An Empirical Study on the Factors Influencing Customer Churning by warrent

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									An Empirical Study on the Factors Influencing Customer Churning Intention after Introducing Mobile Number Portability in Korea

2004. 9. 5 Moon-Koo Kim, Jong-Hyun Park Jong-Hyun Paik, Seong-Ho Seol, Hee-Jin Park IT Services Research Division

Contents
Ⅰ I.

Background and Purpose
Theoretical review and study tasks

II. II

III III. Methodology

IV. Results IV
V IV. Conclusions and implications

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Background and Purpose
Background
 Paradigm shift from Voice to data in mobile service
 Voice market saturation in mobile service - growth rate decrease

- Accelerating of customer churning and Telco's competition
 Lack of studies on customer’s churning intention or influencing factors on

churning intention with a contextual comparison between before and after

introduction of MNP

Purpose
In this study, the factors affecting churning intention is contextually analyzed by focusing on dissatisfaction, switching cost, switching promotion and switching prevention to examine Korean present situation

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II. Theoretical review and study tasks
The concept of MNP
 The basic meaning of Number in mobile service  1st : Distinguishing a telecommunications network or a carrier  2nd : A kind of a limited resource which needs systematical and efficient management like public goods(Lee et al., 1999; Reinke, 1998)  Different characteristics compared with other service  Brand asset of number is more valuable.  Switching cost is larger than any other telecommunication services

Effect of MNP introduction
 Customer`s benefit Reduce switching cost, lock-in effect  churning , customer surplus

 effect on competition among Carriers Value of Brand asset Competition  needs to change marketing strategy
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II. Theoretical review and study tasks
Korean and foreign trend of MNP
 Foreign  MNP was 1st introduced to U.K(1999), since then many countries, Hong
Kong, Holland, Spain, Italy, Denmark, Sweden, Australia and U.S. etc., are examining or performing the introduction

 MNP effect in most counties is questioned (LEE, 2004)
 Time spent on procedure for MNP, additional MNP customer`s cost, Incumbent Carrier`s passive attitude, limited market environment

 Korean  After 2004, MNP was introduced, leaving 6 month interval among Carrier`s
 Since Jan 2004 : SKT(SMP) KTF(0.86 mil),LGT(0.57 mil)  since July 2004 : SKT KTF, SKT, KTF  LGT

 More than about 7% of whole subscriber of SKT was churned

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II. Theoretical review and study tasks
Related Literature Review
 Park (2002), “A study on the Evolutionary Press of Korean Mobile Telecommunication Market”
 Park et al (2004), “The Effect of Sequential Introduction of Number Portability on Mobile Telecommunication Market and Economic Welfare”  Jeong and Park (2003), “ A study on Service Churning Intention in Korean Mobile Telecommunication Industry: Impact of MNP”

 Yang and Choi (2003), “Study on customer retention strategies for the wireless telecommunication service providers at the introduction of MNP”
However, there is no study examining change of churning intention, before and after the introduction of MNP, and analyzing comparably causes affecting churning intention, by time, carriers and customer typical context about churning intention.
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II. Theoretical review and study tasks
Study Tasks
 Study task 1: the comparison of churning intention before and after the introduction of MNP  Task 1-1: the analysis of churning intention changes before and after the introduction of MNP  Task 1-2: the comparable analysis of influential factors on churning intention before and after the introduction of MNP

 Study task 2: the comparison of churning intention with carriers after the introduction of MNP  Task 2-1: the analysis on difference of churning intention with a carrier after the introduction of MNP  Task 2-2: the comparable analysis on factors influencing churning intention with a carrier after the introduction of MNP

 Study task 3 : the classification and comparison of customer type with churning
intention  Task 3-1: the classification of customer groups with churning intention before and after introduction of MNP  Task 3-2: the comparison of factors regarding churning of each customer group
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III. Methodology
Study model & variable
 This study estimate customers’ churning intention through the logit model. The
establishment of questionnaires composition and variables for logit analysis are as follows.

 The point of time before introduction of MNP is fixed to Sep. 2003 and that
after introduction of MNP is settled to the day of answering.  Study variables are set like Table 1 and measurement of every variable is to

choose one among discrete answers, 0 (=no relevant data), 1(=relavant data).
Let each person answer in the point of time before the introduction and after it.

 Questionnaire's items are made up based on these study variables and it is evaluated
by a pilot test done by relevant experts and company’s executives.
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III. Methodology
<Table 1> Study variable
Variable

Explanation
1. 2. 3. 4. 5. 6. D=1: Perception of general dissatisfaction of conversation D=1: Perception of general dissatisfaction of charge D=1: Perception of general dissatisfaction of device D=1: Perception of general dissatisfaction of value-added service D=1: Perception of general dissatisfaction of customer support D=1: Perception of price caused by changed device with carrier change and inconvenience D=1: Perception of existing profit loss with carrier change

Dissatisfaction

Call quality dissatisfaction Price dissatisfaction Device dissatisfaction Value-added service dissatisfaction Customer support dissatisfaction Burden on changing device
Burden on benefit loss

7.

Burden
Switching cost

on
8. D=1: Perception notice of number change and disconnection due to switching carrier

changing number
(Before introduction) Burden on number portability (After introduction)

9.

D=1: Perception of burden of price and procedure when changing a carrier due to MNP

Switching promotion

Switching inducement activity Attraction of alternative Social effect

10. D=1: Perception of other carrier’s advertisement and effect of offering good chance for switching inducement 11. D=1: Perception of other carrier’s image and quality, alternatives of when considering switching 12. D=1: Perception of effect of reference group, family and friends about switching 13. D=1: Perception of strengthening activity for customer benefit, like additional charge cutting, mileage offer to prevent switching 14. D=1: There is switching intention into other carrier

Switching Switching prevention prevention activity Switching intention

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III. Methodology
Sampling and data
 Survey: by interview  Number of Valid sample: 276
 Statistical Package: SPSS 10.0  Distribution of Sample is similar to demographic characteristic of total subscribers  Carrier subscriber rate : SKT(53.3%), KTF(31.5%), LGT(15.2%) (*this rates are almost the same as those at the end of June 2004)

 Monthly ARPU :most people are included to 3 to 4 thousand won group(48.8%)  Average usage period : 34.8 months(a standard deviation is 16.7 months)  Terminal device change : 2.29 times(a standard deviation is 1.02 times)

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IV. Results
Results of study task 1
 Result of the study task 1 comparing churning intention and the influential

factors before and after the introduction of MNP can be seen in a Table 2 and 3
 With this result, regardless of introduction MNP, the main causes of customer’s churning are call quality dissatisfaction, price dissatisfaction and attraction of

an alternative. And churning intention is related to switching cost, before the introduction and churning intention is related to switching promotion, after the
introduction.
<Table 2> Analysis of variance on switching intention before and after the introduction
Variable Switching intention
+

Before the introduction Mean Standard deviation .270 .440

After the introduction Mean Standard deviation .400 .490

t-value -4.256

p-value .000**

: p<0.1, *: p<0.05, **: p<0.01

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IV. Results
<Table 3> Logit analysis on independent variable related to switching, before and after the introduction of MNP and switching intention
Independent Variable Call quality dissatisfaction Price dissatisfaction Device dissatisfaction Value-added service dissatisfaction Customer support dissatisfaction Before the introduction of MNP B S.E p-value 2.654 0.479 0.000** 1.641 0.435 0.000** 0.382 0.432 0.377 0.663 0.391 -1.172 -0.022 -1.601 0.449 0.453 0.506 0.412 0.414 0.303 0.887 0.072 -0.462 -3.331 0.481 0.500 0.445 0.477 0.665 168.044 152.875 0.529 0.076+ 0.871 0.333 0.000** 0.140 0.388 0.020* 0.958 0.000** -0.616 2.879 2.577 1.337 -0.370 -4.638 After the introduction of MNP B S.E p-value 2.017 0.509 0.000** 2.181 0.584 0.000** 0.982 0.647 0.129 0.245 0.397 -0.250 -0.389 0.555 0.736 0.599 0.602 0.744 0.557 0.588 0.557 0.696 0.755 128.511 242.664 0.408 0.000** 0.000** 0.016* 0.595 0.000** 0.658 0.589 0.677 0.518

Dissatisfaction

Burden on changing device
Switching cost Burden on benefit loss Burden on changing number Burden on number portability Switching inducement activity Attraction of Alternative Social effect Switching prevention activity

Switching promotion Switching prevention

Constant
Log likelihood Chi-square
+

: p<0.1, *: p<0.05, **: p<0.01

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IV. Results
Results of study task 2
 After the introduction of MNP, The Table 4 shows there is a difference of customer’s churning intention between an early entrant carrier and a late entrant carrier.
<Table 4> Analysis of variance on switching intention by every carrier after the introduction of MNP
Variable Switching intention
+

Early entrant carrier Mean Standard deviation .16 .36

Late entrant carrier Mean Standard deviation .67 .47

t-value -10.287

p-value .000**

: p<0.1, *: p<0.05, **: p<0.01

 It also indicates customers of a late entrant carrier is more likely to churn relatively. While customer’s churning intention of an early entrant carrier is influenced by other carrier’s churning inducement activity, those of a late entrant carrier is affected by both call quality dissatisfaction, churning inducement activity, attraction of alternative and churning promotion of social effect
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IV. Results
<Table 5> Logit analysis on independent variable and switching intention by every carrier after the introduction of MNP
Independent variable Call quality dissatisfaction Price dissatisfaction Device dissatisfaction Additional service dissatisfaction Customer support dissatisfaction Burden on changing device Burden on benefit loss Burden on number portability Switching inducement activity Attraction of alternative Social effect Switching prevention activity B 1.204 2.434 1.546 0.341 0.862 -1.006 -0.887 -9.658 3.419 -7.326 1.445 -1.097 -3.331 Early entrant carrier S.E p-value 0.818 0.141 0.837 0.004** 1.021 0.130 1.042 1.440 1.007 0.967 25.491 1.352 93.821 0.902 1.397 -4.959 168.044 152.875 0.743 0.550 0.318 0.359 0.705 0.011* 0.938 0.109 0.432 1.163 B 3.120 10.568 1.731 0.444 0.215 -1.019 -1.080 -0.245 2.383 2.055 2.303 -0.071 0.000** Late entrant carrier S.E p-value 1.002 0.002** 28.139 0.707 1.300 0.183 0.923 1.125 1.122 1.164 1.225 0.946 0.839 1.138 1.094 -4.977 57.376 70.148 0.631 0.849 0.364 0.354 0.842 0.012* 0.014* 0.043* 0.948 1.456

Dissatisfaction

Switching cost

Switching promotion Switching prevention

Constant
Log likelihood Chi-square
+

: p<0.1, *: p<0.05, **: p<0.01

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IV. Results
 After performing cluster analysis based on churning intention before and after
the introduction of MNP, 2x2 matrix was made. And then customer group was divided like a Figure 1 and naming is done
o ntrod ucti n o f M N P o tchi ntenti n after the i sw i ng i

 And then, We did multinominal logit analysis like a table 7 in order to find out factors affecting the difference of churning by the customer type. Analysis is done by focusing on a comparison between the first group, which are worth analyzing or have importance, and the third one, between the first one and the fourth one and between the second and the fourth one.
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Y (= 1) N (= 0)

(Third Grou p )
R etention  S witching

(Fou rth Grou p)
Continu ou s S witching Intention

Figure 1. Customer type regarding switching intention

(Firs t Grou p)
Continu ou s R etention intention

(S econd Grou p)
S witching  R etention

N (= 0)

Y (= 1)

sw i ng i tchi ntenti n b efore the i o ntrod ucti n o f M N P o

IV. Results
<Table 7> Multinomial logit analysis by customer types
Independent variable
B

Group 3 (0,1) vs. Group 1 (0,0)
S.E p-value B

Group 4 (1,1) vs. Group 1 (0,0)
S.E p-value B

Group 2 (1,0) vs. Group 4 (1,1)
S.E p-value

Call quality dissatisfaction Price dissatisfaction Dissatisfaction Device dissatisfaction Value-added service dissatisfaction Customer support dissatisfaction Burden on changing device Burden on benefit loss Burden on number portability Switching inducement activity Attraction of alternative Social effect Switching prevention Constant Log likelihood Chi-square
+

-2.422 -2.616 -1.181 -0.692 -1.335 1.714 0.285 -0.382 -3.485 -4.367 -1.477 0.099 6.371

0.760 0.927 0.929 0.919 1.330 0.941 0.924 1.012 0.844 1.100 0.844 1.149 1.235
60.426 175.289

0.001** 0.005** 0.203 0.452 0.315 0.069+ 0.758 0.706 0.000** 0.000** 0.080+ 0.931 0.000**

-1.711 -1.650 -1.983 -0.576 -0.584 -0.494 0.621 2.585 -2.791 -2.510 -1.032 0.139 5.306

0.701 0.852 0.931 0.832 0.941 0.910 0.882 1.570 0.819 0.773 0.853 0.908 1.075
60.937 161.544

0.015* 0.053+ 0.033* 0.489 0.535 0.587 0.481 0.100 0.001** 0.001** 0.226 0.878 0.000**

1.882 0.769 1.670 0.175 0.129 2.074 -1.760 -1.726 2.552 2.060 1.356 -2.010 -2.219

1.342 1.131 1.583 1.181 1.248 1.885 1.219 2.240 1.203 1.486 1.343 1.167 1.704
32.782 50.808

0.161 0.496 0.292 0.882 0.918 0.271 0.149 0.441 0.034* 0.166 0.313 0.085+ 0.193

Switching cost

Switching promotion

Switching prevention activity

: p<0.1, *: p<0.05, **: p<0.01

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IV. Results

Meaning of table 7: According to a result of the table 7, when dissatisfaction is low

before and after the introduction of MNP, in general, and switching cost about changing device or changing number is high, customer shows their maintenance intention continuously. However, when the dissatisfaction of core factors like call

quality or price becomes high and they are influenced by decrease of switching cost and switching promotion activity, they changed from maintenance to
switching. In contrast, customer who shows switching intention before the introduction, they could change into maintenance intention, when they are

affected by switching prevention activity of subscribing carrier.

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V. Conclusions and implications
1. Regardless of the introduction of MNP, A core factor influencing customer’s
churning intention is the dissatisfaction regarding price and call quality

 Carriers have to prepare a price cut, various price-cutting, data usage
promotion pricing, customization pricing with customer segmentation, pricing considering usage characteristics, bundle pricing including voice and data, through a reformation.
2. MNP makes customer’s switching intention increased,

 churning inducement activity of other carriers like continuous advertisement, PR and support, effect of neighbor or reference group changing their carriers, attraction of other carriers’ service or image promoted switching  Burden of changing device has to be decreased consistently.

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V. Conclusions and implications
3. There is a difference in customer’s churning intention of an early entrant carrier and a late entrant carrier.  The early Carriers have to show attraction as an alternative by emphasizing on call quality, value-added service and superiority of customer benefit as well as switching inducement activity for customer’s churn-in  The late Carriers have to construct competitive advantage of price as a kind of switching barrier to prevent customer’s churn-out. And also they have to let customer know there is no difference with the early entrant carrier in a service attributes and benefits, though the advertisement or various PR.

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V. Conclusions and implications
Customer group is typed, in accordance with the introduction of MNP and maintenance or change of switching intention

 The Carriers (especially late entrants) , according to their business goal, need
to select concentration for switching promotion and prevention, considering their limited resources

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Thank you Contact point : mkkim@etri.re.kr
ssh1517@etri.re.kr

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