For the first time, as we noted in our inaugural Wireless Service and Cellular Telephone report, we posed the following question to consumers: “How much do you spend, on average, each month for your wireless service?”
A simple question, really. However, when analyzed alongside customer satisfaction and customer retention data, we gain an entirely new perspective on just how much customer satisfaction can impact wireless carrier revenue. This new Customer Segment Value (CSV) model speaks volumes.
Our study breaks consumer spending on wireless phone services into nine different segments:
- $501 and above
The model used to analyze this data enables us to differentiate customer groups based on how much each spends on wireless services, as well as the differences in customer satisfaction and customer loyalty. This information, plus sample proportions for each group, gives carriers insight into which customer segments will likely generate (or save) the most revenue with increased customer satisfaction, and where service improvements will most move the needle for those customers.
Here’s what we discovered.
Which wireless customers are more satisfied and more loyal?
Data from the different CSV groups shouldn’t be expected to perfectly reflect actual spend segment proportions for a company, but it does give us a better understanding of what customers in this sample look like from a spending standpoint.
We discovered that, at the industry level, more than 25% of customers fall in the $26-$50 spend range and 55% spend between $1 and $75 on their wireless bill each month. However, under 10% of respondents spend between $201 and $500 monthly, and just 1% spend more than $500 per month (thereby limiting our ability to analyze this data completely).
The data also identifies the leaders and laggards in ACSI and retention across the CSV groups. The “lower spend” segments – $1 to $75 – are more satisfied, more loyal, and have lower churn rates than almost all other groups, with only the very highest spending customers – the tiny proportion of those spending more than $500 each month – experiencing higher churn. For customers spending more than $76 per month but less than $500, ACSI scores and retention rates drop considerably.
The most valuable wireless customers
We then multiply the monthly annual per-customer spend by the number of customers in each CSV group to find the revenue and relative contribution to total revenue for each segment in the sample. If you’re familiar with the 80-20 rule, you won’t be surprised by the results.
The $1-$25 group accounts for nearly 15% of the total customers, yet only contribute 2% to overall revenue. Meanwhile, the $251-$500 group consists of under 5% of the respondents but contributes more than 17% to total revenue. Based on both its sample size and mean customer spend, the $101-$150 segment, which accounts for a little less than 14% of the total customers, contributes the most to the total annual revenue at a little under 19%.
The customer segment responsible for the biggest revenue losses
We then use our churn rate estimate and the per-customer spend estimate for each segment to estimate how much potential revenue carriers lose each year.
Due to its high spend, low ACSI score, and high churn rate, over 20% of potential revenue is being lost from the $251-$500 segment. The $101-$150 group is also losing almost 19% of potential revenue.
As it were, close to 70% of the total revenue lost each year is among customers spending $101 or more per month.
Targeting the top to save 25% of revenue
According to this study, companies can “save” the most revenue lost due to customer defection each year with a five-point improvement to ACSI for the $251-$500 segment – close to 25%. One idea to increase satisfaction: Carriers could provide these customers with a wider variety of plan options, something that’s clearly lacking based on our data.
The same five-point improvement for the $101-$150 spend segment would provide just under 23% in revenue saved, the second largest in annual savings.
There’s more where that came from…
This study focuses on the wireless industry as a whole. However, the CSV model can be used more specifically, and can provide the data for more complex types of Customer Lifetime Value (CLV) modeling.
With this information on spending, companies can better target not only which groups are more or less satisfied and loyal, but also understand which groups are most important to focus on to improve satisfaction and loyalty in a way that will most likely yield the biggest economic return.