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January, 2003
Churn – We aren’t talking butter:
by Ken Pyle
Churn is the cable industry’s five letter word. For the nice stable telephony business, however, churn has been a foreign term, mostly used in conjunction with a dairy or a shyster stock broker. Well, churn is a term that needs to be added to the lexicon of the independent telcos. In the telephony-only world, customers have been pretty much a captive entity.
In the world of competitive services, such as video and cellular/PCS, the cost of acquiring and losing customers is a significant drag to profitability. Rates of churn of 6 to 8% per month for digital cable service have been characterized as typical, according to Rick Lang, corporate vice president of marketing of Charter in a March 4th Broadband Week.com article titled, Cable Ops Touting VOD As Anti-Churn Weapon. Losing this many customers a month is the equivalent of replacing a customer base every year.
And this costs significant money – extra truck rolls, extra inventory in set-tops and increased costs of sales and marketing. So, what’s the solution? Brian Strunk, Director of Marketing for CT Communications, an independent telephone company in Urbana, Ohio, suggests it is critical to make the service offer as “sticky” as possible through a number of techniques.
He suggests bundling multiple services, such as high-speed internet, telephony and cable programming into discounted packages as one way to reduce churn. Strunk says that they have found that, “how customers are brought on board is important in determining churn. The less commitment a customer has to make, the more likely the churn.” The propensity to churn will vary from customer to customer.
“The customer that is willing to make a relatively long-term commitment, in exchange for a promotional offer, will be more likely to stay with the service than will a customer who signs up for a promotion requiring little in the way of commitment”, said Strunk.
Additional services, such as interactive program guides, “walled gardens” and VOD can also significantly reduce churn, if packaged and priced correctly. Further evidence of this is provided by the aforementioned Broadband Week article that suggested churn rates dropped to less than 4% after the introduction of VOD.
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