CHURN MANAGEMENT IN SRI LANKAN RETAIL MOBILE MARKET A.A.R. E. Adikari A Dissertation submitted in partial fulfillment of the requirements for the degree of Master of Business Administration in Information Technology Department of Computer Science & Engineering University of Moratuwa Srilanka December 2007 92261 Abstract Chum is a measure of the number of subscribers who leave or switch to another carrier’s service. Chum is two fold comprising voluntary chum and involuntary chum .The frequent migration of customers is in a way a threat to mobile operators as the expense on customer acquisition is greater than retention. On the other hind, for any operator it is difficult to maintain a steady growth in the market without maintaining the existing customer Due to profound competition, controlling chum rate is becoming a challenge to Mobile Operators and identifying reasons for Chum is an even greater challenge as it is highly dependent on the values, culture, attitudes and perception of the different segment. The main causes for retention or chum from one network in Sri Lankan conical (for different segments) arc identified by a questionnaire evaluated across various demographic factors (Age, Education level. Monthly income Gender). The questionnaire was distributed among 400 mobile subscribers and received 105responses which were used in the analysis set out in the chapters to follow. Strategies that can be used to minimize chum rate is identified based on the feed hack received in the questionnaire and by looking at best practices available in the region. Finally. Researcher developed a model lo prioritize the influencing factors (Tariff. Coverage, Brand, VAS, QOS) for overall customer satisfaction of Sri Lankan Mobile customers and checked whether there is any relationship with demographic factors and influencing factors for chum. In addition to that, researcher has suggested strategies that should be adopted by Sri 1-ankan mobile operators to minimize chum CHURN MANAGEMENT IN SRI LANKAN RETAIL MOBILE MARKET MASTER OF BUSINESS ADMINISTRATION IN INFORMATION TECHNOLOGY A.A.R.E.Adikari Department of Computer Science & Engineering University of Moratuwa December 2007 2 CHURN MANAGEMENT IN SRI LANKAN RETAIL MOBILE MARKET By A.A.R.E.Adikari The Dissertation was submitted to the Department of Computer Science & Engineering of the University of Moratuwa in partial fulfillment of the requirement for the Degree of Master of Business Administration. Department of Computer Science & Engineering University of Moratuwa December 2007 i Acknowledgement This research dissertation was completed with the assistance, ideas, guidance and encouragement from a lot of people. First, I wish to express my gratitude to my supervisors Mr. Kithsiri Samarasinghe, Senior Lecturer and Head of Department of Electronic and Telecommunication Engineering, University of Moratuwa and Mr. Shanaka Rabel Senior Manager, Dialog Telekom PLC for the encouragement, guidance and support extended throughout the research project.. I wish to thank Mrs. Vishaka Nanayakkara, Senior Lecturer and Head of Department of Computer Science and Engineering, University of Moratuwa, and Dr.Kennedy Dunawardena, Senior Lecturer University of Jayewardenepura for teaching us the subject “Skills for Research Project” in a very practical and methodical way. Apart from that, I give my special gratitude to personals who helps me to gather information for the literature review. I am greatly indebted to my wife and parents for their endless patience and for encouragement given throughout my study. I would like to thank all those who kindly responded to the questionnaires relating to this research. ii Declaration “I certify that this thesis does not incorporate without acknowledgement any material previously submitted for a degree or diploma in any university to the best of my knowledge and belief and it does not contain any material previously published, written or orally communicated by another person or myself except where due reference is made in the text. I also hereby give consent for my dissertation, if accepted, to be made available for photocopying and for interlibrary loans, and for the title and summary to be made available to outside organizations” …………………………… ………………………….. Signature of the Candidate Date The above particulars are correct to the best of my knowledge ……………………………… ……………………………… Supervisor Internal co – supervisor Mr. Shanaka Rabel Mr. Kithsiri Samarasinghe iii Abstract Churn is a measure of the number of subscribers who leave or switch to another carrier's service. Churn is two fold comprising voluntary churn and involuntary churn. The frequent migration of customers is in a way a threat to mobile operators as the expense on customer acquisition is greater than retention. On the other hand, for any operator it is difficult to maintain a steady growth in the market without maintaining the existing customer Due to profound competition, controlling churn rate is becoming a challenge to Mobile Operators and identifying reasons for Churn is an even greater challenge as it is highly dependent on the values, culture, attitudes and perception of the different segments. The main causes for retention or churn from one network in Sri Lankan context (for different segments) are identified by a questionnaire evaluated across various demographic factors (Age, Education level, Monthly Income, Gender). The questionnaire was distributed among 400 mobile subscribers and received 305 responses which were used in the analysis set out in the chapters to follow. Strategies that can be used to minimize churn rate is identified based on the feed back received in the questionnaire and by looking at best practices available in the region. Finally, Researcher developed a model to prioritize the influencing factors (Tariff, Coverage, Brand, VAS, QOS) for overall customer satisfaction of Sri Lankan Mobile customers and checked whether there is any relationship with demographic factors and influencing factors for churn. In addition to that, researcher has suggested strategies that should be adopted by Sri Lankan mobile operators to minimize churn. Keywords: Churn, Mobile Communication iv Table of Contents Acknowledgement ..................................................................................................... i Declaration ............................................................................................................... ii Abstract ................................................................................................................... iii Table of Contents .................................................................................................... iv List of Tables........................................................................................................... vi List of Figures ........................................................................................................ vii Abbreviations ........................................................................................................ viii Chapter 1: Introduction ...........................................................................................1 1.1 Sri Lankan Mobile Industry...............................................................................1 1.2 Definition of Churn ...........................................................................................4 1.3 Problem Statement ............................................................................................5 1.4 Research Objectives ..........................................................................................5 Chapter 2: Literature Review ..................................................................................6 2.1 Introduction ......................................................................................................6 2.1.1 Definition of Churn ....................................................................................6 2.2 Identification of Causes for Churn .....................................................................7 2.2.1 Voluntary Churn ........................................................................................7 2.2.2. Methods to Control Involuntary Churn ......................................................9 2.3. How to Manage Churn ................................................................................... 10 2.4 Customer Profiling for Churn Management ..................................................... 11 2.5 Overview of Sri Lankan Mobile operator ........................................................ 12 2.5.1 Dialog ...................................................................................................... 12 2.5.2 Hutch ....................................................................................................... 14 2.5.3 Mobitel .................................................................................................... 15 2.5.4. Tigo ........................................................................................................ 16 2.5.5 Strategies used to minimize the Churn by Sri Lankan mobile Operator ..... 17 2.6 Asian Mobile Industry..................................................................................... 20 2.6.1 Strategies used to minimize the effect of Churn by regional mobile operator ......................................................................................................................... 22 Chapter 3: Methodology ......................................................................................... 25 3.1. Research Design ............................................................................................ 25 3.2 Sample Selection ............................................................................................. 26 3.3 Hypothesis ...................................................................................................... 27 v 3.4 Conceptual Model ........................................................................................... 27 3.5. Questionnaire Design ..................................................................................... 28 Chapter 4: Survey Results ...................................................................................... 33 4.1 Introduction .................................................................................................... 33 4.1.1 Distribution of sample .............................................................................. 34 4.1.2. Reliability Analysis ................................................................................. 37 4.2 Primary Analysis............................................................................................. 38 4.2.1 Primary analysis ....................................................................................... 39 4.3 Secondary Results ........................................................................................... 47 4.3.1 Correlation Analysis Summary ................................................................. 47 4.3.2 Model building ......................................................................................... 49 4.3 Discussion of Findings .................................................................................... 51 4.3.1 Possibility of Retaining the Customers without Churning ......................... 51 4.3.2 Methods to Minimize Churn based on Customer Feed Back ..................... 52 4.3.3 VAS against Churn................................................................................... 55 4.3.4. Loyalty Programs to Combat the Churn ................................................... 56 4.3.5 How to Reduce Involuntary Churn ........................................................... 58 4.4 Hypothesis Testing .......................................................................................... 59 4.4.1. Tariff Rates and coverage effects for churn from a network than QOS and Technology of the operator in Sri Lankan Context. ........................................... 59 4.4.2. Influencing factors for churn are same for various subscriber segments ... 61 Chapter 5: Conclusions and Recommendation ..................................................... 66 5.1 Conclusion and recommendation..................................................................... 66 5.2 Limitations of the Study .................................................................................. 68 References ............................................................................................................... 68 Annexure ................................................................................................................. 71 Questionnaire - English ......................................................................................... 71 Questionnaire – Sinhala ........................................................................................ 78 vi List of Tables Table 1.1 : Statistics of the Telecommunication Sector as end of 1st Quarter 2007 ......1 Table 2.1: Strategies used by Sri Lankan mobile operators to minimize churn .......... 19 Table 2.2: Mobile Subscriber Growth in Asian Region ............................................. 20 Table 2.3: ABC-related Value-added Services by Indian Mobile Operators .............. 23 Table 3.1 : Calculation of sample size ....................................................................... 26 Table 3.2 : Definition of Concepts and Variables ...................................................... 28 Table 3.3 : Operationalization Of Concepts ............................................................... 31 Table 4.1 : Response Rate of Survey ......................................................................... 33 Table 4.2 : Assigned numerical Values for demographic factors ............................... 33 Table 4.3: Frequency Table for Age .......................................................................... 34 Table 4.4: Frequency Table for Highest Education Level .......................................... 34 Table 4.5: Frequency Table for Job Category ............................................................ 34 Table 4.6: Frequency Table for Gender ..................................................................... 35 Table 4.7: Frequency Table for Monthly Income ...................................................... 35 Table 4.8 : Assigned numerical values for demographic factors after regrouping ...... 35 Table 4.9: Statistic after regrouping .......................................................................... 36 Table 4.10 : Reliability Statistic ................................................................................ 37 Table 4.11: Mean, Median, Mode and Standard Deviation of Responses................... 39 Table 4.12: Results of Correlation analysis ............................................................... 48 Table 4.13: Output value for Binary Logistic regression model ................................. 49 Table 4.14: Output of binary Logistic regression....................................................... 50 Table 4.15: Hypothesis Test results of Influencing factors for churn ......................... 65 vii List of Figures Figure 1.1: Distribution of Market Share – 2007 Q1 ...................................................1 Figure 1.2: Post Paid and Pre Paid Distribution in Sri Lankan Mobile Market .............2 Figure 1.3: Growth in Mobile market in Sri Lanka ......................................................3 Figure 1.4: Monthly Churn Rate Levels –Post paid in Asia Pacific .............................4 Figure 1.5: Possible causes of Churn ...........................................................................4 Figure 2.1: Causes of voluntary churn .........................................................................7 Figure 2.2: Process for customer Segmentation ......................................................... 11 Figure 2.3: Annual Growth in Subscriber Base ......................................................... 13 Figure 2.4: Annual Churn Rate and ARPU................................................................ 13 Figure 2.5: Annual Growth Rate ............................................................................... 14 Figure 2.6: Annual Churn Rate and ARPU................................................................ 15 Figure 2.7: Annual Growth ....................................................................................... 16 Figure 2.8: Subscriber Growth in the region .............................................................. 21 Figure 2.9: Regional Churn Comparison ................................................................... 21 Figure 3.1: Conceptual Model - Voluntary Churn ..................................................... 27 Figure 3.2: Conceptual Model - Involuntary Churn ................................................... 27 Figure 3.3: Model used in preparing the questionnaire .............................................. 32 Figure 4.1 : Age wise break down of Prepaid and Post paid customers ...................... 39 Figure 4.2: Package type break down Vs type of work .............................................. 40 Figure 4.3: Average Monthly Usage – Prepaid .......................................................... 40 Figure 4.4: Average Monthly Usage – Post paid ....................................................... 40 Figure 4.5: Breakdown of Satisfaction of current tariff with average usage ............... 41 Figure 4.6: Satisfaction When incoming is free ....................................................... 41 Figure 4.7: Satisfaction When incoming is free ......................................................... 42 Figure 4.8: Status of incoming free with the network stay ......................................... 42 Figure 4.9: Level of consideration about Brand name ............................................... 43 Figure 4.10: Recommendation present connection to a third party Vs Level of consideration about the brand name .......................................................................... 43 Figure 4.11: Level of importance for day to day activities ......................................... 44 Figure 4.12: Level of importance of mobile number.................................................. 44 Figure 4.13: Level of importance of mobile number if they used the connection for a business .................................................................................................................... 45 Figure 4.14: Ability to retain in the network.............................................................. 51 viii Figure 4.15: Reasons for churn ................................................................................. 51 Figure 4.16: Incoming free status of Long stay customers ......................................... 52 Figure 4.17: Level of satisfaction regarding information provided for services .......... 53 Figure 4.18: Level of satisfaction regarding complaint made .................................... 54 Figure 4.19: VAS usage ............................................................................................ 55 Figure 4.20: Reasons for low VAS Usage ................................................................. 55 Figure 4.21: Consideration about the Loyalty schemes.............................................. 57 Figure 4.22: Reason for not to select about the VAS Services ................................... 57 Figure 4.23: Disconnections happened due to credit limit exceed .............................. 58 Figure 4.24: Matrix Plot of Coverage, tariff, QOS and VAS ..................................... 60 Figure 4.25: Level of impact of influence factors for Churn – Tariff Vs VAS ........... 60 Figure 4.26: Level of impact of influence factors for Churn – Coverage Vs VAS...... 60 Abbreviations AMPS - Advanced Mobile Phone Service ARPU - Average Revenue per User DAPMS - Digital Advanced Mobile Phone Service EDGE - Enhanced Data Rates for GSM Evolution ETACS - Extended Total Access Communication GPRS - General Packet Radio Service GSM - Global System for Mobile Communications MMS - Multimedia Message Service MNP - Mobile Number portability PRBT - Personalized Ring Back Tone QOS - Quality of Service SIM - Subscriber Identity Module 3G - Third Generations in mobile communication