Churn Analysis

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CELL2CELL: THE CHURN GAME
It was a cold and cloudy morning at Cell2Cell Headquarters as Sarah A. Stanford headed to her cubicle holding a cup of cappuccino in one hand and a bulky database manual in the other. Although a veteran in the database marketing field with a doctorate in Statistics, her new assignment was more challenging than she had imagined. Churn Management in the wireless industry was really complicated, but Sarah was excited to be working on perhaps the most important marketing issue facing Cell2Cell, one of the leading providers of cellular telephone service.

Sarah’s mission, as described by her boss, Charles R. Morris, was to (1) develop a statistical model for predicting customer churn, (2) use the model to identify the most important drivers of churn, and (3) with these new insights, recommend a customer churn management program to the CBM (Customer Base Management) Group.

Sarah always felt comfortable dealing with data crunching, so she wasn’t afraid of the first two tasks. But the third task, developing the churn management program, was a different story. This would require her to combine her analytical and creative skills to devise a churn management program that would reduce the number of customer defections.

INDUSTRY BACKGROUND1
The cellular telephone industry has always offered a compelling value proposition: convenient, mobile telephone service. The industry started inauspiciously in 1921 when the Detroit, Michigan Police Department first used a mobile radio in a vehicle. This system, as well as the others that followed, suffered from the same problem – lack of bandwidth. This meant that the radio frequency at which these telephones communicated could only support a limited number of telephones. In order for mobile telephone service to become a consumer product, this 1st generation or “analog era” needed a technological breakthrough.

That breakthrough came in 1983 with the first United States application of cellular telephone service in Chicago, Illinois. Cellular technology set up a honeycomb pattern of transmitters in a given service area. Cellular phone users were transferred from one transmitter to the next as they traveled through the service 1

See Appendix 1 for a more extensive industry history, including a description of the most recent “3G” technology.

Research Associate, Emilio del Rio prepared this case under the supervision of Professor Scott Neslin of Dartmouth College and Visiting Scholar 2002 to the Teradata Center for Customer Relationship Management at Duke University as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2002 by the Fuqua School of Business. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the Fuqua School of Business. Version: (A) 8/26/02

Cell2Cell: The Churn Game -SE 01

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area. Although each honeycomb could handle only a limited number of users, the capacity of the system was multiplied because each honeycomb had to support only the customers who were within its borders. Advanced switching equipment made the “hand-off” technologically feasible and seamless to the user. The cellular telephone network increased capacity significantly and by 1987 there were 1,000,000 “cell phone” subscribers in the US. However, even that system soon began to be saturated. The answer was in digital transmission technology, the 2nd generation of mobile telephone service. Digital technology increased capacity at lower costs and higher reliability. It was based on “slicing” each telephone call into digital segments. Different segments from different users could be mixed in the system for efficiency purposes, but then re-combined as they were transmitted to the...
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