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CUSTOMER RETENTION RESEARCH STUDY LIZA ERCHOVA | AMBER COLLINS | JEREMEY SPRECHT | JACOB TRUDELL | ELISE VELEY

MKTG 363 | 2011 WINTER | JILL MOSTELLER


CUSTOMER RETENTION RESEARCH STUDY LIZA ERCHOVA | AMBER COLLINS | JEREMEY SPRECHT | JACOB TRUDELL | ELISE VELEY

MKTG 363 | 2011 WINTER | JILL MOSTELLER


what’s inside:

INTRODUCTION SECONDARY RESEARCH

04

CURRENT OFFERING AND MARKET POSITION COMPONENTS OF SERVICE

05

CALL QUALITY AND NETWORK COVERAGE PRICE AND SELECTION OF SERVICE PLANS CUSTOMER SERVICE

06

PRICE AND VARIETY OF DEVICES VALUE ADDED SERVICES

07

RESEARCH ON RETENTION

PRIMARY DATA ANALYSIS

08

DEMOGRAPHICS DIFFERENTIATION OF SERVICES SERVICE FEATURE IMPORTANCE

09

SERVICE FEATURE PERFORMANCE

10

OVERALL SATISFACTION AND INTENT TO SWITCH

11

KEY INSIGHTS

12

UNDROPPABLES SPEED FREAKS APP ADDICTS

RECOMMENDATIONS 13 CONSUMER EXPERIENCE / CONVENIENCE COST COMMUNICATION

SOURCES 14

at&t Wireless Retention Survey | 3


INTRODUCTION This study aims to determine the usage and disposition behaviors of mobile phone users, specifically those currently paying for AT&T service. Our task was to gather consumer preferences first-hand to discover what is most important to mobile users, and through research we hoped to gain insight into the satisfaction requirements of wireless consumers and their behavior patterns. The main goal of this study is to better understand AT&T’s mobile phone customer in order to determine how to best prevent them from discontinuing their service in favor of another operator. AT&T not only provides wireless voice calling nationwide, but their network supports wireless broadband and data transfer, allowing their customers to send and receive multimedia messages, browse the internet, and stream media to their devices. There is a multi-tiered pricing structure to go along with these offerings, allowing the customer to find the right fit for their pocketbook. At the time of this study, AT&T had 35 new wireless phones offered (54 including refurbished phones), and their phones can be divided into categories including: flip, pda/smartphones, bar phones, and sliders. Their equipment product offering comprises 77 total devices including new and refurbished phones, laptop internet access devices and tablets such as the Apple iPad. As of Q4 2010, AT&T had over 95.5 million wireless customers, making it the largest provider of mobile telephony service in the United States. (1) This put them slightly ahead of Verizon Wireless’ 2010 Q4 reported 94.1 million total customers, moving AT&T out of the number two position it’s occupied for several years. (2) Verizon is a very strong competitor for AT&T and it may be necessary to assess the state of satisfaction of Verizon’s customers in order to determine how to position AT&T against their service offering. However, the main causes of a customer’s desire to leave AT&T must come from their dissatisfaction from their current relationship with AT&T, and if we can address those negative perceptions, we can prevent customers from looking elsewhere. To gain insight into what is important for a wireless service customer, we conducted secondary and primary research. The secondary research that contributed to this study includes psychological and sociological studies of consumer behavior. Some of our sources address consumer behavior in general, others examine how consumers relate to technology, and the other sources examine AT&T, the company’s offerings and messaging, and consumer opinions regarding the company. Our primary research was supplied by a survey that was largely disseminated through and responded to via Facebook. This survey addressed the factors that are important to mobile phone consumers and what factors are cause for their dissatisfaction. We set out to discover some key insights into the mobile phone consumer and specifically the AT&T customer as a unique subset of this population. We have applied our survey findings to the knowledge gained in our secondary research in order to make recommendations on actions that AT&T can take to curtail customer dissatisfaction and service termination.

SECONDARY RESEARCH CURRENT OFFERING AND MARKET POSITION Despite AT&T being the largest carrier in the US by customer volume, which is definitely good news, the company’s consumer satisfaction outlook is far from rosy. AT&T’s customer satisfaction rating tumbled in 2010, ranking dead last among U.S. wireless carriers, according to a Consumer Reports survey. An article on CNNMoney.com reporting on the survey said that AT&T received the worst possible rating in eight of the nine categories Consumer Reports studied, including overall value, voice service, data service, phone support, staff knowledge, and resolution of issues, among others. Readers gave AT&T an overall score of just 60 out of 100, which is six points below its score a year ago and nine points below its nearest-ranked competitor, T-Mobile. The report noted that AT&T “is now the worst carrier,” and is the only wireless network with scores that dropped “significantly” over last year. (Goldman)

4 | at&t Wireless Retention Survey

However, not everyone had a negative point of view for AT&T. Independent tests from Global Wireless Solutions have concluded that AT&T’s mobile broadband network is 20% faster than its nearest competitor and 60% faster than archrival Verizon Wireless. And, up until the compiling of this report, AT&T had the most diverse smartphone selection of all US wireless carriers. An article on ZDNet reported on Verizon finally gaining a phone running Windows 7, but finished up with good words for AT&T. With iOS (the iPhone), Android, webOS, Windows Phone 7, and Blackberry’s OS, the article notes that “AT&T is the real king of selection with truly all of the smartphone operating systems represented”. (Miller) However, AT&T and the other top mobile competitors should be careful, reports an Engadget journalist, because growing smartphone usage, heavy texting and more indoor calls are collectively causing call quality to stagnate, and [J.D.Power] warns that “increased adoption of smartphones and wireless tablets may continue to compromise the quality of network service.” (Savov)


COMPONENTS OF SERVICE Mobile phones have an unprecedented—even inextricable—presence in the lives of today’s American consumer. The increased role that mobile devices play in people’s lives have led to more variety of phones and service options than ever before. The increased number of choices presented to consumers makes it difficult for them to know if they really are getting the best bang for their buck. Yet, the mobile phone industry is a business just like any other, and customer satisfaction is a primary goal. Every element of service that a wireless carrier provides presents a new opportunity to either deliver pleasure or displeasure to the clientele. Maintaining a positive consumer opinion of all the various service facets will ensure a positive, enduring relationship with the consumer. We have determined through our secondary research that the major aspects of wireless service that influences customers’ opinions are: network quality, customer service, price and selection of plans, price and selection of devices, and value added services like messaging and apps, All of these aspects must be addressed to ensure customer satisfaction, and in order for wireless service companies to be profitable, they must retain current customers while continuing to attract new and potential customers.

CALL QUALITY AND NETWORK COVERAGE A study titled “An empirical investigation of customer preferences in mobile services,” found that superior network connectivity is important for cellular mobile service providers in order to retain their customers and achieve a competitive advantage in the market place. (Tripathi) Making a phone call to another person is seen as an important personal activity for many people, which results in an affective involvement with their service. If the call drops, people can feel frustrated and angry in response, despite the fact the technology behind encoding, transmitting, receiving and decoding that call is enormously complex. A phone call to another individual is seen as a simple activity, but one that carries a great emotional involvement for many people. A report entitled “Preliminary Observations about Consumer Satisfaction and Problems with Wireless Phone Service” revealed that call quality issues can come in a few varieties, all of which can be frustrating for the customer. According to the report, “consumers experience dropped or

blocked calls as well as noise on calls that makes hearing calls difficult. Consumers experience poor coverage, which in rural areas may be the result of lack of infrastructure and in urban areas stems from lack of capacity to manage the volume of calls at peak times.” (Goldstein) According to Mintel’s US Mobile Phone Services report from August 2010, network coverage is the most important factor in choosing a provider for all demographic groups, but higher household income consumers are especially interested in good coverage. 49% of adults with a mobile subscription and internet access said that “good network coverage” was one of the three most important reasons for how they picked their current cell provider, with 24% attributing “quality of voice reception” to their decision. Price and quality of voice service are much more important for most consumers than data price or quality, however, the price of texting and data plans is an especially important factor for under-35s. (Mintel 2010) To enhance their coverage and quality, mobile operators need to invest vast amounts of money into upgrading their infrastructure in order to handle higher call volumes and increase reception. Sometimes this upgrade cost is too great and is tabled for not providing enough benefit. Yet, being that service quality is an important decision-making criterion for service consumers, efforts to improve quality will be beneficial. (Blery) Carriers have to be careful that they balance the need to improve their network infrastructure with keeping service costs reasonable for subscribers.

PRICE AND SELECTION OF SERVICE PLANS According to the study “Potential moderators of the link between rate plan suitability and customer tenure”, wireless rate plans are often perceived as confusing and difficult to compare. Prior research has demonstrated that many customers are overpaying for their wireless services because they have selected the wrong rate plans. As a result, rate plan optimization, the act of matching these customers to use optimal rate plans, has been suggested as a viable customer retention strategy. (Wong) Another study claims that as price is an important factor influencing customers’ usage levels and repurchase intention, especially in the telecommunication sector, mobile operators should pay special attention to keeping prices down in order to increase usage. (Blery)

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CUSTOMER SERVICE It appears that most of the major carriers have paid close attention to this data, as can be seen in the reduction of pricing for voice plans. Carriers rejected the “one size fits all” data and messaging plans in favor of a more “a la carte” system, that gives consumers greater choice and better fit overall. While voice was of course the main application for cell phone services for many years, a combination of price declines and a new focus on texting and data have led to recent sales declines. Prices have continued to decline for voice services even as demand slows due to increasing usage of texting and other data services for communication. Both Verizon and AT&T lowered the price of their unlimited voice plans by approximately 30% in 2010 to $69.99 a month. (Mintel 2010) AT&T’s income from grew by 9% to $14 billion as its average revenue per user (ARPU)--the amount subscribers typically spend in a month—rose year-on-year for the fifth consecutive quarter, hitting almost $62. That reflects the firm’s keen marketing of mobile data services such as messaging and web surfing: AT&T handled over 143 billion text messages in the first three months of (2010), 50% more than in the same period last year. (Economist) Rapid growth in rates of smartphone ownership are expected to lead to substantial increases in data plan subscriptions in the next three to five years, as mainstream consumers shift their phone usage toward text and data. (Mintel 2010). Allowing consumers more control over their finances doesn’t stop with a reduction in price for services. For example, as a reward for continued loyalty, AT&T recently gave all its subscribers a bonus 1,000 roll-over minutes to be used anytime they exceed their set plan “bucket” amount. However, according to research, wireless services may need to use caution in using such schemes. Paying customers to be advocates may erode on their loyalty to the service. The findings on cognitive dissonance demonstrate that providing external rewards to individuals for doing something they already believe in is counter-productive. This means that providing financial incentives to customers to act as advocates may not enhance customers’ advocacy and may even hamper it. (Bendapudi)

6 | at&t Wireless Retention Survey

Research gathered for this study shows that customers feel mobile operators do not have their best interests at heart, and that employees do not pay individual attention to them and do not respond immediately to their requests. (Blery) Customers intrinsically desire personal relationships, and don’t want to be treated like a number or a “profit center”. Customer service is an ongoing process that begins with the initial sale and continues to the potential termination of service. Customer service plays an especially important role when the service fails to live up to customer expectations, yet the customer is not dissatisfied enough to leave. Multiple steps need to be taken throughout the relationship to ensure the customer feels like they are of value and that their needs are important to the company. The four major carriers, Verizon Wireless, AT&T, Sprint Nextel, and T-Mobile, reported taking actions such as prorating their early termination fees, offering service options without contracts, and providing Web-based tools consumers can use to research a carrier’s coverage area, among other efforts (Goldstein) Older customers may need more help in the initial stages of setting up service, but after that, due to their experience in choosing satisfactory products and services over the course of their lifetimes, they tend to need less help later on. Younger customers, however, are more fickle, are more prone to making poorly-informed decisions, and are easily attracted to new product offerings. For these reasons, research shows that older customers are observed to stay longer with the wireless carrier than younger ones. A managerial implication is that marketers should focus on up-selling their products and services to older customers, while spending more of their retention efforts on the younger customers. (Wong)

PRICE AND VARIETY OF DEVICES Cell phones are important to many people because they are an extension of their identity, personality, and status and communicate to the world, even when they aren’t being used for actual communication. Research shows that the mobile phone is the extension of the person’s physical self. People can build and show their identity and character by using the mobile phone in a personalized way. (Tian) An article from Macworld.com makes a great point: One of the reasons that all kinds of people -- from teens to bankers, and from celebrities to construction workers, and in all countries, rich and poor -- value cell phones is that they make a massive contribution to every level of Maslow’s hierarchy. Cell phones enhance: “Love/Belonging”—friendship, family, sexual intimacy, “Esteem”—self-esteem, confidence, achievement, respect of others, respect by others, and at the highest level, “Self actualization”—morality, creativity, spontaneity, problem solving. (Elgan) The ability of


RESEARCH ON RETENTION a mobile device to satisfy so many needs makes finding the right device a high-involvement decision for many people. Research shows that customers who switched their handset frequently stayed longer with the wireless carrier than those who did not switch. (Wong) This is a motivating factor for carriers to provide incentives to customers to upgrade their phones. Smartphone users are more likely to replace their cell phones regularly. This is to be expected since current smartphone users are weighed more heavily to early adopters who are enthusiastic about their technology. However, it may also have to do with the shorter life span of a smartphone, which is a more intricate device than a standard phone. (Mintel 2011)

VALUE ADDED SERVICES According to the study “Customers’ Motivations for Maintaining Relationships With Service Providers”, greater frequency of contact typically implies greater transaction costs when each encounter is handled as a discrete transaction (for example, hiring a new service provider every couple of weeks for lawn maintenance). Consequently, a relationship with a single provider is generally more desirable for a customer. Frequency of contact can thus increase customers’ dependence on the relationship partner, assuming the contacts are perceived as inter-related and as affecting one another. (Bendapudi) One of the ways that AT&T has increased frequency of contact with its customers is through apps, or applications that are available for many of its smartphone devices. Android phones have access to the Android market, iPhone users have the Apple App Store, and even more generic phones have access to AT&T’s App Store for games and other downloadables. The key here is creating multiple points of contact with the customer, thus establishing an inextricable position in their daily life. The more apps they download, the more tethered to their current provider they become, all while gaining greater productivity and leisure options to increase their experience satisfaction. According to the Economist, AT&T is moving in increasingly diverse directions to create more transactions with its consumer base than ever before. AT&T has seen encouraging progress with U-verse, its integrated television, phone and internet service that enables customers, among other things, to search the internet via their TV screens. It has drummed up new revenue by adding millions of gadgets to its network that require a wireless connection, such as tablet computers, electronic-book readers and “smart” energy meters. (Economist). By creating new ways to engage the existing mobile client base, AT&T can have a better chance of retaining customers.

One study, “How to Make Switching Costly : The Role of Marketing and Relationship Characteristics “ examined the factors that affect customer’s motivation and attitude toward switching providers. According to the study, firms can use two general oriented marketing instruments, price and advertising, to increase the cost of switching suppliers. However, the effect of advertising—both service and brand advertising—on switching costs is greater than that of price. (Polo) This suggests that making the process of switching costly for customers should be done mainly by communicating the service and the brand. Increasing pricing costs in today’s market can be seen as aggressive and negative to the carrier-consumer relationship, and with contract terms currently the norm for most subscribers, they are already aware of termination fees and the benefits of maintaining their service through their full term. The concept of termination fees or being “locked in”, is described in the article “The Positive and Negative Effects of Switching Costs on Relational Outcomes” as a calculative commitment, whereas, affective commitment reflects a psychological bond that motivates the consumer to remain in a relationship with her or his service provider because she or he genuinely wants to. The strongest relationships are those that are based on high levels of affective commitment and low levels of calculative commitment. The study recommends developing social bonds to encourage social switching costs and offering value-added benefits to encourage lost benefits switching costs. Social switching costs and lost benefits switching costs increase perceptions of affective commitment, and this commitment subsequently has a positive influence on repurchase intentions. (Jones). Further research into affecting customer “mooring” behavior, or the carrier’s ability to strengthen their attachment to the consumers’ lifestyles is outlined in the study “Migrating to New Service Providers: Toward a Unifying Framework of Consumers’ Switching Behaviors”. This study finds that a higher frequency of prior purchases with one service provider acts as a barrier to switching, service providers could erect a switching barrier by developing a history of repeat purchase through such means as sales promotions or loyalty programs. (Bansal). Carriers might be able to exert some influence over other mooring variables through means such as promotional plans that can be targeted at the customer’s family or social circle.

at&t Wireless Retention Survey | 7


PRIMARY DATA ANALYSIS

Chart 01: Service Provider Size by Percentage of Total Customers Surveyed

We gathered primary consumer research through an electronic survey constructed with the Qualtrics software. The survey contained 17 questions covering basic demographics as well as questions regarding usage and satisfaction toward participant’s mobile phones and services. The survey had a 93% completion rate with 211 complete responses out of 227 surveys initiated. No particular demographic was specifically targeted, as we required an overall AT&T consumer portrait. The initial question (Q1) “Do you currently use a mobile/cell phone?” was designed to eliminate those participants who are not consumers of mobile services, but since every participant who completed a survey answered in the affirmative we excluded no surveys. The second question asked the participants to identify their current service provider. Chart 01 shows the breakdown of customers and their service providers, and Chart 02 shows HH income. More respondents (89 total, 40%) were customers of AT&T than any other service. Verizon and T-Mobile had 28% and 18% of those surveyed, respectively. Sprint (8%) and those listing Cricket or Other as their carriers totaled 13%.

DEMOGRAPHICS A few demographic items may be important to note for the purposes of our survey: age breakdowns of all participants, and age breakdowns of the major carriers. For all participants, the youngest segment is the largest; the 18-22 age range (the age for post-secondary college students) comprise just under 40%. About a third of those surveyed are aged 23-27 and those 28-35 and 36+ each come in at about 15%.

Chart 02: HH Income for Customers of Major Mobile Providers

8 | At&t Wireless Retention Survey

As far as age breakdown by provider, we feel it is important to focus mainly on AT&T and its greatest competition: Verizon. Overall, AT&T’s customers skew younger, with 81% aged 27 or less, and a whopping 93% of those surveyed come in at 35 years or younger. By comparison, Verizon seems to have a slightly older base, with only 78% of those surveyed younger than 35 (and only 56% 27 or under); nearly 20% of those surveyed with Verizon are 45-years old or higher, with only 5% of surveyed AT&T subscribers being of that age group

DIFFERENTIATION OF SERVICES Question 4 (Q4) gave respondents the option of specifying whether their service plan was a prepaid (by-the-minute) plan, or a postpaid service plan with a monthly billing cycle. Only 7% of all those surveyed had a prepaid service plan, and barely 1% of AT&T customers and 3% of Verizon customers were using prepaid plans. According to an industry report found on the NASDAQ.com community pages, postpaid customers are more valuable as they have higher levels of usage, higher data usage and lower attrition rates, which all lead to higher levels of ARPU (average revenue per user). For this reason, all of the major US wireless carriers mostly focus on postpaid users (1a). We will focus mainly on these companies’ customers treating all of them as though they were postpaid, based on the higher profitability of postpaid consumers and the disproportionately small number (see Chart 03) of surveytakers with prepaid AT&T (or Verizon) service. (1a) Sprint’s Postpaid vs. Prepaid Customers – Who’s More Valuable? http://community.nasdaq.com/News/2010-12/sprints-postpaid-vsprepaid-customers-whos-more-valuable.aspx?storyid=50639

Chart 03: Prepaid vs Postpaid Customers


SERVICE FEATURE IMPORTANCE Any survey that will deliver key insights into consumers’ desires for their ideal service must include a question regarding the importance of factors related to the service. The service attributes that the survey examined were: •• voice calling coverage •• customer service helpfulness •• pricing plans to fit your needs •• internet connectivity speed •• variety of phones available •• applications available to use with your phone We organized the findings based upon the features that are seldomly accessed by the consumer, and those features that are regularly and consistently accessed.

In short, these feature sets are defined by what is immediately accessible through the consumer’s device during their day-today activities (“In The Hand”), and which functions are accessed only in time of need or when maintaining the account status of their service (“Once In A While”). In The Hand (ITH) factors include voice calling coverage, internet connectivity speed, and applications available to use with your phone. Once In A While (OIW) factors include finding the right price plan, calling customer service, or determining which phone to attach to service. Before we can look at how our surveyed consumers feel about their existing service feature set, it is necessary to determine what our customers feel is actually important to their usage. Question 7 (Q7) of the survey asks “Based upon your CURRENT mobile service provider, how would you rate the level of IMPORTANCE for EACH [of these attributes?]”. For OIW factors, availability of proper pricing plans ranks highest in im-

customer service

voice

pricing plans

internet

phone variety

apps

Chart 04: Feature Importance OIW

portance, with 81% of AT&T customers (and 84% of Verizon’s) claiming it was important or extremely important. Customer service is the next most important OIW factor with 51% of AT&T people saying it is “Important” or “Extremely Important”. Next, for ITH factors, the survey reveals, predictably, that for a customer of a mobile phone service, voice calling coverage is paramount, with 82% and 86%, respectively, of AT&T and Verizon respondents valuing coverage as “Important” or “Extremely important”. This falls in line with the overall average of 78% across customers of all carriers. The most glaring gaps however, are in the categories of Internet network speed and app availabilty. Internet speeds have high importance for 71% of AT&T customers compared to Verizon’s 58% and the industry average of 59%. Apps have a similar relevance gap with 50% of AT&T survey respondents assessing high importance compared to just 35% for “Big Red” and 38% for the wireless industry.

Chart 05: Feature Importance ITH

At&t Wireless Retention Survey | 9


SERVICE FEATURE PERFORMANCE Next we examined our consumers’ actual perceived performance values for the key usage attributes. Question 6 (Q6) of the survey asked “Based upon your CURRENT mobile service provider, how would you rate the PERFORMANCE for EACH of the following aspects?” For Once In A While factors (again, customer service, good pricing of service plans, and variety of phone choice), AT&T customers felt that their provider performed up to the industry average in every category except for plan pricing. AT&T tied with Verizon in negative customer perception of price performance, with both companies garnering around 16% for “Below Average” (BA) or worse, but only 19% (of an IA of 28%) felt that pricing was “Very Good” or “Excellent”. Verizon, by comparison, was at 29%. It is worth noting that while AT&T closely followed industry standards for positive, above-average customer service performance (at 63% vs 65% for all carriers), there was a significant skew to those who felt the service was below average or worse (9% for AT&T). This 9% was the lowest out of all carriers and was lower than Verizon’s 5%. In The Hand feature analysis found AT&T to be a significant loser in the voice calling coverage department. Verizon managed a 90% “Good” or better rating (70% IA), with 77% claiming “Very Good” (VG) or “Excellent” (EX) service (49% IA). AT&T was a complete dog here, with a mere 62% positive rating, and only 43% scoring a VG or higher. Where AT&T was challenged by their voice performance, they managed a reversal in the apps category, scoring a 92% positive rating, with 76% at VG or better. Verizon was merely average within the wireless app arena with positivity at 76% (77% IA) and 56% (56% IA) VG and up.

customer service

pricing plans

phone variety

Chart 06: Feature Performance OIW

voice

internet

apps

Chart 07: Feature Performance ITH

10 | At&t Wireless Retention Survey


OVERALL SATISFACTION AND INTENT TO SWITCH

Finally, of the 18 people who were deemed less than likely to remain customers of AT&T, 44% felt that AT&T did not make them feel like a valued customer; another 50% could neither agree nor disagree. 39% felt they could disagree or strongly disagree

that AT&T genuinely cared about them as a customer. This really speaks to a service perception gap that AT&T should address through better call-center and retail customer service. AT&T should also convey through advertising that they care more.

For customers whose impression of the performance of pricing plans to fit their needs was Below Average or worse, 45% were at least Undecided as to staying with AT&T or considered themselves more than Table OptionsHow long have you been with your current provider? Unlikely to leave. And 71% of this group # Answer Response % have been with the company for at least 1 Less than 6 months 0 0% 18 months. This appears to reveal a need 2 6 months to 1 year 4 21% to update pricing plans. Also, within this 3 13-18 months 1 5% group that viewed pricing plan selection as 4 18-23 months 4 21% less than average, 17% claim to never use 5 2 years or more 10 53% an app even though 88% of respondents Total 19 100% 08: in this category said their phones could Basic Chart - Overall SATIS. by Provider (Jake Trudell) Chart Length of service use apps. This implies a usage gap that could be addressed to get customers more Who is your current service provider? (if other please type in name of How satisfied are involved with their service, thus creating provider) you with your current provider? more “mooring” effects. Cricket Wireless T-Mobile Sprint Verizon AT&T Other When asked “How likely are you to stay Very Dissatisfied 0% 3% 0% 2% 0% 0% with your current provider over the next Dissatisfied 0% 5% 0% 0% 2% 0% year” (Q21), 1 out of 91 (17%) of AT&T cusSomewhat 40% 3% 11% 5% 10% 0% Dissatisfied tomers were either “Undecided” or at least Please indicate your overall level of satisfaction with your mobile phone service provider. Neutral 20% 18% 17% 16% 6% 33% “Somewhat Unlikely” or poorer. This is consistent with industry reports of churn numSomewhat Satisfied 20% 16% 28% 18% 27% 33% bers in the range of 20% for AT&T in 2011. Satisfied 20% 47% 28% 48% 42% 17% Of our surveyed group, 78% are within one Very Satisfied 0% 8% 17% 11% 13% 17% year of their two-year agreement expiring. Total 100% 100% 100% 100% 100% 100% That leaves 13% of surveyed AT&T customChart 09: TAY by Provider (Jake Trudell) Satisfaction by Provider ers who could potentially leave during the Add Stub 2011 calendar year due to the expiration of How likely are you Who is your current service provider? (if other please type in name of their contract. Of the 16.5%, 73% (11 in 15) to stay with your provider) provider over the said their phone could access the internet, Who is your current servicenext year? Cricket Wireless T-Mobile Sprint Verizon AT&T Other provider? (if other please type in but only 13% (2 in 11) had phones capable name of provider) Very Unlikely 0% 5% 0% 2% 2% 17% of using the 4G network. This suggests Chi Square 31* Unlikely 0% 0% 6% 2% 5% 0% Pleasethat indicate yourthe overall once 4Glevel network becomes more of satisfaction with your mobile Degrees of Freedom 30 Somewhat prevalent, and more phones are available, 0% 5% 6% 0% 5% 17% phone service provider. Unlikely p-value 0 provider over the How likely are you to stay with your current mobile phone service less people may have a negative outlook on next year? Undecided 20% 24% 6% 7% 6% 0% *Note: The Chi-Square approximation may be inaccurate - expected frequency less than 5. whether to stay with AT&T.

Total 1% 2% 8% 13% 23% 42% 12% 100%

Ad Total 3% 3% 4% 9%

Somewhat Likely

40%

16%

17%

10%

11%

17%

13%

Likely

40%

21%

39%

23%

28%

0%

26%

Very Likely Total

0%

29%

28%

57%

43%

50%

43%

100%

100%

100%

100%

100%

100%

100%

Chart 10: Customer Retention

How often do you use your phone for the following:

Add Stub

Ad

#

Question

Never

Less than once a week

2-3 times a week

3-6 times a week

Daily

3-5 times daily

Multiple times daily

Responses

Mean

1

Make a voice call

0.00%

5.88%

5.88%

5.88%

23.53%

23.53%

35.29%

17

5.59

2

Send/receive a text message

0.00%

6.25%

0.00%

12.50%

6.25%

75.00%

16

6.38

3

Search/use the internet

0.00%

0.00%

11.76%

5.88%

64.71%

17

5.71

4

Play/download music

Who is your current service 11.76% provider? (if other please type5.88% in name11.76% of provider) 17.65%

0.00%

11.76%

23.53%

11.76%

17.65%

5.88%

17

3.82

5

Use an app

42*

17.65%

5.88%

0.00%

0.00%

0.00%

23.53%

52.94%

17

5.41

29.41%

5.88%

23.53%

0.00%

23.53%

11.76%

5.88%

17

3.41

17.65%

17.65%

23.53%

5.88%

23.53%

5.88%

5.88%

17

3.41

0 Connect to a social p-value networking site (e.g. Facebook/Linked In) 17.65%

5.88%

0.00%

5.88%

17.65%

29.41%

23.53%

17

4.82

9 Shootapproximation pictures/video may be inaccurate - expected frequency 5.88% less than29.41% *Note: The Chi-Square 5.

11.76%

23.53%

0.00%

17.65%

11.76%

17

3.82

How likely are you to stay with Play aphone game your current6mobile service provider over the next 7 Watch a video year? 8

Chi Square Degrees of Freedom

30

Chart 10: Phone Usage Data

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KEY INSIGHTS After conducting both primary and secondary research, we were able to gain a better understanding of mobile phone users and more specifically AT&T customers. The goal of our research was to determine how AT&T could retain customers. After analyzing the results of our survey and comparing those results with secondary research, we saw three main areas of focus for AT&T in regards of customer retention. These three main areas of focus translate into the three target segments. Question 7 of the survey confirmed Mintel’s Mobile Phone Services report of August 2010, which showed that network coverage is the most important factor when considering a cell phone carrier. While this finding is consistently important amongst all cell phone carriers and not unique to AT&T, it must be considered due to its paramount importance amongst all demographics. The segment to describe the network coverage factor will be classified as the “Undroppables”. Our secondary research revealed interesting gaps in both the Internet network speed and app availability categories. While the majority of our primary research described important factors generically across the mobile phone industry, our secondary research showed two categories that are uniquely more important to AT&T customers. Internet speeds had high importance for 71% of our AT&T customers compared to a 59% industry average. The apps category also had a relevance gap where 50% of our AT&T respondents considered apps of high importance compared to the 38% industry average. The segment to describe the Internet network speed will be classified as “Speed Freaks”, and the app category will be classified through the segment “App Addicts”.

UNDROPPABLES The first consumer segment to focus on in order to retain customers is the “Undroppables” segment. These consumers are most concerned with network coverage. Their mobile phone carrier must have good network coverage, or this consumer will immediately look elsewhere. While cell phones today are used for much more than just making a phone call, the consumer expects to be able to use their phone for its first and most basic use whenever necessary. They are motivated by a need to be connected with others and an expectance of technology to work. This segment will absolutely not put up with dropped calls. SPEED FREAKS The second consumer segment is “Speed Freaks”. Speed Freaks are most concerned with Internet network speed. As Smartphones are beginning to take over the mobile phone industry, consumers are beginning to expect more from not only their cell phone but also their cell phone provider. Speed Freaks are motivated by their desire to use their Smartphone to its fullest capacity. They want to browse the Internet, check e-mail, and stream videos all at the same time and all being able to happen instantaneously. One of the conflicts for the Speed Freaks occurs because of the growing number of users on the same network. Speed Freaks are not happy when their network slows down due to heavy data streams. The acknowledgment and concern for satisfying Speed Freaks will be very important for AT&T if they want to retain their customers. Mobile phone carriers must offer the faster and emerging technologies to keep these Speed Freaks from being slowed down. APP ADDICTS The third consumer segment is “App Addicts”. App Addicts expect an application to exist for any want or need possible. They are motivated by their desire to get the most out of their Smartphone. By becoming addicted to apps, they are transforming their cell phone from simply a means of communication to a means of entertainment, education, organization, and anything else to assist them in their day-to-day lives. App addicts are making the most out of their Smartphones and allowing their Smartphones to make their lives much easier. A conflict occurs when the consumer relies on the app, and the app suddenly fails. App addicts have sorted through the hundreds of thousands of apps available to find the best ones.

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RECOMMENDATIONS Based on our findings from our primary and secondary research, we have provided a few recommendations AT&T can implement into their marketing mix to move toward the goal of higher retention rates. Many service organizations have embraced relationship marketing to focus on maximizing customer lifetime value. This is the direction AT&T should take for positioning their brand as a market star in value and quality of service and customer satisfaction. Our secondary research suggests that the cost of switching providers is affected less by price than by the effect of advertising the brand and services. We agree, and will focus mainly only communicationg the benefits of the AT&T brand and its services to our target segments. However, in today’s competitive market, price is also something that will need an adjustment to increase the positivity of our consumers’ affective commitments. There are also a few proposed changes to the consumer experience and the convenience of interacting with AT&T’s service that may prove to be beneficial, although not quite as important as pricing shifts or intense marketing communication.

CONSUMER EXPERIENCE / CONVENIENCE The main issue to address is network call quality, since it is of high importance and deemed a low performer across the board. The best thing AT&T can do for the consumer experience is invest more capital into the network to improve bandwidth and quality. Better service means more customers, but more customers means more load on the system, and inevitably, worse service. This is a battle that AT&T needs to take head on, and infrastructure improvements are the only way to address the issue from a technical standpoint. The Undroppable segment favors quality service coverage and the Speed Freaks will need enough coverage and data space to accommodate their desire for fast internet and media download speeds. AT&T realizes that network improvements are needed and the company is currently engaged in a sweeping upgrade of their network to 4G, which is good news for the Speed Freaks and App Addicts. While this network buildout is aimed at broadband data applications for uploading and downloading data, the higher performance may have the ability to alleviate strain on the voice network. AT&T also has new technology called the 3G Microcell that acts as a mini cell tower. Consumers can use it in their home and get 5 bars of coverage, based on average user experience. This would be a boon to the Undroppables in high volume markets. AT&T could also improve the consumer experience and convenience for the App Addicts by licensing top apps that are usually found on iPhones and make them available to all smartphones through the AT&T App Store.

COST Consumers, not just those in the mobile market are price sensitive and base many decisions on cost and risk. Our research has confirmed that customers value proper pricing plans when considering cell phone service providers. AT&T should offer new prices and special bonuses to compete with changes in technology and the market, but since our research shows that paying customers to be advocates may erode on their loyalty to the service, AT+T must be careful when adjusting prices or giving out loyalty rewards to not appear disingenuous or seem as though they are trying to buy customer loyalty. AT&T must tailor the bonuses to what customers need and want. What will prove to be beneficial for AT&T is giving consumers a bonus amount of rollover minutes to avoid excess charges for the near future. Every customer can appreciate not having overage charges. We also recommend that AT&T increase people’s ability to call other mobile phones for free, to combat the image that they have poor coverage. If the calls aren’t costing consumers anything, they’ll have a reduced affective reaction to the dropped ones. Finally, a restructuring of data price plans, using a multi-tiered approach will satisfy a wider range of customers especially those who are more budget conscious but still feel the “need for speed”. Also to accommodate the App Addicts, we recommend including a free download of a normally paid app once a month to encourage a stronger bond with the company. As a whole, AT&T should make it easier for their customers to switch plans to custom fit their needs. Happier customers with more plan choice equals longer-term customers and higher retention. Efforts should also be made to improve customer service when there is a problem experienced.

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COMMUNICATION According to a recent independent study by Global Wireless Solutions (an industry-recognized source), a statistically valid drive test shows that the AT&T network continues to deliver the nation’s fastest 3G network and near best-in-class call retainability nationwide. AT&T’s network dropped only 1.44 percent of calls nationwide, within two-tenths of 1 percent of the industry leader and a difference of less than two calls out of 1,000. Those results, show that, on a national basis, AT&T is within just two-tenths of a percent of the industry leader [Verizon] in wireless call retainability. That’s a difference of just two calls in a thousand, a virtual dead-heat. Communicating this information through advertising will strengthen the brand overall. In regions where call volume is high and network capacity is low, resulting in higher-than-average dropped calls, AT&T may be able to communicate to the Undroppables that the 3G mini-tower can provide better coverage, and when the 4G network rolls out, AT&T should accept the shift in technology and find a way to communicate the benefits of using VOIP (voice over internet protocol) to place calls instead of on the cellular network. Speed Freaks and App Addicts will obviously benefit from the higher data transmission speeds as a result of the upgrade to 4G and these benefits will be easy to communicate. Again, independent tests from Global Wireless Solutions have concluded that AT&T’s mobile broadband network is 20% faster than its nearest competitor and 60% faster than archrival Verizon Wireless. It will be worthwhile for AT&T to emphasize through advertising that AT&T is the leader in fast internet speeds.

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CUSTOMER RETENTION RESEARCH STUDY LIZA ERCHOVA | AMBER COLLINS | JEREMEY SPRECHT | JACOB TRUDELL | ELISE VELEY

MKTG 363 | 2011 WINTER | JILL MOSTELLER


at&t Retention Study | MKTG 363