CASE ANALYSIS
<I>In our issue dated October 24th, cat.a.lyst carried a case on Loop Mobile focusing on customer retention when the business is up for sale. Mark Vandenbosch, associate dean, programs and the Kraft Professor in Marketing at the Ivey Business School does an analysis of the situation on the ground<I>
In the case of Loop Mobile, there are several issues that are going on here. From Loop Mobile’s viewpoint, it’s about what is the best way to get out of business. When I say the best way, it means the best way it will be more profitable and the simplest. You can also look at it from Airtel’s perspective in terms of what can be the best way to grow its customer base in areas where it is not strong – larger operators like Airtel have a predominant mix of prepaid mobile customers while Loop Mobile has a significantly higher share of post-paid or billing customers in its base. So for Airtel, attracting those customers will be valuable. You could even analyse it as what is the best strategy for Vodafone, as a rival player who can pocket a larger chunk of Loop Mobile’s subscriber base.
One of the things that come up in a marketing context often is, “Who owns the customer?” The reality is that if there are several players who have a say in the chain, they will all think they own the customer. For example, the brand owner thinks he owns the customer as they buy his brand. But the retailer also thinks he owns the customer as they shop at his store. The reality though is that in a low-switching cost environment, the ownership is not as important as, “how sticky are my customers”. In this case, if a significant part of those leaving the Loop network are going to Vodafone, this should have already been factored in by both Loop and Airtel in their negotiations. In a fair situation, no one would have expected 100 per cent of Loop’s subscriber base to migrate to Airtel.
The first thing to check during negotiations would have been how many of them are under contract. First of all, do not expect to retain them all. Second, one of the things will be to give them a strong enough reason to renew their contract with Airtel. From Airtel’s point of view, my expectation would be to give huge discounts to them to renew their contracts. Another way would be to have direct communication with customers and this will give you a good indication on how many customers will leave you. The reality is you will lose a bunch and you could look at what incentives to give them to retain them. The third is you could look at demonstrating your capability through various platforms to assure them that they are getting into good hands.
In Canada, in a similar situation a financial services company has offered a loyalty programme to customers who shift and they will be able to get the entire benefits if they stay longer in the programme. One of the leading credit card companies in Canada used to have an airlines loyalty scheme for those who used their credit card. But when its business was acquired by another player it was a question of whether customers had bought the credit card for the bank that was offering it, or for the airline loyalty scheme. In the end, 75 per cent of the customers stayed with the offer as the incumbent continued the airline loyalty programme. But it was an expensive acquisition. And in the interim, everybody in the industry was offering discounts.
In Canada, most telecom companies can do only a two year contract. In India, the story on Loop Mobile is not over yet. My guess is that most customers will stay with Airtel as in customer inertia is a big factor. We as consumers will continue doing things the same way, unless change is forced upon them – like in the situation of Loop Mobile. The thing with inertia is that a body that is in rest stays in rest and a body in motion stays in motion.
Finally, the biggest risk of change is after you have made the change. Maybe Airtel is keeping things quiet because they do not want people to recognise this change. Once customers start thinking of change then newer options start coming up and that’s when consumers are more likely to be less loyal.
(This is in reaction to a case study titled Caught in the Loop, published in these columns on October 24, as told to Prasad Sangameshwaran)
The author is Kraft professor in Marketing, Ivey Business School