Customer Churn with Respect to Mobile Service

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Executive summary:

Increase in demand for cellular phone services in Indian market has led to new entrants in the cellular industry. However with major players looking at expanding nationally, there have been number of acquisitions. The biggest challenge faced by cellular industry today is churn rate. This paper looks at reasons for consumer switching behavior and highlights the fact that inspite of high switching cost imposed on clients in this industry churn rate is still high. The primary research results indicate that although all service providers are viewed positively on most of the factors that cause switching, it falls short on the three main factors namely network coverage, customer service and offers. This study examines the customer satisfaction through an empirical investigation of about 80 cellular subscribers. The satisfaction index of these subscribers is calculated overall. The Good customer service and low price are valued highly by consumers and focusing on these two aspects will enable the service provider to differentiate itself from its competitor and reduce churn rate. This study attempts to examine the effect of switching cost, service quality and customer satisfaction on customer churn rate in mobile telecommunication services. As many has 80 users of GSM services were surveyed in Hyderabad city. The data was analyzed by “paired T test” and “correlation analysis”. The study shows that the switching cost, service quality and customer satisfaction have negative association with churn rate.


The Indian mobile services market is highly competitive with six to eight players operating in each of the 23 telecom circles that the country is divided into. The intensity of competition has increased in recent months following the launch of GSM services by Reliance Communications and Tata Docomo, and the continuing pan-Indian GSM rollout by Aircel, Idea Cellular (Idea), and Vodafone Essar (Vodafone). These players have introduced attractive schemes like per second billing (moving away from the industry norm of per minute billing) and aggressive tariff plans for local and STD calls to capture market share. The incumbents, facing a decline in subscriber additions, have also had to follow suit and reduce tariffs, which in turn has led to a decline in ARPU. While India remains one of the fastest growing mobile services markets globally by subscriber addition and still presents an opportunity for further growth, the rates of revenue growth and margins of the mobile service providers are expected to decline as the intensity of competition increases further. Telecom operators spend substantial resources on adding customers and thus customer retention is of critical importance for them. Loss of subscribers is measured by “churn”, which is the ratio of subscribers leaving the network to the current subscriber base. One of the biggest “concerns” for the mobile services industry is that with the introduction of MNP, the churn rate, which is already quite high in India, may increase even further, thereby leading to a drop in revenues and an increase in costs, which in turn would weaken their competitive positions. Customer churn is a basic unit of the telecommunication industry, which is used to describe customer loss, more precisely defined as the gross rate of customer attrition during a given period. It assesses a service provider’s customer retention efforts and provides an insight into the growth or decline of the subscriber base as well as the average length of participation in the service. In the telecommunication industry, customers are able to choose among multiple service providers, thus actively exercising their right to switch from one operator to another. There is a significant relationship between customer loyalty, customer satisfaction, trust and switching costs in the mobile phone market.

Theoretical background:

Switching cost: switching cost can be defined as the cost...
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