Modeling Customer Attrition in Telco Industry

Introduction

The global telecom industry continues to traverse through significant change. Today, being driven by the demands from the customers, the Telcos have been reshaping the communication model to serve them better. The prevailing competitive, regulatory and recessionary environment unrelenting, Telcos are implementing new business models and redefining their business strategy to ensure continued growth through new customer acquisitions and profitability through launch of new innovative services.

While being innovative is an ongoing process, the big challenge today for Telcos has everything to do with increasing Customer Retention, building Customer Loyalty and reducing churn whilst reducing cost of operations. This white paper provides insights on how Telcos can combine its unstructured data gathered from customer conversations and structured data gathered from its CRM solutions to model customer attrition and arrive at an customer segment who are more likely to respond to retention programs. Conventional Approach Typical attrition models take historical behavior of customers to segment them based on their propensity to attrite. The end result of these attrition models is simply a statistical prediction of a customers likelihood to remain loyal and/or leave. This likelihood is estimated by using historical customer data that includes1. Observable attributes of customer at a given point in time these are the predictor variables in the statistical model 2. Whether or not each customer remained loyal (and for how long) this is the response we hope to predict A predictive model is built using this data where the customer attributes used to predict attrition. By applying the model to current customers, a prediction of future loyalty is obtained. Based on the prediction, customers can be separated into high-risk and low-risk groups. Retention campaigns can be targeted to the high-risk groups (Figure 1)

Advanced Approach One challenge with the conventional approach illustrated in Figure 1 is that it does not incorporate a core source of data inputs Customer Intelligence, the customers interactions with the company and its service/support organization. This source of unstructured data i.e. conversations of customers with the company, is a strong leading indicator of future customer behavior. Statistical models based on text mining unstructured data show that there is a strong correlation between certain customer queries and an expressed intent to attrite. Figure 2 illustrates the results of a text mining based categorization of customer queries that occurred during chat interactions with the service/support representatives of a wireless carrier. The queries classified as Attrition are conversations where the customer expresses an intent to cancel/leave. Though this analysis is based on web chat interactions, a similar query categorization can be created for transcribed voice data as well.

Once the unstructured data from customer conversations is classified and structured, it could then be used for predictive modeling. A structured table (shown in Figure 3) is built with each row representing a customer conversation. The conversation is classified based on major query types including the customers expressed intent to cancel.

The information within the table is then used to build a predictive model with intent to cancel as the dependent variable and the other query categories as predictor variables. The model can be built using statistical methods such as logistic regression (Figure 4). Results of this analysis for the wireless carrier shows that certain problem categories were clearly significant predictors of an intent to attrite (Figure 5)

Once the key queries predicting an intent to cancel are identified based on the model, this data can then be merged with the structured CRM data to develop a similar scoring model that uses both CRM attributes and customer queries (Figure6) as predictor variables. The structure of the scoring model can be similar to the illustration in Figure 4.

Implementation The analysis in Figure 5 clearly shows that certain queries are correlated strongly to an intent to attrite. However, this information is useful only if it can be acted upon to save future attrition. To enable action it is important to first be able to capture the query data for each customer contact. To enable this, the following approach is recommended 1. Data Collection In the case of chat and email all the contacts can easily be mined and the customer records can be tagged for these queries. In the case of voice calls, customer service representatives can be asked to tag calls that contain queries that are strongly correlated to attrition, through a typical disposition coding mechanism. 2. Scoring Like any typical attrition model, on a weekly/monthly basis customers can be scored using the predictive model. In this case the scoring would be based on a model developed using both the CRM and customer interaction data resulting in greater predictability. 3. Retention Programs Like all retention programs retention campaigns can be targeted toward customer profiles that are likely to attrite. However, the scoring model is better able to discriminate high risk groups from low risk groups (Figure 7).

Conclusion It is an established fact that cost of new customer acquisitions always tends to be higher when compared to the cost associated with retaining a customer. Given the prevailing competitive, regulatory and recessionary environment, a logical direction for a Telcos is to target its customer retention programs to that group who are likely to respond positively. The established statistical tools can help model customer attrition and arrive at customer segments that are more likely to respond to retention programs.

About 247-Inc

247-Inc is a predictive interactions solutions provider that guarantees measurable business results across the customer lifecycle. With its patented predictive interactions SaaS platform coupled with 24/7 Outperformance framework, 247-Inc promises to improve sales by 25% or more, improve telecom customer experience by 10% or more and reduce contact center costs by 20% or more for its clients. Today, 247-Inc is the no. 1 partner in contact center operations for 90% of its clients.