and software for customer centricity,
helps organizations enhance customer loyalty, generate new business, and improve productivity. Our
patented Build for Change® technology speeds the delivery of critical business solutions by directly
capturing business objectives and eliminating manual programming. Pegasystems enables clients
to quickly adapt to changing business conditions in order to outperform the competition. For more
information, please visit us at www.pega.com.




SHARE THIS WHITEPAPER:




© Copyright 2012 Pegasystems Inc. All rights reserved. All trademarks are the property of their respective owners.


                                                                                                           2012-12

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Driving Effective Customer Retention for Communications

  • 2. Introduction PEGA IS AT THE FOREFRONT OF THIS SHIFT TOWARD MAXIMIZING CUSTOMER VALUE WITH A MARKET-LEADING NEXT-BEST-ACTION MARKETING SOLUTION In a world where penetration rates for services like mobile have reached more than 100% in many countries, Communications Service Providers (CSPs) are shifting their sales and marketing investment from attracting new customers toward maximizing customer value through improved revenue and retention. Pega is at the forefront of this shift with a market-leading Next-Best-Action Marketing solution that combines sophisticated predictive and adaptive analytics, real-time decisioning and a guided user experience to help CSPs improve retention and drive incremental revenue. Today, Pega Next-Best-Action Marketing is powering initiatives for major CSPs like Vodafone, O2, Orange, Cox, Maxis, BSkyB, MTS and Time Warner Cable, helping them drive additional revenue and margin from their existing customer base. For example, at the largest telco in the UK, the solution is part of a multi-stage initiative where they are already generating an incremental 24M GBP of annual operating margin in the initial phases. As CSPs shift focus from customer acquisition to retention and margin, we have identified a few key best- practices related to retention. These best-practices are partially enabled by technology, but also enabled by CSP leadership’s ability to think “outside the box” in pursuing efforts to reduce customer churn. Follow Bob’s Customer Journey Bob is your typical customer. He can be lured by competitive offers, or retained by a service provider that anticipates his wants and needs. Bob’s journey is a multi-channel scenario that demonstrates how a service provider can engage customers and use Pega Next-Best-Action Marketing to drive very relevant, customer-centric experiences. DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER:
  • 3. Creating the 1:1 Business Case for Retention Marketing organizations are most familiar and comfortable with segmentation marketing strategies, where subscribers are broadly grouped and labeled. Once these groups are created, then packages or strategies are offered to each group. These mass segmentation strategies may work reasonably well for subscriber acquisition (they cast a wide net), but in retention – where you have intimate knowledge of the customer – using mass segmentation sacrifices massive amounts of profitability. As an example, imagine we create a segment called “Medium Value” subscribers and attach a “Medium Value Offer” to it for retention. We then present the offer to five THIS INDIVIDUAL subscribers in the segment as shown in the accompanying chart. In all cases but one, the “Medium Value Offer” is not aligned with the overall value of the customer. For APPROACH OPTIMIZES two of the subscribers (#1 and #4) we spend MORE than necessary, and for another PROFITABILITY BY two (#2 and #5) we are unlikely to be able to retain them. Only in one case (#3) does MAKING EACH OFFER A the offer fit. In a large subscriber base, this over/under-investment costs millions PERFECT FIT AGAINST of dollars in lost margin since we spend too much money (overinvest) for some subscribers, and spend too little (underinvest) for others, resulting in a lost save. RETENTION VALUE. OUR “MEDIUM VALUE” SEGMENT OFFER “WOW - “NO, THANKS” “PERFECT” “SEEMS LIKE A “NO WAY” I’M THAT GREAT DEAL!” VALUABLE?” OUR “MEDIUM VALUE” CUSTOMERS Leading CSPs take a radically different approach by starting the entire process with the value of the customer. They use real-time decisioning combined with a guided interaction to present a specific retention budget and the most appropriate basket of offers for each subscriber at the moment of truth. This individual approach optimizes profitability by making each offer a perfect fit against retention value. The retention budget should be thought of as a 1:1 business case that considers subscriber metrics (such as lifetime value and influencer score), and corporate and departmental metrics (such as corporate retention budget, quarterly net add performance and even contact center queue time). DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER: 1
  • 4. Starting Retention at “Hello” When CSPs first implemented their retention initiatives they applied them against subscribers that were dissatisfied and trying to leave. This strategy, exemplified in the elite contact center “Save Group”, is an example of reactive retention. It is a fine place to start, but it’s likely the most expensive retention strategy, since it requires changing the subscriber’s mind. More advanced CSPs are now realizing that it is more cost effective to make sure customers never get on the exit path in the first place and are implementing two new types of retention strategy, preemptive and proactive. Preemptive strategies are those applied before there are any recognizable churn signals from the customer, and proactive strategies are those applied when initial churn signals first appear like complaints in service, reduced usage or repeated technical support events. Sometimes these events are not evaluated directly, but combined into predictive churn models. LEAVING? Not thinking about it Thinking about it Doing it Did it RETENTION Preemptive Proactive Reactive WinBack STRATEGY Executing preemptive strategies requires the ability to effectively predict customer lifetime value since CSPs will likely want to execute more expensive preemptive strategies first against their highest value subscribers. The point of preemptive strategies again is that they are executed without considering likelihood of churn, and executed in the name of providing an excellent customer experience. Since proactive strategies are applied against early warning indicators of churn, they introduce a new requirement – predicting likelihood of churn. The way leading CSPs NOW, WITH PREEMPTIVE accomplish this is finding common behavior patterns that are reliable churn/attrition AND PROACTIVE indicators from historical data. Once this data is analyzed and patterns are discovered, STRATEGIES, CSPS ARE it can be applied against current subscribers to find those that need proactive churn strategies applied. INTEGRATING THESE STRATEGIES AND THEIR To execute on preemptive and proactive strategies also creates a new requirement OFFERS INTO EVERY for the organization. The offers associated with these strategies must be presented at the right time. With reactive retention and win-back, the presentation of offers could CUSTOMER TOUCH POINT be limited to a small subset of a specific channel, such as the “Save Group” desktop. Now, with preemptive and proactive strategies, CSPs are integrating these strategies and their offers into every customer touch point, regardless of channel. A centralized source – a “decision hub”– provides every channel with the right offer at the right moment in the customer lifecycle. Finally, with all retention strategies, a critical factor in driving effectiveness is taking a customer-centric approach to determining ‘propensity to buy’ when presenting products and services. This propensity modeling significantly improves acceptance rates, and in assisted channels has the follow-on impact of driving more agent confidence and higher initial present rates as well. DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER: 2
  • 5. Focus on Decisions, Not Data Conventional wisdom is that large data management initiatives (e.g. Master Data Management or “MDM”) are a prerequisite for effective retention. For some IT departments and system integrators, their (somewhat self-serving) position is that the data has to be (nearly) complete and (nearly) perfect before it can be safely used. The result is months of delay waiting for “data improvement” and “data quality” initiatives to complete before the business gets a solution. Leading CSPs are finding out that they can get good retention results even on incomplete and imperfect data. By starting with limited data values that are just good enough to make sensible recommendations or automate retention decisions, they get business results. Here are a couple of best-practices these companies use regarding data volume and quality: ``They construct a minimal set of data that supports the highest value decisions and then use predictive analytics and decision strategies to confirm the key data elements THE REAL-WORLD that will deliver actionable results. This is usually a fraction of what’s available – out of a 1,000 customer data elements, only 5-25 may actually wind up in a good quality EXPERIENCE GAINED, predictive model and decision strategies may focus on 50-100 key fields overall. AND THE POWER OF THE ``They make sure the decision strategies automatically prompt for missing data ANALYTIC CAPABILITIES elements that are used as input to the rules or predictive models embedded in IMPLEMENTED CAN that strategy. ACTUALLY SIGNIFICANTLY ``They set up the solution to statistically analyze data and make it either useful (after ACCELERATE THE DELIVERY dealing with outliers, missing values, weird distributions, etc.) or automatically reject the offending data element. OF DATA QUALITY RESULTS. ``If after (automated) data analysis not enough data remains to create and support an accurate predictive model, they simply deploy a model with known lower predictive performance. These CSPs find that even models with low predictive capability are likely superior than assumptions or guesswork. They also find that using these lower quality predictive models as seed models for more advanced adaptive capabilities significantly speeds time to market without sacrificing performance. With this approach, CSPs are turning conventional retention strategies around, taking an incremental approach and using the business results of the early phases of their retention solution implementation to fund additional data quality initiatives. The real- world experience gained, and the power of the analytic capabilities implemented can actually significantly accelerate the delivery of data quality results. DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER: 3
  • 6. Who Owns Retention? Finally, leading CSPs are realizing that their existing functional organizational silos do not enable a holistic approach to retention. Since sales, marketing and service organizations are all compensated based on different customer metrics, it is difficult to get the entire organization thinking about retention across the entire customer lifecycle. So leading CSPs are changing their organizational structure, and empowering a senior leadership position focused on “Base Management” or “Customer Value Management”. The individual in this role executes across functional organizations, and is totally dedicated to using analytics, decisioning and CRM best- practices and technology to drive incremental margin per subscriber and maintain low levels of customer churn. DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER: 4
  • 7. Conclusion CSPS NEED TO DISCOVER MORE EFFECTIVE WAYS TO RETAIN THEIR BETTER CUSTOMERS LONGER IN ORDER TO ENSURE PROFITABILITY. In its most basic form, the subscription business model employed by CSPs is driven by three major levers – acquisition cost, monthly margin and customer tenure. Over the next few years, competition is likely to significantly drive up the cost of acquisition, as CSPs spend more in marketing and subsidies to attract an ever shrinking pool of new customers. It is also likely that the multiple competitors in every market will continue to put pressure on monthly margins. As acquisition cost increases, and margin decreases, CSPs need to discover more effective ways to retain their better customers longer in order to ensure profitability. The above ideas represent what is likely only the beginning of the road toward much more sophisticated retention best practices. Technology advancements, in the form of core computing power able to analyze massive amounts of data; the emergence of social influence as a major factor in defining customer value; and the advancement of technology solutions that put real-time decisioning power in the hands of front-line employees are all contributing to rapid advancement of the state-of-the-art solutions. CSPs that fail to start down the path toward applying more advanced thinking to retention will be left behind. DRIVING EFFECTIVE CUSTOMER RETENTION FOR COMMUNICATION WWW.PEGA.COM SHARE THIS WHITEPAPER: 5
  • 8. About Pegasystems Pegasystems, the leader in business process management and software for customer centricity, helps organizations enhance customer loyalty, generate new business, and improve productivity. Our patented Build for Change® technology speeds the delivery of critical business solutions by directly capturing business objectives and eliminating manual programming. Pegasystems enables clients to quickly adapt to changing business conditions in order to outperform the competition. For more information, please visit us at www.pega.com. SHARE THIS WHITEPAPER: © Copyright 2012 Pegasystems Inc. All rights reserved. All trademarks are the property of their respective owners. 2012-12