Sample 75-Page Marketing Dissertation

| July 5, 2019

Question:

Critically evaluate the marketing strategies used by O2 Mobile in retaining its customers 

Answer:

Title: Critically evaluating the marketing strategies used by O2 Mobile in retaining its customers 

List of Tables

Table 1: Overall satisfaction among customers with ISP services in the UK in April 2010……………………..46

List of Figures

Figure 1: Satisfaction levels (in percentage) of customers with the services of six main UK mobile service providers in November 2011………………………………………………………………………………………………………………..47

Contents

Chapter 1: Introduction. 4

Background to the study. 4

Research aims and objectives. 5

Aims. 5

Objectives. 5

Research questions. 6

Hypothesis. 6

Outline of chapters. 7

Statement of the problem.. 8

Chapter 2: Literature review.. 11

Introduction. 11

Theoretical ideas on marketing strategies and customer retention. 12

Customer retention theory. 16

Customer retention strategies used in the telecommunications industry. 24

  1. Increasing the cost of switching. 24
  2. Customer clubs. 26
  3. Use of customer profitability as basis of retention efforts. 27

How to gain loyalty from customers in the mobile communication industry. 30

Use of technology to predict churn. 35

Chapter 3: Methodology. 37

Marketing-mix modeling. 37

Case study. 38

Justification for choice of case study method. 39

Sampling techniques and framework. 39

Chapter 4: data and analysis. 43

O2 Mobile: Company profile. 43

O2 mobile’s overall marketing strategy. 44

O2’s frequent retention-related activities. 48

  1. ‘World that revolves around you’ 48
  2. ‘Thinking of You’ 48
  3. ‘Priority Moments’ 49

Data mining strategy at O2. 51

Prioritizing value over physical numbers. 52

O2’s diversification into healthcare, finance, and education. 54

Theoretical appropriateness of O2’s customer retention strategies. 56

Chapter 5: conclusions. 60

Practical aspects of customer retention activities. 60

Theoretical implications. 64

Chapter 6: Recommendations. 67

References. 72

Chapter 1: Introduction

Background to the study

In today’s corporate world, companies have to strive to not only attract new customers but to retain them. In doing so, the companies endeavor to put in place efficient marketing strategies. Retention of customers is always a crucial undertaking, particularly in companies operating in sectors where cut-throat competition is a perennial phenomenon. Different companies use different marketing strategies in their efforts to retain their customers. In recent times, the sheer diversity of the approaches that marketers put in place has triggered a flurry of academic interest, where scholars seek to establish a link between theoretical and practical aspects of marketing.

One of the industries where there is cutthroat competition for customers is telecommunications (Pang 2009, p. 83). In this industry, it means a lot for a company to both attract new customers and also the ones who subscribed for the services a long time ago. Every telecommunications company has to endeavor to attract its existing customers so as to guarantee profitability and sustainability. Moreover, operators in this sector ply their trade in a capital-intensive world, where technological dynamics are a key determining factor for attractiveness of the services offered.

Against this backdrop, the present study is an attempt to contribute to an ongoing scholarly debate involving critiques of marketing strategies that are used to retain customers in the field of telecommunications. In such a study, a case study approach would be necessary, whereby a critical evaluation of a major company in telecommunications industry is made. In this case, the company chosen was O2 Mobile, a communications service provider that offers wireless and broadband services to more than 22 million individual and corporate customers across the UK (p. 2). The company offers a wide range of products, including voice, media messaging, and data connections.

It would be fascinating to catch a glimpse of the connection between a major company’s marketing strategies, their efficacy, and how this may be explained from a theoretical perspective. Similarly, for such a major company, it would be interesting to find out how the existing practices are either in line with or deviate from concepts that have been traditionally established in literature (Richard 2009, p. 42). In other words, of great importance is the relationship between primary and secondary data in the critical evaluation of a company’s customer retention strategies.

Research aims and objectives

Aims

  1. To identify the marketing strategies that O2 Mobile uses to retain customers.
  2. To evaluate the effectiveness of these strategies in relation to the challenges faced in the telecommunications industry
  3. To explore the point of intersection between marketing theory and practice with regard to retention of customers.
  4. To determine the areas of improvement for customer retention efforts in the telecommunications with reference to both primary and secondary data.

Objectives

  1. To explore and review literature on customer retention in the telecommunications industry so as to identify research trends, gaps in literature, and areas that require further research.
  2. To explore various methodologies before providing a justification for the case study method as the appropriate approach for the present study.
  3. To gather and analyze primary data on the case study of O2 Mobile.
  4. To provide a critical evaluation of the primary data of O2 Mobile in terms of congruence with or deviation from current trends in literature on marketing strategies.
  5. To provide research findings in terms of contribution to general marketing literature.
  6. To point out the most significant practical problems relating to marketing and customer retention and to propose empirical solutions.

Research questions

  1. Which marketing strategies does O2 Mobile use to retain its customers?
  2. Are the marketing strategies of O2 Mobile effective in retaining the existing customers?
  3. Which are the most significant strengths and weaknesses of the company’s brand and customer retention strategy?
  4. How does the customer retention strategy contribute to the company’s overall corporate image and performance?
  5. Does O2 Mobile respond to customers’ needs in a satisfactory manner or has the company’s strategy failed?
  6. Do O2 Mobile’s practices on customer relations deviate from laid-down theoretical constructs or do they borrow from these principles?

Hypothesis

O2 Mobile’s customer retention strategy is in need of a transformation so as to align it with both the changing dynamics of competition in the telecommunications industry and contemporary marketing theory.

Outline of chapters

This paper begins with the chapter on introduction, which contains a highlight of the background to the study. The research aims and objectives of the dissertation are also enumerated, followed by research questions, hypothesis, and statement of the problem. The introduction sets the stage for a greater understanding of the research topic, problems being addressed, and scope of the paper.

The second chapter is the literature review. In this chapter, various secondary data sources are explored, analyzed, and discussed. The aim is to determine the scope, depth, trends, and gaps in literature on marketing strategies aimed at customer retention. This chapter provides an academic basis upon which the dissertation is built. Various theoretical concepts are explored in a critical manner. The information obtained in this chapter is put into consideration when making conclusions and recommendations. The specific areas of emphasis in the literature review include customer retention theory, how to gain loyalty from customers in communication services, and the use of technology to predict churn.

The third chapter, Methodology, addresses the two methodologies that were put into consideration:     marketing-mix modeling approach and case study approach. The chapter explains why the latter approach was adopted and how it was incorporated as part of the entire research design. The researcher also provides a justification for the choice of case study approach. The chapter ends with an explanation on sampling techniques and research framework.

The fourth chapter, Data and Analysis, starts with a profile of the company under analysis: Telefónica UK Limited, which uses the brand name O2. The company’s overall marketing strategy is described in detail. Specific attention is on its various customer retention activities and the strategies used to achieve this goal. Three marketing campaigns are highlighted: ‘World that revolves around you’, ‘Thinking of You’, and ‘Priority Moments’. The case study covers O2’s data mining strategy, and the company’s efforts to prioritize value over physical numbers. The chapter also has a section on O2’s diversification into healthcare, finance, and education. Towards the end of this chapter, the theoretical appropriateness of O2’s customer retention strategies is discussed.

The fifth chapter is Conclusions. In this chapter, a link is made between literature review and the findings of the research so as to derive valid conclusions. Two areas are covered: practical aspects of customer retention activities and theoretical implications. In the last chapter, credible recommendations are given in line with the dissertation’s key findings.

Statement of the problem

The task of retaining the existing customers is a fundamental one in any business. For companies that operate in the telecommunications industry retention of customers is always a priority. Moreover, in the business world, competitors are always looking for an opportunity to steal one’s customers, while customers always live in the hope of getting a better deal in the future. Some companies, for instance those in the insurance and banking sectors, put in place barriers that discourage customers from leaving. In such companies, customer attrition rates tend to be lower than in, say mobile phone service providers, where there are very few barriers. Companies that manage to retain their most important customers end up increasing their profitability by very wide margins. This explains why it is important for every company to have a strategy for customer retention.

Marketing strategists in the telecommunication industry the world over are keen to understand industry dynamics (Huber 2008, p. 184). They are inspired to design strategies by the stellar performance-related developments that have been occurring in the industry since the early 1990s. As the industry grew, there were many instances where telecommunication companies that had erstwhile operated as monopolies started facing competition, eventually necessitating privatization. This has led to today’s scenario, where there is stiff competition among service providers, with rival companies endeavoring to edge each other out in various parts of the world. In such circumstances, it is becoming increasingly difficult to retain existing customers.

In the telecommunications industry, innovation and market-driven competition are key factors that influence profitability. The world is becoming increasingly globalized, whereby it is common for many telecom service providers to find themselves competing for the same pool of customers and resources needed for operations. As innovation redefines the nature of business in the industry, new opportunities continue to emerge.

Moreover, customers are increasingly becoming aware of new telecom products immediately after their release (Lüdicke 2007, p. 117). This creates pressure for telecom companies to invest in activities aimed at repackaging these products for commercial use. This translates into an increase in customers’ assertiveness regarding the products that they want and reliability of telecom services. Underlying this assertiveness is the highly popularized notion of a one-stop shop in the industry.

Yet the availability of technological developments and pricing strategies are not the ultimate determinants of success in the telecom industry. Rather, success is going to be determined by quality of products, ability to meet customers’ needs, cost-reduction efforts, and the speed at which product inquiries are responded to (Xevelonakis 2010, p. 226). This may explain why the challenge of customer retention has essentially been instrumental in triggering a flurry of interest in theories of marketing. For scholars, the aim has been to relook at them in light of the dynamics of the contemporary world so as to find out whether they should be modified to be in line with new knowledge.

Nevertheless, even as scholars ponder over the issue of increased assertiveness by telecom customers, some fundamental business concerns remain the same; the need to improve productivity, risk of customer turnover, and reduction in profitability. Mobile communication service providers no longer find it possible to dominate the markets, at least not in the long term. Instead, they have to strive to pull customers away from competitors who are perpetually luring them. Moreover, new corporate participants are crowding the industry, making it increasingly difficult for even the most established firms to stand out from the crowd.

As these changes continue to take place, the debate on customer retention efforts has shifted from that of customer base consolidation to that of increasing value of the products provided. Companies aim to hold onto the customers they already have instead of rushing to acquire new ones. This is where the main research problem for the present study lies: determining the effectiveness of customer retention strategies.

Indeed, this research study is inspired by this renewed interest on the subject of marketing strategies used to retain customers. Although it is rather easy to find case studies that focus on companies in the telecommunications industry, there are still significant research gaps, particularly with regard to the relationship between theory and practice.

In the traditional conception of marketing mix, the difference between service marketing and industrial marketing has not been clearly spelt out. It is imperative to relate industrial marketing to the provision of tangible goods and to relate service marketing to promotion of specific services. In the telecommunications sector, service marketing appears to dominate, particularly with regard to provision of voice, data, and video services. However, in this industry, there is also some element of provision of tangible goods, such as mobile phones, handsets, and technology-related accessories.

The need for a new approach in marketing appears to be one of the main concerns of marketers who operate in today’s service industries. Instead of focusing too much on marketing mix management, they appear to yearn for an approach in which marketing activities are centered on building lasting relationships with customers. After all, business trends continue to evolve, such that strategic partnerships are more important today than at any other time in the past. In the course of building these relationships, lasting networks are formed.

In this paper, an image of the crucial changes that are imminent in the world of marketing is presented. It is also succinctly clear that not much has been done to solve this problem using a case study method, where a company’s primary data is used to provide evidence for comparison with the secondary data that has been document in recent literature. This paper is an attempt to address this problem, highlight the most critical findings, and make suggestions for further research.

Chapter 2: Literature review

Introduction

This literature review is the foundation upon which this dissertation is built. It entails a critical analysis of theoretical ideas and concepts relating to marketing strategies relating to customer retention. Specific reference is made to the telecommunications industry, wherein the company from which primary data will be gathered (O2 Mobile) operates. In this chapter, an analysis of secondary data sources is presented. From this analysis, strong arguments are synthesized to determine trends and gaps in research. The arguments are also of great relevance as proof and evidence in the chapters on analysis and conclusions.

Theoretical ideas on marketing strategies and customer retention

In literature on customer retention, one of the most commonly used terms is Customer Relations Management (CRM). For instance, this term is used by Payne (2006, p. 169), where focus is on the critical challenges that operators in the telecommunications industry face. Payne’s (2009) study was aimed at designing a strategic framework for CRM-related marketing activities. Payne made use of customer billing data to investigate the factors that determine customer churn within the telecommunications industry in Korea. Most of the reasons for customer churn had to do with quality of calls. However, customers who participated in membership programs also exhibited a high level of churn. This finding raised pertinent questions regarding effectiveness of the membership programs. In the Korean study, there was a high likelihood of heavy users to churn.

In the telecommunications industry, the term ‘customer churn’ is also commonly used (Wong 2010, p. 2265). Customer churn simply refers to customer turnover (Ahn 2006, p. 556). Churn is mostly talked about in the context of the telecommunications industry, where subscribers of mobile phone services tend to switch from one provider to the other. Churn is most commonly associated with lack of satisfaction with the prevailing service provider, reduction of prices for the same service by a competitor, and improvement of quality of service offered by a competitor for the same price. Sometimes a subscriber may switch companies because of moving from one geographical area to the other or a desire for improvement in the quality of communications-related services.

Regarding marketing strategies, there are varied contributions in literature on how companies retain their customers. A case in point is Villanueva (2008, p. 53) who compares the customer acquisition approach of word-of-mouth with that induced by marketing activities. Villanueva (2008) explores the different ways in which these approaches contribute to the growth of the customer base of companies.  The word-of-mouth approach is cheap but time-consuming, in addition to the fact that it is extremely slow.

Clearly, there is scanty literature on how to determine the long-term benefits of various marketing approaches. However, various scholars have suggested different customer churn models then gone ahead to assess how accurately each of these models can be used to determine customer churn. A case in point is that of Neslin (2006, p. 206), who is concerned about how different methodological factors influence the accuracy of various customer retention models.

According to Ranaweera (2009, p. 381), there are many neglected factors pertaining to customer retention, and one of the ways of unearthing them is by paying attention to the role of switching barriers in different purchasing settings. In some purchase settings there is continuity while in others, this continuity is normally lacking. In telephone and mobile phone services, there is normally a high degree of continuity, which serves as a barrier of sorts to those who may wish to switch from one service provider to the other. Ideally, though, it appears plausible to argue that trust is a more influential factor for customer retention than satisfaction (Ranaweera 2003, p. 381). This is true, considering that a customer may lose trust in a service provider even after being satisfied with the quality of the services being offered. Ranaweera (2003, p. 381) suggests that service providers should create a perception of barriers to switch so as to retain even dissatisfied customers. Moreover, the perception of barriers to switch, it appears, can be used in a complementary fashion with satisfaction so as to retain the highest number of customers (Ranaweera 2003, p. 381).

Ranaweera’s views are shared by Gounaris (2005, p. 136), who notes that trust has a significantly impacts on efforts to retain customers. This applies to both individual consumers and business-related buyers. However, Gounaris (2005, p. 137) observes that there is limited academic coverage of the concept of relationship marketing. Nevertheless, it is clear that when buyers perceive quality in a product, they become committed buyers. When sellers create a bond between themselves and buyers, trust creeps in, leading to retention.

There are many efforts to explain why it is cheaper to retain the subscribers who already exist than to bring in new ones. According to Hadden (2007, p. 2907), efforts to win new customers come with more charges than those aimed at retaining them mainly because of the need to make an outstanding ‘first impression’. This may explain why much of the available literature dwells on how to pinpoint customers with the greatest likelihood from moving on from one service provider to the other.

Meanwhile, the problem of accuracy in efforts aimed at customer retention creates the negative effect of making organizations incur very huge amounts of money. In response to this challenge, experts have designed different strategies of managing churn. Each of the strategies comes with its benefits and drawbacks. On the basis of an in-depth analysis of such strategies, marketers may derive interesting ideas on how to retain the existing customers for the longest time possible.

In any marketing strategy aimed at retaining customers, marketing professionals have to be experienced in ways of mining data so as to find the necessary information. This historical data may relate to the transactions made, bills paid, and contracts being managed. Data on these issues can be very helpful in figuring out patterns of behavior among clients. According to Hadden (2007, p. 2907), a marketer can reliably reduce turnover of customers by finding out the reasons for churn and then acting upon this information. This may work better than finding out which group of customers is likely to switch to a new service provider. In this regard, the impression created is that data should be analyzed in context as opposed to a simple analysis of historical trends. Such a task may be a complex but very necessary one, which would entail categorization of customers into different groups, depending on their operational contexts.

The issue of categorizing customers is always at the heart of marketing strategies, since a good marketer has to understand the characteristics of different customers. These characteristics are useful in determining those who are likely to switch and those who can be easily retained. In this regard, Lopez (2006, p. 557) focuses on the switching behavior of customers by differentiating between those who are likely to switch and those who are likely to stay. Lopez acknowledges that long-term relationships with customers are crucial for ultimate survival of a company. The relationships contribute to an increase in a company’s profitability in addition to making it appear viable in terms of future projections.

Many top corporate executives are aware that customer switching behavior is normally accompanied by a negative image. The behavior may even limit the likelihood of strong customer-marketer relationships in the future. An analysis of customer profile easily shows that customers are in most heterogeneous in terms of characteristics. This variation in characteristics translates into differences in the likelihood of churn. Typically, the customers who are least likely to switch are those who have established a stable relationship with the company, have invested in alternative services, and use the company’s products more frequently.

Marketing practitioners should be aware of the need to put in place strategies for acquiring and retaining customers so that the information of each customer is taken into account. When this information is analyzed, it becomes easy for the most cherished customers to be retained while at the same time guiding the process of optimal allocation of marketing resources. This can be achieved by directing attention from customers who are not prone to switch and redirecting it to those who can easily switch.

While addressing the issue from a different perspective, Mattsson (1997, p. 83) talks about relationship marketing. Mattsson specifically points out to an evolving research trend in Europe, where scholars are in recent times focusing on the need for marketers to network. According to Mattsson, the marketing mix perspective is the one that has triggered the conception of relationship-based marketing. The shallowness of this perspective makes many marketing scholars and practitioners to change their analytical dimension, by choosing to view marketing from a generic perspective, where sellers are continuously networking with buyers.

Customer retention theory

In customer retention discourse, there is a wide range of concepts, theories, and hypotheses that attempt to describe the issue of customer retention. One of the key issues that govern how people analyze customer retention is behavior. Regarding this issue, Kivetz’s (2009, p. 29) contribution is the observation that as human beings move closer to a reward, they put in place more efforts. Kivetz (2009, p. 28) refers to this as goal-gradient hypothesis. This hypothesis is important because it sheds light on the issues that motivate customers to stick with a specific service provider. Kivetz (2009) argues that the issue of customer retention has a lot to do with psychology. Kivetz’s main point is that when there is an illusion of movement towards a goal, consumers tend to keep buying the products on sale. The goal being pursued is in most cases a gift or a free item that of utility to the buyer. However, matters of motivation are not just about a goal. They also have to do with the proximity to the goal. When buyers perceive the target goal to be within reach, they are likely to be retained and vice versa. This finding is critical for marketers in their efforts to design promotion-related activities with the aim of retaining the existing customers.

In some areas of customer retention theory, there are disagreements on which practices are the best ones. A case in point is on the issue of low-price guarantees (LPGs), where sellers indicate that they will readily pay back the extra amount of money in case the buyer finds a competitor selling the product more cheaply (McWilliams 2006, p. 107). Most of the retailers who offer this guarantee also promise to have the buyer get all his money back in case he finds out the product was not up to his expectations. McWilliams (2006, p. 107) points out that some scholars argue that LPGs are illegal they end up leading to an upward adjustment of prices. However, on his own part, McWilliams (2006, p. 107) is in support of LPGs for the reason that they lead to a reduction of unfair practices in the economy.

The views expressed by McWilliams (2006, p. 107) are applicable in firms that employ the relationship marketing approach. In this approach, the notion of customer lifetime value (CLV) is elaborated. In CLV, consideration is given to how profitable a customer is vis-à-vis the cost of acquiring and retaining that customer (Malthouse 2006, p. 12). Companies that use this approach capitalize on the most profitable customers with a view to retain them. The underlying assumption in this approach, though, is that it is possible for marketers to make a prediction on how valuable customers will be in the future. This puts into perspective the need to assess the risks that marketers are exposed to whenever they misclassify customers. In truth, there is indeed a probability that some customers may mistakenly be judged to have a lot of value. The ability of firms to predict the value of their customers accurately constitutes a key research issue. The main problem with this approach, though, is that there is no guarantee that customers who have been proven to be highly profitable in the past will maintain the same status in the future. Similarly, some low-value customers of the past may turn out to be high-value customers of the future.

In recent literature, a lot of attention has been on computing the CLV in different business situations. For many marketers, the choice of computation approach depends on the nature of the business. Conventionally, many challenges arise during efforts to classify into different the two categories, while at the same time bearing in mind many underlying practical considerations (Kumar 2010, p. 65).

A more specific approach suggested by Rust (2009, p. 114) entails the use of customer equity to determine which customers contribute most to the company’s financial growth. In this case, customer equity is determined by putting into consideration the amount of money that has to be spent to retain that customer. The customer equity of a company is always changing in tune with the CLVs of the existing customers. These changes are always taking place not just in the company, but in across all sectors and industries. It is normally prudent to compare the customer equity changes in a company in comparison industry-wide dynamics. Through such an approach, a company can easily establish whether there are some internal problems that make the company remain out of tune with industry customer retention practices and trends.

Regarding prediction of customer retention and their likelihood of generating increased profits, Larivière (2007, p. 481) recommends the use of what he calls ‘regression forests techniques’. Larivière points out that the most critical aspects of this prediction is a determination on what the customer is going to buy next, the likelihood of him partially defecting, and the most probable trend in the evolution of his contribution to the company’s profits. The main variables in determining these conditions include proximity to intermediaries, the heterogeneous of customers, and the way they have behaved in the past in response to various practical challenges at the firm.

It is clear to understand the impact of one variable on customer retention one has to put into consideration the impact of all the other variables. In Larivière’s study, the main finding was that the way customers have behaved in the past is a very crucial factor in determining future churn. Another important finding was that closeness to intermediaries also influences considerably the possibility of defection among customers (Larivière 2005, p. 482).

In customer retention theory, there is also a hotly contested debate on whether a company should seek to increase the share of wallet of the existing customers or whether it should embark on increasing its market share. Most researchers argue in favor of increasing the share of wallet because this marketing strategy is cheaper. One of the ways through which the share of wallet can be increased is the introduction of new products that are targeted at the customers that the company has already managed to retain.

In analyzing the issue of share of wallet, Cooil (2010, p. 84) argues that it is important to use a longitudinal approach. Such an approach, according to Cooil, would greatly help establish the extent to which the existing customers are loyal, and hence retainable. Cooil (2010, p. 84) faults the proponents of horizontal studies for starting off their investigations with the presupposition that loyalty is the most critical determinant of retention. There is no doubt that when there is a shift in the level of satisfaction among customers, this can cause dynamics in share of wallet. The dynamics, though, are influenced by various confounding factors, such as the customer’s financial status and the duration during which he has been a customer.

Guo (2009, p. 1152) supports the arguments raised regarding psychological processes that customers go through as they decide on whether to shift from one service provider to the other. In his argument, though, Guo uses attitude-behavior model. This model puts into consideration both the attitudes customers have towards the products being offered and the attitude towards their own behavioral dispositions. In Guo’s study, the most important finding was that there are many intervening determinants that come into play before customers for customers to be retained, even after they have become satisfied with the products being offered. Therefore, it would be naïve of a marketing specialist to think that a customer is going to stick around just because he is satisfied with the products being provided. Retention has to do with many things, including the way they perceive their buying behavior.

In CRM literature, there are recurring themes on implementation with regard to changes in technology and organizational structures. Clearly, technology impacts greatly on the way customers are acquired, maintained, and retained. Such activities are obviously carried out in an organizational setting. Although many companies have put in place CRM systems, not all of them have implemented these systems in the right manner. As Becker (2009, p. 214) observes, although it is within the capacity of companies to leverage the effects of CRM systems, not all of them put this possibility into consideration. Against the backdrop of this observation, Becker (2009, p. 214) proposes a conceptual framework that creates a link between organizational and technological components in terms of the way CRM systems are implemented. In Becker’s study, which was carried out in Europe, it emerged that there are variations in the way performance is impacted upon by various components of the CRM systems. Moreover, satisfactory impact can only be recorded if all the relevant stakeholders of the firm provide sufficient support (Becker 2009, p. 215).

Some scholars focus not only on the way CRM systems are implemented, but also on the way the customers to be retained have been acquired. Schmitt (2010, p. 73) for instance, contends that customers gotten through referral programs are of greater value than everyone else. Moreover, according to Schmitt, they bring in more profits to a firm. Schmitt’s findings are supported by a survey of some 10,000 bank clients in Germany for two and a half years. Customers who had been referred to the bank contributed more to the bank’s profits, were more likely to be retained in the bank, and were more valuable. However, whereas the high retention rate persisted over time, their contribution to the organization appeared to diminish with time. However, this value was found to differ significantly depending on marketing segmentation. The implication here is that referral programs work best if marketing specialists apply selectively in an organization.

Indeed, the quality of relationships in a firm matters a lot in determining the likelihood of switching. Customers who are referred to be part of a company’s client base are more likely to become loyal, thereby removing the need to put in place switching barriers (Liu 2011, 73). Meanwhile, Liu went ahead to carry out a survey of Taiwanese mobile phone subscribers, where elements of trust and satisfaction were explored. Liu sought to determine the differences between the factors that affect trust and those that affect satisfaction. The findings were that satisfaction is affected by improvement in the quality of the services offered as well as playfulness. Trust, on the other hand, was impacted upon by not just by quality of service but also intimate relations with the service provider. By being playful, therefore, service providers can be sure to win the trust of their customers, thereby retaining them. Nevertheless, the service providers should not neglect quality just because they are pursuing the goal of winning the customers’ trust; both objectives should be pursued simultaneously.

From the ongoing discourse, it is clear that the task of engaging customers with a view to retain them is a complex one. A marketing professional has to put in place many considerations, including behavior, market segments, intimacy, and inherent features of the product being sold. Moreover, as Carter (2008, p. 22) notes, drastic changes have taken place in the way promotion-related activities are being carried out. Carter (2008, p. 22) notes that despite these changes, US corporations continue losing 50% of their existing customers every six years. As technology continues to change, competition continues to increase. In such an environment, customers are more enlightened, therefore are very specific on what they are looking for. Business models continue to change at an alarming rate, such that people are exploiting new opportunities that appear like barriers to others. Survival depends largely on a firm’s ability to adapt to the increasingly dynamic globalized corporate environment.

Marketing strategists who are keen to maintain a competitive edge should ideally have the instinctual capacity of evaluating the effect of customer retention efforts on the overall performance and innovation in their companies. Arnold (2011, p. 239), conquers with many other researchers that firms that focus too much on acquisition of new customers hinder innovation incrementally although they may be viewed to possess a radical image. Therefore, knowledge about customers is a critical resource that marketing specialists and top executives can use to configure crucial decisions pertaining to profitability in the firm. Moreover, strategies of maintaining intimacy with customers should leave room for tradeoffs with regard to the decision making process.

Some researchers point out to retail strategies as a way of mediating the manner in which customers are retained (Eshghi 2007, p. 95). The retail strategies chosen should be designed in such a way that they contribute to an increase in customer loyalty. Raya (2009, p. 12) points out to the notion of ‘store effect’ in his explanation of the way in which retail strategies can contribute to customer retention by nurturing customer loyalty. In this regard, the uniqueness of the environment in which the services are offered contributes greatly to the effectiveness of the retails strategies used. The element of loyalty makes customers feel as if they have a share of the store from which they get the products that they are looking for. This notion may not applicable to the services sector, particularly those services that do not necessarily require customers to keep frequenting the brick-and-mortar headquarters of the firm. Further research into the idea of ‘store loyalty’, though, has the potential to bring about far-reaching strategic marketing theory implications.

To understand the potential for far-reaching strategic marketing theory implications, it may be necessary to provide an example of a marketing theory that has been properly synthesized. An excellent example is the institutional theory, which was proposed by Hillebrand (2011, p. 601). The institutional theory, according to Hillebrand (2011), can contribute greatly to the way people understand the process of carrying out marketing-related activities, including customer retention. It is on the basis of this very theory that Hillebrand argues that the marketing practices become continually ineffective as firms continue to derive motivation for the use practices triggered by internal pressures within the institutions. To avoid the decline in the firm’s effectiveness, it is normally prudent to align practice with the existing marketing decisions so as to cushion the firm against the undesired CRM outcomes.

Companies that manage to prevent the influence of internal organizational pressure from disrupting their CRM efforts find it easy to trigger loyalty among customers. However, this approach has been widely criticized for being unreliable as well as too costly for come organizations. This criticism is echoed by Hillebrand (2011, p. 603), whose evidence is derived from a study of 107 companies.

Customer retention strategies used in the telecommunications industry

Some of the most interesting studies on marketing strategies for customer retention have been carried out in the telecommunications industry. These studies are relevant for purposes of both theory and practice. One of such studies was carried out by Seo (2008, p. 184), and its orientation was largely on the side of theory. Seo proposes a two-level model for retaining customers within the telecommunications industry across the United States.

1.     Increasing the cost of switching

One of the reasons why it is crucial to retain customers in the world of telecommunications is the prevailing increase in competition. In this regard, the companies have to operate in an environment where continuous service is being offered. In such a situation, the companies get an opportunity to introduce new services during the course of the time that the customers will enjoying the core services. These additional services are always crucial for the generation of additional revenue. The costs of switching constitute a critical factor for customer retention just in the same way as general consumer behavior.

On the one hand, there are many factors that influence the costs of switching from one operator to the other, key among them the complexity of the operator billing plan, complexity of the handset, and reliability of connectivity (Seo 2008, p. 185). On the other hand, demographical factors such as gender and social class have a huge impact on the complexity of the billing plans and sophistication of phones, leading to differences in switching behavior (Seo 2008, p. 185).

The concept of CRM has affected the traditional conception of marketing in the telecommunications industry in just the same way as in other industries (Wright 2002, p. 341). The debate on CRM puts into perspective the ways in which the gap between theory and practice in CRM is being bridged. In contributing to this debate, Wright (2002, p. 341) uses case studies of Europe-based telecommunications firms to analyze the ways in which the use of information technology has facilitated success of their marketing strategy of delivering customer-centered services.

Wright (2002, p. 342) argues that for CRM to succeed, marketers should understand all customer segments in great detail. Information regarding the needs of customers should be obtained from not only the employees who come into contact with them but also from stored data. Technology comes in with regard to the infrastructural perspective, whereby it facilitates the distillation of data on each customer and all his interactions with the service provider. Such information is necessary if the right business decisions are to be made and customers retained.

Customers are also interested in being part of the globalized market, and this has an influence on the likelihood of winning their loyalty (Khatibi 2002, p. 35). With the cut-throat competition that comes with the borderless market, marketing strategists may find it wise to improve the quality of the services that they offer so as to have a competitive edge. Customer-centered attention has to be maintained at all times. However, Khatibi (2002, p. 35) reiterates that satisfying a customer is not a guarantee that he will remain loyal. In a study of TMB, a Malaysian telecommunications company, Khatibi (2002, p. 36) confirms that a customer may be satisfied still exhibit signs of disloyalty to the service provider. The study, however, fails to highlight the factors that have an influence on the loyalty of customers.

2.     Customer clubs

As the desire for customer retention in the industry continues to grow, new ways are being designed of retaining customers. One of these ways entails the use of customer clubs (Roos 2005, p. 441). Through customer clubs, business entities are able to maintain contact with customers and to communicate with them on a regular basis regarding the services being offered. The clubs are particularly essential for purposes of feedback as well as notices on new products. Sometimes the members of the club may even hold meetings so as to maintain an intimate relationship and a sense of common purpose and togetherness. Meanwhile, a key element of a business club is that it has to be the brainchild of the business entity from which the customers are receiving services. This means that the marketing department has to be involved in the planning, management, and administrative work within such groups to install a marketing and retention strategy.

According to Roos (2009, p.288), there is need to put a lot of attention on the ways in which  customer clubs re-energize the resolve of customers to continue seeking the services of a specific service provider. In his study, Roos found out that these clubs are first and foremost excellent avenues of encouraging customers to continue being part of a company’s success story. Other than that, they are excellent tools for use by marketers in nurturing a sense of loyalty. Other than helping retain the existing customers, the clubs also play an additional role of helping attract new customers. The main limitations of Roos’ study, though, was that it focused on just one firm and the size of the sample was too small.

An interesting finding in Roos’ study was that customers appeared to neglect certain elements of the clubs whenever they were anticipating their future behavior with regard to relationship with the company. In other words, the issue of customer clubs would not bother them much if they were to contemplate ceasing to be customers of the telecommunications company.

The prominence of customer clubs appears to have come after many countries stopped putting in place regulatory frameworks in the telecommunications industry, especially in Europe (Gustafsson 2010, p. 158). The main aim of introducing these clubs was to retain customers and to increase profits. Today, they have become accepted as an integral part of marketing strategies in the telecommunications industry. Gustafsson’s main concern, though, is that the benefits of these clubs are not guaranteed. In a study of the Swedish telecommunication industry, Gustafsson (2010, p. 158) found out that majority of members of such clubs did not think that they had become loyal by virtue of membership in a customer club. However, members of these clubs were found to perceive their service providers more positively.

3.     Use of customer profitability as basis of retention efforts

By focusing on customer profitability, companies can ensure that their CRM efforts achieve the intended goal. In this regard, focus is normally put on ensuring that significant contributions are made to companies’ bottom line.  According to Xevelonakis (2010, p. 226), many firms in the telecommunications industry are unable to derive benefits from customer retention strategies probably because of failure to put into consideration the issue of customer profitability. Most of them focus only on the reduction of customer turnover.

Based on profitability, companies need to consider the risks posed by customers and compare it with the extent to which they are profitable to the company. Outcomes of every campaign should be evaluated for control purposes (Xevelonakis 2010, p. 226). The level of risk posed by customers depends on many factors, and one of the most crucial ones is customer behavior. Anticipation of changes in customer behavior is imperative of these changes are to be responded to through a change in product offering.

In efforts to retain customers, many offers are normally provided in the form of discounts, deals, and gifts. The underlying aim is normally to reduce customer turnover. The success of these marketing offers is normally assessed with reference to the customers who have been retained. No efforts are made to consider differences in value of customers. In most cases, therefore, the price of customer loyalty ends up being higher than the total value of the retained customers. For this reason, it is clear that many customers end up benefiting from the CRM campaigns put in place by their service providers. Such customers pose a considerable risk to their service providers since they are a liability. It is upon service providers to pinpoint such customers and exclude them from their CRM campaigns.

In considering customer profitability, service providers have to determine the cost of retention efforts and the rate of customer turnover. Efforts should be made to ensure that churn rates are reduced as much as possible at the lowest possible cost. Consideration on value of customers can enable the service provider determine the highest amount of money that can be spent, on average, on every customer (Berson 2010, p. 173). Better still, the company can choose to target different customers with varying deals depending on their profitability.

In today’s world of business, it is not realistic for a business to embark on a mission of preventing customers from switching at any cost. Many strategic considerations have to be put into perspective before a decision is made regarding a CRM campaign. Such considerations may be difficult to figure out through a mathematical model. Instead, a profitability-based approach, however simple it may be, can help managers determine whether or not to carry on with a marketing campaign. In such a model, the objectives of the business should take center stage.

Although different businesses may have different objectives, at least all of them share the goal of ensuring that they maintaining long-term relationships with all the customers who bring the greatest value. This entails building trust, repackaging products to meet customers’ needs, and being response to their needs in a manner that translates into a reliable customer experience. To be able to pinpoint who these profitable customers are, a company has to be in possession of reliable data regarding the customers’ buying trends and behavior. The company’s managers also need to understand what various behaviors indicate. A key data access point regarding customers’ profitability is the customer care section. Customer care representatives tend to have access to all types of data regarding customers since they are the ones tasked with the work of ensuring that these customers’ queries are answered.

Xevelonakis (2010, p. 230) talks about the notion of customer clustering as an excellent way of understanding why customers behave in the way they do. Xevelonakis states that through clustering, a company can be able to get direction on how to offer complexly packaged services in a manner that satisfies all customers. Whenever necessary, prices are adjusted and emphasis redirected during product positioning so as to reflect the needs of different customers. Xevelonakis adds that there is a need for a very powerful database where crucial information is stored for use in customer clustering.

For purposes of clustering, every company needs to put in place criteria for determining which customer should be placed in which segment. Moreover, a company has to choose from among many clustering methods. Xevelonakis (2010, p. 231) suggests the use of self-organized maps (SOMs) to cluster customers. SOMs, according to Xevelonakis (2010, p. 231), are highly effective in the classification of large datasets on the basis of similarities with regard to factors such as frequency of use, demography, and billing trends.

How to gain loyalty from customers in the mobile communication industry

When customers are loyal, a marketer can be sure of retention as long as high quality services are being offered all the time. For the sake of nurturing loyalty, it is imperative that customers perceive value in the services being offered. The perceived value may come in many dimensions, including financial, social, aesthetic, and emotional (Pura 2011, p. 531). These dimensions of value normally translate into behavior change among customers. The behavior change depends on specific dimensions and the extent to which a customer believes that his needs are being met.

The context in which a service is being offered plays a critical role in determining the expectations of customers. When emotional value is nurtured among customers, it becomes easy to make them become committed to the services being offered. However, there is scanty research on various value dimensions that marketing specialists should focus on, especially in international service delivery environments.

In the world of mobile service delivery, monetary value does not count a lot, especially when compared to situational contexts. Customers are getting used to making spontaneous decisions depending on the problems at hand vis-à-vis the available solutions. To gain loyalty, a marketing strategy has to be designed in such a way that a multidimensional approach is used to create value.

Today, many companies continue to lose a large number of their customers because of failure to inculcate loyalty in them. They are unable to build trust, to maintain a strong brand, and create the conditions necessary for them to perceive value in spite of high prices of services offered.  Aydin & Özer (2010, p. 911) belabored this point after carrying out a study of the Turkish mobile communications market. In this study, Aydin and Özer found out that although it is necessary for customers to perceive quality in the services being offered, this is not the only condition for loyalty to be achieved. The findings in Aydin & Özer’s (2010, p. 911) study are highly relevant considering that in the face of stiff communications, service providers are moving away from mainstream services to value-added services. A crucial thing for mobile operators to do is to establish a differentiation between the two categories of services and reassure customers about quality even in the face of shifting competition.

Loyalty is in most cases assessed on the basis of the duration of time over which a customer is retained. Nevertheless, as mentioned earlier, many dimensions have to be considered in determining the nature of relationships between marketers and customers. Similarly, a multidimensional approach has to be taken in determining the calculative nature of loyalty among customers. Whenever customers commit themselves to the services of a specific provider, there are specific benefits that they hope to derive in the long run. It all depends on the prevailing situation in the industry and the benefits to be derived by certain reactions (Gustafsson 2007, p. 212). Every effective marketing strategy should be designed against the backdrop of the expectations of the customers, both in the short run and long run. Although it is difficult to predict prior churn, it is possible to control by ensuring an in-depth understanding of the customers’ needs and expectations (Gustafsson 2007, p. 213).

One of the most critical pointers that marketers have to look at is the emotional experiences of customers. To understand these experiences, the marketer may have to reach out to the customers and request for this information from them (Roos 2008, p. 298). They have to appreciate the role that emotion plays in deciding whether to switch or to remain loyal to the service provider. If sufficient data is maintained by the service provider, it may be possible to deduce the frequency of negative emotional reactions. From this information, one may be able to infer various possible causes of the undesirable reactions from loyal customers. In most cases, the process of churn is accompanied by strong emotional reactions. These emotional dispositions are in most cases highly likely to trigger irrational decisions. However, if properly anticipated, it may be possible to control the damage by managing to convince the customers to stay on despite their reservations and fears.

The main difficulties that marketing strategists face with regard to the prediction of customers’ Behavior intentions is lack of coherent literature. Most of the available literature is highly fragmented, such that there is no single authoritative text that the professionals can rely on. To make their predictions regarding the loyalty of customers and the possibility of churn, they have to refer to a wide range of sources, some of which may be unreliable. According to Wang (2010, p. 55), the best to deal with this challenge is reliance on expert opinions and the specific culture within which the customers operate. These two elements of decision making should be analyzed against the backdrop of carefully constituted focus groups that are representative of a company’s customer base (Wang 2010, p. 55).

Apart from reliance on expert opinions and the specific circumstances in which customers enjoy the company’s services, there is a blend of other numerous factors that have to be put into consideration. These factors include the quality of the services being offered, the monetary value of specific customers, and the extent to which customers are satisfied. Apart from contributing to a fairly accurate prediction of future churn rates, these factors can help the company’s managers to determine the level of loyalty among different customers.

The search for information on customer loyalty can be a daunting one, largely because not many theories have been developed to explain this notion satisfactorily. Nevertheless, if one focuses on CRM literature, numerous ideas have been developed on the need for targeted marketing campaigns aimed at retaining the existing customers. The sheer breadth and depth of CRM debate makes it difficult for individual topics to incorporate all the factors that contribute to dynamism in customer retention. This may explain the reason why, for instance, Hwang (2010, p. 181) focuses only on customer value when developing the Customer Lifetime Value model.

However, the Customer Lifetime Value model has its limitations as well, the most significant one being that it is not possible to consider the rate at which customers are going to defect (Hwang 2010, p. 184). Any prediction that is done depends on the past trends in the buying behaviors of customers and the amount of money that they have contributed to the company’s profits. To overcome this problem, Hwang (2010, p. 185) suggests that customers should be analyzed and segmented in accordance with their value. The value that should be considered here is the current worth, potential contribution to profitability, and the extent to which the customer is loyal to the company (Hwang 2010, p. 185). The roles played by each of these factors differ with regard to effects on the likelihood of customers switching.

The level of loyalty that a customer attaches to the service being offered is based on the perception of both importance of the relationship and satisfaction. According to Kuusik (2009, p. 66), ensuring that services are reliable is the most crucial way of maintaining loyalty-like behavior among customers, while image-building is the core strategy of nurturing commitment among customers. However, the notion of ‘levels of loyalty’ seems rather abstract, and one that has not been explored widely in literature. It may indeed be difficult to determine a customer’s level of loyalty. The issue becomes even more complicated when many factors have to be put into consideration in determining the likelihood of a customer leaving.

To avoid this abstractness, some authors prefer to stick to the notion of ‘switching behavior’. Low (2009, p. 681), for instance, goes even further to compare the notion with that of ‘relationship equity’ in the context of customer churn. Relationship equity appears to be closely related to customer value with regard to their importance in CRM. CRM specialists are interested in understanding the variables that influence how a buyer perceives the products being sold to him. With this understanding, it is possible to determine how customers make choices in a market full of propositions and how these choices are influenced by the level of loyalty.

Switching costs also tend to have an impact on loyalty among customers in the telecommunications industry. When the switching costs are high, customers become more inclined to assess their options, after which sticking to the current company becomes the best option. According to Lee (2009, p. 41) switching costs are normally introduced in the form of a customer retention strategy. When switching costs are in place, some erstwhile loyal customers may become dissatisfied but due to the additional costs, they would have no choice but to remain with the service provider. Such customers may hope that the company will improve the services it is offering. At such a time, the savviest marketing strategists would need to unearth this discontent and address it in time to retain the dissenting customers.

In a study of switching costs in the French telecommunication industry, Lee (2009, p.43) found out that the costs are extremely useful because they moderate the connection between loyalty and contentment with the services being offered. This can best be understood if the analysis involved categorization of customers on the basis of their needs and expectations. In the case of France, for instance, switching costs have been seen to moderate customers’ expectations and their level of loyalty (Lee 2009, p. 44).

Use of technology to predict churn

Marketing practitioners, corporate strategists, and business stakeholders have over the last few years expressed concerns over the unsettling effects of technology, where new developments have had unsettling effects on customer retention efforts. The impact of these technological changes, at first sight, appears as if it cannot be explained through the traditional understanding of marketing concepts. Worse still, there is limited literature on these dynamics and the way they can best be understood. This problem is mostly prevalent in the wireless communications industry. The dynamics have in most cases necessitated frequent changes in communications policies of various countries.

Meanwhile, telecommunications companies have not been left behind in making the most out of available technologies. A case in point is the use of ICT to predict and determine customer churn. To increase accuracy, marketing practitioners make reference to literature on retention to compare the expected behaviors and perceptions of customers with day-to-day practices. A case in point is the Business Model that Al-Debei, M, 2008, p. 3) proposes in businesses whose clients use cellular networks to go about their daily activities in highly mobile environments. For Al-Debei, though, the world of technological applications operates in such a way that an overhaul of the entire business model is required if a new aspect of CRM is to be introduced. The implication created here is that it is highly expensive to embed technological components into customer retention strategies. However, costs of that nature cannot be avoided if today’s highly competitive, technology-oriented world.

One of the most common ways of using technology in CRM is gathering data on the problems that customers report to have encountered while using the services of a service provider (Edvardsson 2010, p. 47). Essentially, technology can enable customer care representatives deal with cases of dissatisfaction in a proactive manner. This is because they get a better predisposition to anticipate, and therefore, prepare for them adequately. When that happens, these representatives get the much-needed confidence upon knowing that whenever an issue is raised by a customer, they will have a ready answer (Edvardsson 2010, p. 47).

Chapter 3: Methodology

One of the most important steps in rolling out an effective methodology is defining the problem being addressed in a marketing study. In the present study, the problem entails the marketing strategies used to retain customers. These strategies require a critical evaluation, hence the need for the right methodology to do so. Having identified the problem, the next crucial thing would be to identify the various available methodologies from which a choice of appropriate methodology has to be made. In the present paper, the methods discussed include marketing-mix modeling and case study.

Marketing-mix modeling

Marketing mix modeling entails decomposing a company’s marketing efforts, analyzing every activity in line with the targeted market segment. This method uses an incremental approach, where different aspects of a company’s operations are seen to contribute to the overall success of the marketing strategy. In this approach, marketers have to account for the sales that are made because of specific marketing efforts.

However, the marketing mix method has been faulted by experts for various reasons. One of these reasons is that it adopts a very fragmented approach, making it difficult to determine the overall impact of various marketing strategies. Another reason for faulting the method is that it assesses the ways in which each component of the marketing mix contributes to the marketing efforts instead of analyzing how all the components collectively work together to improve results. However, those who still use this method point out that by separating out each aspect of the marketing mix, marketers are able to build up on higher-level stages of the modeling process.

In marketing-mix modeling, experts have to analyze the potential improvements to be derived in terms of sales. Moreover, the model is normally to optimize the fraction of the budget money allocated to different elements of the mix. Such awareness translates into experience for use in future spending on marketing. Nevertheless, those who feel that this model is not suited to their purposes tend to seek more advanced models, most of which are based on varying theoretical approaches.

Case study

The case study method is among the qualitative approaches to marketing that have received widespread acclaim from both scholars and field researchers. This turn of events seems like an exception in a tradition where qualitative studies are normally not considered as viable alternative to quantitative approaches. To be effective, however, a case study should be structured in a logical manner so that it can be accepted as a research design in postgraduate marketing studies (Perry 2008, p. 787).

In most cases, marketing research comes with many operational demands that make researchers opt for the case study method. This is because, in a case study, one is able to zero in on only one company and analyze the various aspects that relate to the subject under analysis. The unique circumstances under which the company operates are considered in isolation. These circumstances are established mainly through primary data, and are analyzed in relation to secondary data on the subject under investigation.

The main challenge, in this regard, is normally on generalizability. The company or firm chosen has to be ‘typical’ of other companies that operate in that specific industry, such that the outcomes of the research can be generalized to the entire industry. Moreover, the integrity of the data has to be unquestionable. Indeed, the case study method easily meets the integrity threshold owing to the broad spectrum of an entire company’s operations, from where primary data is gathered.

Justification for choice of case study method

The case study method uses an inductive approach as opposed to a deductive approach. In deductive research, one has to present several premises and use them to conclude something. The conclusions made must not go outside the scope of the premises considered, such that for findings to be valid, they must be perfect. This perfectness is based not on the data collected but entirely on the quality of logic used. The glaring shortcoming in this approach is that external validity of findings is always sacrificed at the expense of accuracy in logic.

To increase precision in terms of external validity and generalization, the inductive approach becomes the better option. Furthermore, some phenomena are best understood when analyzed in the context of certain practice-based settings. This explains why some researchers have resorted to inductive approaches such as the case study method.

The choice of O2 mobile as the case study setting meets the threshold of a study of the magnitude intended in the present dissertation. This company is representative of today’s corporate players in the vibrant telecommunications industry. O2 Mobile is typical of large modern mobile phone service providers that reach out to additional sources of revenue by venturing from the core service of mobile telephony. Some of the value-added services that O2 Mobile has ventured into include broadband services, data connections, and media messaging.

Sampling techniques and framework

In the present study, a descriptive research design was used to analyze the marketing strategies used by O2 to retain its customers. In this research design, the researcher relied on both primary and secondary data. Primary data is simply data that is being derived for the very first time so as to be used to achieve a certain goal. For purposes of the present study, the main sources of primary data are twofold: the information provided at the website of Telefónica UK Limited and news items about the company. Secondary data, on the other hand, differs from primary data because of the fact that it has already been gathered and synthesized for purposes of achieving a certain objective (Bonoma 2007. p. 201). In this regard, secondary data may be obtained from previous research studies that are related to the present study, websites, and critical reviews.

The choice of Telefónica UK Limited as the core source of primary data was occasioned by various factors. However, the main reason is that although O2 has operations in many European countries, its UK subsidiary, Telefónica UK Limited, has almost half the number of customers the mobile company boasts of across the continent. Telefónica S.A., the parent company overseeing the European operations, has about 57 million customers, whereas Telefónica UK Limited had 22 million customers in the mobile segment alone as at the end of 2011 (O2 News Center, 2011, p. 2). For this reason, it is clear that an analysis of O2 Mobile services in the UK can easily be considered a representation of the service provider’s mobile blueprint across Europe.

Most of the data for this study was obtained from secondary sources. This was mainly because of the ease with which this undertaking could be carried out. Moreover, secondary data was more readily available. Where doubts arose, the researcher sought clarification from primary sources. For the most part, secondary research entailed an in-depth analysis of business-related journals accessible through the local library as well as internet-based databases. In these searches, the terms used were those relating to CRM, such as customer profitability, customer retention, churn reduction, customer turnover, customer profitability, and customer lifetime value. In the case of primary data, news releases, briefs, and online announcements were excellent sources of data.

The raw data was presented in a manner that portrayed relevance to the aims and objectives of the study as well as the research hypothesis. First, a profile of the company was presented, followed by its overall marketing strategy. Then, three main marketing campaigns for customer are described. The three campaigns include ‘World that revolves around you’, ‘Thinking of you’, and ‘Priority Moments’. Next, O2’s data mining strategies are highlighted, followed by a section on the company’s philosophy of prioritizing customer loyalty (value of services) over physical numbers in terms of growth in subscriber base. Wherever necessary, graphic representations were used to provide a clearer picture. In the last section, an analytical perspective is adopted, where the theoretical appropriateness of O2’s customer retention strategies is discussed.

The section on analysis also marked the beginning of the task of establishing a connection between marketing theory and practice at O2. With regard to trends in marketing theory, reference was made to the most frequently discussed theories as highlighted in the literature review, namely: goal gradient hypothesis (Kivetz 2009, p. 29), customer lifetime value (CLV) (Kumar 2010, p. 65), share of wallet (Cooil 2010, p. 84), and attitude-behavior model (Guo 2009, p. 1152).

The information gathered on O2’s marketing strategies was analyzed based on adherence or deviation from the aforementioned theories. The researcher’s choice of these theories was based on the nature of the debate that they have aroused. The debate on each of these theories has been interesting, and it has sometimes elicited disagreements on what really the best practice is. In the data presentation part, a description of the retention efforts at O2 while in the analysis section, focus was on explaining these efforts against the backdrop of the relevant theoretical issues. The process of carrying out this analysis consisted in answering the hypothesis presented in the introduction chapter. The analysis also set the stage for a clear synthesis of conclusions and recommendations.

Chapter 4: data and analysis

O2 Mobile: Company profile

O2 is the brand name used by Telefónica UK Limited, a company that specializes in mobile telephony and broadband communication. As of the beginning of the last quarter of 2011, the company had 22 million customers of mobile telephony. Additionally, it has established broadband connections to 800,000 customers. The company is an integral component of Telefónica Europe Plc, and the parent company that owns the brand name ‘O2’, is Telefónica S.A. Telefónica S.A. has established this brand in many other European countries, including Germany, Slovakia, and Ireland. The company has also recently established itself in the Czech Republic (O2 News Center, 2007, p. 2). In all these countries, the company has slightly more than 57 million customers.

The O2 has a long list of credentials, and is highly popular both in the UK and the other European countries where it is operational. In 2010, O2 was voted the best phone network in the UK. The brand is also associated with customer satisfaction in areas of both wireless network and broadband connections. Moreover, the company has firmly established itself in voice and data such that 99% of the people in the UK have access to these services. of the three categories offered (2G, 3G, and 4G), 2G network is the one that is accessible to 99% of the country’s population. Nevertheless, O2 has already secured the achievement of being the first wireless network company in the UK to introduce the 4G voice and data network.

Telefónica UK Limited has already established some 500 retail centers across the UK. Moreover, it has put in place an O2 Online Store. These two avenues act as platforms through which the mobile service provider offers products as well as interacts with its customers. This strong network has enabled Telefónica UK Limited to continue generating almost half of the revenues of the parent company, Telefónica Europe Plc.

In Europe, Telefónica Europe Plc is a much-talked-about telecommunications company as well. It is renowned for its mobile and internet services. In Germany, for instance, the company client base has already hit the 230-million people mark. Telefónica Europe Plc also prides itself with fifty percent ownership of Tesco Mobile as well as Tchibo and Manx Telecom, all of them European communications companies.

In Ireland, the company has some 1.6 million customers, who include both individual and businesses. These customers access both mobile and internet services. In this country, the activities of Tesco Mobile are normally relied on for sales purposes. In Germany, Telefónica Europe Plc mobile voice and data services also dominate the company’s activities. These services are accessible to more than 14 million customers. Just like in the UK, fixed-line services of the company are also highly popular in Germany only that in the latter country, there is more reliance on retail partners. The retail partners are involved in both prepaid and postpaid services. A similar trend is developing in Slovakia and Czech Republic.

O2 mobile’s overall marketing strategy

O2 Mobile uses different marketing strategies to attract new customers as well as retain the existing ones. To understand the marketing strategy of O2 Mobile, it is crucial to look at the origin of the company. O2 came into being in 2002 when BT Cellnet was re-launched. Back then, BT Cellnet was facing financial difficulties and was being edged out of the market by competitors. After the re-launch, it only took three years for the company to overtake Vodafone as the number one mobile phone network company in the United Kingdom. O2 had managed to achieve a competitive edge over other companies. The integrated approach that the company used turn out to be an effective as well as an award-winning marketing strategy. It was at the height of this success that the giant telephone group, Telefonica came on board to pay 18 billion pounds for the company.

In its integrated approach, the company emphasize on lower competitive spending in sharp contrast to its competitors. This approach enabled the company to establish itself and reach the status of UK’s leading mobile service provider (Liao 2007, p. 2818). At the heart of the O2 was an in-depth understanding of its customers. The new kind of brand required a fully-fledged integration to achieve the much-needed competitive edge.

            The launch strategy was such that although O2 was a pre-existing enterprise, it was going to be a newly-defined brand. The spirit of this new brand was captured in the slogan ‘Can Do’. The brand had to be attractive as a way of laying foundation of the success of the company in years to come. Since the days of the launch, O2 has focused on consumers and not products. Customers have always taken the central position in its integrated approach to marketing strategy.

            The focus on customers was yielded after market research showed that consumers were becoming skeptical of promises that were never going to be kept. Customers were seen to have realized that mobile service providers were promising them products that they did not even need. Out of this realization, O2 Mobile’s marketers resolved to focus on only those technologies that were of importance to the customers’ needs and were readily available. Emphasis was on immediate satisfaction as opposed to promises. It is this approach that has enabled O2 to become a household name in the UK, not only on in voice but also in data segments.

 

Internet Service Provider (ISP) Level of Satisfaction
1.     O2 92%
2.     PlusNet 87%
3.     Sky Broadband 86%
4.     Virgin Media 82%
5.     Talk Talk 77%
6.     BT 75%
7.     AOL UK 72%
8.     Orange 70%

Table 1: Overall satisfaction among customers with ISP services in the UK in April 2010. (Source: http://www.ispreview.co.uk/story/2010/04/23/o2-uk-tops-uswitch-broadband-isp-customer-satisfaction-survey.html)

            The integrated approach has turned out to be beneficial for purposes of both short-term sales targets and long-term brand building activities. However, even with the success, the company has had to face challenges, sometimes necessitating a shift in strategy. With majority of mobile telephony customers under the company’s fold, the next big challenge has been to retain them. The key challenges in this regard include quality of service, prices, and brand loyalty.

Figure 1 Satisfaction levels (in percentage) of customers with the services of six main UK mobile service providers in November 2011. (Source: http://forum.o2.co.uk/viewtopic.php?p=393860)

 

However, O2 has had to contend with a situation where millions of existing customers require recognition in line with modern CRM practices. The company has had to shift the attention quickly from that of acquiring new customers to that of keeping the existing ones satisfied at all times. This is the reason why the company introduced a new slogan in 2005 referred to as ‘World That Revolves Around You’. Since the launch of this new strategy the main preoccupation has been maintaining loyalty and by extension retaining the existing customers.

Without efforts to reward customers, revitalize the brand, and reduce switching rates, O2 would not have emerged as a leader in the UK mobile market. The company would not have survived in the intense wars that characterize this industry. Since 2005, subsequent brand promotion campaigns have been aimed at putting customers at the center of the company’s activities. Today, O2’s value is many times higher that what it was at the time of its re-launch under the new brand in 2002.

O2’s frequent retention-related activities

1.     ‘World that revolves around you’

This customer retention campaign was launched in 2005. Customers were contacted and informed about the new ways in which the company was going to reward them. This campaign prioritized on improvement in customer service. The outcome was a reversal of a trend that had seen many customers become disconnected. It also contributed to the attraction of new customers. This was clearly evident when O2 surpassed Orange as the company with the highest number of subscribers in the UK. These benefits were accompanied by an improvement in the brand’s affinity. This campaign also made O2 to win man awards relating to brand leadership in the United Kingdom.

2.     ‘Thinking of You’

‘Thinking of You’ is a new advertising campaign that O2 launched in 2011. The aim of this campaign was to refresh its customer loyalty strategy that has been ongoing since 2005. In this plan, the company has been putting emphasis on the importance of customers by guaranteeing them availability of the most attractive deals. The company is focusing on guaranteeing customers value for their money while expressing awareness of the prevailing tough economic times.

In this campaign, O2 has put in place numerous TV advertisements with a mythical feel. These advertisements are designed in such a way as to express in a narrative form the benefits of being an O2 customer. In these advertisements, the company has been emphasizing the difficulties that customers are facing in terms of economic difficulties before explaining to them that their interaction with the brands on offer is definitely a rewarding experience. In line with the company’s avoidance of empty promises, the advertisements put emphasis on tangible rewards of subscribing to the mobile operator’s services.

Towards this aim, O2 has carried out some subtle changes to its management structure with the aim being making the services on offer more customer-friendly. The campaign, therefore, has been seen as coinciding with an introduction of new rewards to the existing customers. In the campaign, customers have been accessed through online engagements, outdoor activities, and participation in the print and electronic media. In terms of spending, 70 million pounds go into advertising annually. Most of this money is spent on direct response advertisements, such that deals are tailor-made for specific needs of the subscriber.

In July 2011, for instance, O2 went into a partnership with some 30 well-established brands to launch voucher-like offers that subscribers could access directly through their mobile devices. The offers went beyond money-based deals to cover prioritized access to customer-centered sales and free refreshments upon each purchase. The company reported that this offer was designed in such as way as to save each of its subscribers some 105 sterling pounds monthly.

3.     ‘Priority Moments’

‘Priority Moments’ is the name of an offer that was introduced by O2 in July 2011 (O’Reilly 2011b, p. 3). This offer was facilitated through collaboration with 30 renowned UK brands, each of which facilitated different aspects of the enhanced customer experience. The deals that are offered through Priority Moments enable the company’s customers to save money through enhancements on the way they access their daily phone-related services.

The brands that O2 engaged in partnerships are those that the company’s strategists felt that customers wanted to interact with often. It is also possible for customers to custom the provisions of the offer to suit their specific needs. The integrated approach used in presenting the products on offer makes it easy for consumers to access them with ease. The high number of offers made available through the reputable brands was arrived at as part of the company’s strategy of embarking on a long-term approach to customer retention efforts.

Odeon Cinemas, which constitute one of the partnerships through which O2 is providing the offer, has already started providing O2 customers half-price tickets for five days every week. Other offers are directed at items such as designer bags, beauty products, magazines, and pizzas. The underlying objective in this offer is to simplify life for customers. Moreover, the owners of the different brands involved have been benefiting as much as the mobile operator’s customers. The company even had an application for accessing the offer, complete with the compatibility option for Android and iPhone systems. Moreover, this application is easily accessible on all WAP-enabled phones. All that the owners of these phones need to do is log into the company’s website and access the application from there.

The marketing campaign aimed at making Priority Moments a success story is already underway. The success of this campaign may not be easy to ascertain on the short-term consideration. The greatest evidence of success may be discernible over a period of several years. Marketing strategists at the company, though, are upbeat about the impending success, particularly considering that this marketing campaign was modeled on a previously successful offer, the Priority Tickets. This offer catapulted O2 to the position of one of the most reputed entertainment ticket sellers in the UK. The Priority Tickets offer was also a major boost to the company’s efforts to enhance satisfaction among its customers.

Data mining strategy at O2

O2 gathers data about customers’ purchasing behavior, calling habits, billing trends, and other relevant information with the aim of understanding their needs better. These activities have particularly been streamlined with the establishment of the business intelligence division (O’Reilly 2011a, p. 2). This division’s main aim is to ensure centrality of all the information that is gathered from various departments of the company. The information that is brought from different quarters is analyzed in an efficient manner, making it more valuable for commercial use.

The business intelligence team of the company, which was set up in November 2011, is tasked with the work of centralizing all departments so that information on marketing and new product development is obtained easily. At the center of operations of this division is the collection and analysis of customer information for use in designing products that satisfy them. This division is set to have a herculean task, considering the diverse areas from which the team members have to gather information. This is because in recent times, O2 has ventured into numerous new markets, including media, health, and financial services. O2’s top executives clearly demonstrated their understanding of the importance of customer retention experience by appointing Andy Day, who has been in charge of CRM for four years, to head the business intelligence division.

For O2’s management, data mining is necessary in efforts to build value instead of numbers. In other words, the message being communicated is that it does not make sense to create a pool of so many customers who are not satisfied (Linoff 2011, p. 48). Andy Day was promoted to the position perhaps in appreciation of his efforts in initiating various customer retention programs, such as ‘Priority Moments’ and ‘Thinking of You’. The idea is to maintain a balance between the new customers who are attracted and maintaining the existing ones by giving them value.

From a different perspective, the data mining strategy may be seen as a response to tough economic conditions in which the company is currently carrying out its trade. For instance, in 2011, the company recorded the lowest number of new customers since 2007. The company’s top executives blame the tough operating conditions to a drastic drop in consumer confidence over the past few years. This has led to the considerable shrinking of the consumer market.

The latest data mining strategy may help the company avoid miscalculations such as the ones that have been done in the past. For instance, in the last quarter of 2010, O2 introduced new costly tariffs that made many customers run away from the service provider. This situation was rectified in March 2011, when new, cheaper tariffs were introduced, leading to a reversal of the worrying customer turnover trend.

Prioritizing value over physical numbers

The whole idea of business intelligence at O2, both at present and in the past, was pegged on the need to focus on value and not volume. Before the idea of business intelligence division was unveiled, the company has put in place a data strategy where new tariffs were introduced for customers who wanted to access data, particularly through smartphones. This strategy increased the number of customers who were entering into contracts with the company for access to data services.

Other than the issues of physical numbers versus value, O2 faces the challenge of fighting off the perception that it values its postpaid customers more than prepaid customers. Critics have pointed out that the company has a tendency of forcing pre-paid customers to convert into contract customers so as to access the best deals. The company’s managers use the argument on loyalty-related initiatives and the costs incurred by the two types of customers to explain the variations in the nature of deals offered.

The debate on maintaining a balance between rewards given to prepaid customers and those given to postpaid customers has tended to drag on into the issue of average revenue per user (ARPU). The ARPU of O2 has in the first quarter of 2011 decreased by as much as 3% for all services and 8.1% for voice (Al-Debei 2011, p. 13). From the perspective of company insiders, the drop in ARPU has occurred because customers have come to know how to manage their voice and data more effectively, such that by staying with the set allowances, they avoid extra charges. For long-term considerations, the insiders consider it a good thing since customers get more satisfaction, thereby increasing the likelihood of staying with the company. Moreover, the new tariffs that were unveiled in March 2011 enable customers to access large tariff for data-related services without requiring a similar high-magnitude voice tariff as well and vice versa.

The issue of smartphones is also frequently cited as one of reasons for the drastic drop in ARPU (Edvardsson 2011, p. 43). With cheap smartphones being available, the point of entry in terms of data becomes lower, although this does not necessarily indicate a low up-take of data services. In fact, the decline in ARPU is currently being offset by a high uptake of the data segment. As voice customers go for mid- and top-tier tariffs, they end up accessing voice services at the cheapest possible price, thereby reducing voice ARPU. In contrast, the increasing data revenues have greatly contributed a slowdown in ARPU decline.

The recently introduced O2 Guru initiative is aimed at encouraging many more customers to buy smartphones so that they can access data services from the company. This initiative is being carried out both online and in the company’s retail centers. The job of the gurus being contracted by the company is creating awareness on the broad range of services that subscribers can get through their handsets. It is hoped that this initiative is going to lead to an increase the company’s ARPU.

O2’s diversification into healthcare, finance, and education

In efforts to enhance customer experience, O2 has been diversifying its services to cover healthcare, education, and money. This unique marketing strategy has been aimed at keeping customers as satisfied as possible to prevent them from leaving. The money segment was introduced in the summer of 2009. The company managed to issue some 100,00 prepay cards in the UK with just under two months, thereby recording a level of success that had not been experienced in the history of country’s prepaid card launches.

The company has also undertaken to venture into health and education sectors, going against the grain as far as traditional demarcation of business borders are concerned. The main risk in this move was that of alienating customers of the mobile services. However, critics insisted that this risk could be managed well if attention was put on the underlying business model. It appeared difficult for the company to stretch its services across sectors while at the same time maintaining a strong relationship with the existing customers through a satisfying experience.

The business model on which the cross-sector venture is being carried out entails a single relationship with customers, whereby either O2’s business activities are employed directly or through partnership with other firms. The question that arises here, therefore, is about the market share of the customer-centered relationship that is to be under the ownership of O2. The easier option, according to the company’s top executives, entails cross-sectional approach, whereby issues are viewed through the eyes of individual customers. This entails gathering information about customers from a central place, and this is where the business intelligence division comes in.

In the healthcare sector the aim of O2 is to enhance patient experience in a manner that also reduces the costs of service delivery. The company started contemplating venturing in the health sector in 2006 after a third of UK customers expressed willingness to consult their medical service providers through their mobile devices (O2 News Center, 2006, p. 3). According to the company’s CEO in the UK Ronan Dunne, the NHS (National Health Service) spent 100 billion sterling pounds in 2010 in the course of service delivery, a sum that is way above the annual revenues of O2, which amounted to 22 sterling pounds during the same year. Dunne’s argument was that it was imperative for the mobile operator to target a share, however tiny, of NHS’s huge budget.

To determine how O2’s services could come in, Dunne observed that most of the funds budgeted for by the NHS go into monitoring patients’ health. Although some patients go to their doctors to have a check-up on their blood pressure, for example, numerous appointments do not materialize because of failure by people to attend NHS clinics. According to Dunne, it is at this juncture that O2’s solutions could come in. However, the company’s top executives agree that the level of trust has not reached a point where they would be entrusted with the task of delivering confidential test results to the NHS simply though a text message or an phone application. This is a challenge that O2 has to surmount before it can be able to penetrate the health sector.

In the education sector, the nature of opportunities is more straightforward, since it entails provision of online multimedia solutions. In this environment, books may end up becoming obsolete. The solution lies in combining mobility with richness of the multimedia learning environment.  Moreover, the concept of education is still modeled around the brick-and-mortar classroom, complete with a whiteboard at the front. The other opportunities that have not yet reached the execution stage include gaming and transport ticketing.

Theoretical appropriateness of O2’s customer retention strategies

In O2’s website, one of the most succinct retention-related messages is that customer satisfaction is the main yardstick for assessing the company’s success. This message, communicated through the company’s website, is followed by a declaration that regular research is always being carried out to determine how the public perceives the brand. The research also focuses on whether communication with customers is being undertaken in an efficient manner, and whether the quality of services offered is satisfactory. With this marketing-related declaration in mind, it is imperative to assess whether the customer retention strategies of O2 are theoretically appropriate. In the course of this assessment, the hypothesis of the present paper is answered.

The marketing strategies employed by O2 are in many ways typical of the new practical approaches that are being adopted in CRM. For O2, its CRM strategy of 2005 was designed in such a way as to break from tradition in the UK telecommunications industry, where majority of mobile operators’ marketing strategies for customer retention were acquisition-driven. By focusing on acquisition, the marketers failed to pay attention to customer behavior. For the most part, O2’s strategy appears to be modeled around customers’ behavior. Although this has not been succinctly mentioned, it has been clearly demonstrated.

As Kivetz (2009, p. 29) points out, understanding customer behavior is important in any marketing activity. O2’s top executives often emphasize that all their offers and promotions are normally aimed at increasing customer experience by giving them tangible benefits. Kivetz’s goal gradient hypothesis, which emphasizes the importance of an illusion of movement towards a goal, appears to be applicable in the case of O2’s customer retention strategies. For instance, in the ‘Priority Moments’ offer, customers are assured of saving a substantial amount of money when they sign up for any of the deals available. Moreover, O2 makes its customers perceive the target to be within their reach. The company does this by avoiding empty promises and highlighting only the actual, tangible benefits of being an O2 subscriber.

O2 appears to be avoiding marketing strategies which are shroud in controversy in scholarly circles, for example low-price guarantees. The company does not offer low-price guarantees. This marketing strategy has been blamed by many for contributing to price distortions, rendering the free-market economy ineffective (McWilliams 2006, p. 107).

Similarly, there is no clear reference to the theory of customer lifetime value (CLV) from a scholarly perspective. O2’s marketing strategists do not seem interested in calculating the CLV of its loyal customers. In practice, however, the spirit of the CLV theory appears to have been captured in virtually all the offers and promotions that the company has launched. In other words, the promotions are aimed at retaining the customer perpetually, a great example being Priority Moments. O2’s need to retain customers perpetually is also demonstrated in the company’s ventures into sectors that are not traditionally linked to mobile communications such as healthcare and education. The underlying aim is to provide customers with as many solutions as possible to retain them for the longest time.

However, one may look at the company’s venture into education, healthcare, and entertainment from the perspective of share of wallet. In this regard, the company may be seen to be attempting to increase its share of wallet of each of the existing customers. The company appears to value the share of wallet approach more than that of increasing the market share of the existing services. Rather than grab a huge market share in the realm of voice and data, the company’s managers would rather have a wider share of wallet of the existing customers. This approach requires the company to introduce a wide variety of value-added services in response to customers’ needs and expectations. Incidentally, most researchers argue in favor of increasing the share of wallet because this marketing strategy is cheaper (Cooil 2010, p. 84).

At this point, focus on the hypothesis of the paper is necessary. The hypothesis was that the company’s customer retention strategy is in need of a transformation so as to align it with both the changing dynamics of competition in the telecommunications industry and contemporary marketing theory. In some areas, the need for changes seems to arise while in others it does not.

Back on the issue of share of wallet, it is important for the company’s strategists to try and establish the extent to which the existing customers are loyal (Richard 2009, p. 12). This will enable the company’s managers determine the period of time during which the customers are likely to be retained. It would be best if a longitudinal approach is used in this undertaking so that each customer is analyzed in his/her own right. Cross-sectional approaches will only shed light on the state of customer loyalty only at a specific point in time. In a longitudinal approach, the marketing professionals will be able to detect changes in levels of satisfaction early on before such changes impact negatively on the share of wallet.

Meanwhile, the issue of customer retention is not as simple as keeping customers satisfied. Guo (2009, p. 1152) points out that other than satisfaction, customers look back at their own psychological dispositions to build a specific attitude towards the products they are using. In essence, Guo’s attitude-behavior model makes O2’s strategy unsatisfactory in that it does not put into sharp focus the attitudes of customers towards the products which they may otherwise appear satisfied with. The company’s marketers may not be aware that retention has to do with many things, including the way they perceive their own buying behavior.

Chapter 5: conclusions

The case study of O2 Mobile’s marketing strategies aimed at retaining customers contains a lot of information from which conclusions on both practice and theory can be made. Since its establishment 2002 following the re-launch of BT Cellnet under the O2 brand, Telefónica UK Limited has made significant industry-related strides, some of them involving promotions.

In marketing theory, there is unanimous agreement that retaining the existing customers is many times cheaper than attracting new ones. Many mobile communications, O2 being one of them, prefer to spend more time making the current customers instead of spend a lot of funds to attract new customers all the time. Indeed, it does not make much business sense to keep spending too much money on customer acquisition while not doing much about the high rate of customer turnover.

Practical aspects of customer retention activities

The case study of O2’s marketing campaigns provides many insights on the need to understand the market. In today’s telecommunications industry, mobile communications companies are companies are competing to offer the best services that attract the greatest number of customers. This sort of competition has continued to exist since O2 was rebranded in 2002. The approach that the company adopted entailing lower competitive spending proved to be effective. The big question is on whether such an approach would be effective for companies that are similar to that of the O2 of 2002. This question would constitute an interesting issue for further research.

Similarly, there is no doubt that the campaigns that O2 launched in 2005 helped the company in gaining a leadership position in the UK’s mobile sector. The company simply focused on satisfying customers so as to win their loyalty. The company followed this unique approach at a time when all the other mobile service providers were focusing almost exclusively on a wide subscriber base. In their quest for a large share of the market, they ended up designing acquisition-driven campaigns that made customers become tired of empty promises. For this reason, it is clear that companies need to focus on consolidating their hold onto the existing customers before going about seeking new subscribers.

A rather interesting aspect of O2’s marketing campaigns is that they all deliver tangible benefits to customers, all the while giving customers freedom to choose deals that are of the greatest interest to them. Whereas this statement appears to be laden with marketing flair, a critical review of the marketing strategy of the company in its entirety shows that it is flexible in a way customers find it easy to relate with. It is not surprising, therefore, that in 2005, O2 surpassed Orange as the company with the highest number of subscribers in the UK.

The success of O2 in retaining customers may be attributed to the company’s data mining strategies. The company’s heads are on record asserting that information on customers’ trends has continually been relied upon in making business decisions. However, there was no sufficient information on exactly how this information was analyzed to derive conclusions regarding the needs of customers. Such information would have been extremely crucial in deriving models and theoretical frameworks. Scholars with interest in customer lifetime value would particularly find such information important in improving their theories. Nevertheless, the company uses different aspects of customer information, including billing trends, purchase behavior, response to new marketing campaigns, feedbacks, and suggestions.

O2 also appears to have set a new trend both in the telecommunications and across the corporate scene by setting up a business intelligence division, complete with a team of marketing specialists. Although many companies monitor market trends, they do not set aside divisions for these roles. In most cases, the activities relating to business intelligence are normally set aside as part of the activities of the marketing department. There is need for further research into comparison between the way O2 gathers information about customers and the way other companies carry out this task. Such an analysis would greatly help in determining the best way of understanding customer behavior.

Nevertheless, mining data is one thing, and putting the data into the best use is a completely different thing altogether. Ideally, the data gathered should provide clues regarding the reasons for churn. The data may also facilitate the grouping of customers into different categories so as to satisfy their specific needs in a better way. In the case of O2, there is no evidence that the marketing professionals used the categorization approach to reach out to different market segments. For instance, there is little information on efforts to reach out to, say, the youths. The needs of youths differ remarkably from those of middle-aged businesspeople and professionals.

Similarly, the data gathered was not used to determine which customers were highly likely to switch and which one were not. As Lopez (2006, p. 557) argues, it is imperative that the likelihood of a customer to switch to a new service provider is determined so that priority is given to those whose likelihood of leaving is very high. The reason for avoiding such a task is that it is understandably complex. This is because it would entail categorization of customers into different groups, depending on their operational contexts. However, to accelerate the rate of success, O2 needs to put in place mechanisms of categorizing customers depending on their characteristics, and not just on the basis of pre-paid and post-paid customers.

Evidently, O2 may not have categorized customers since the business intelligence division has only recently been established (in November 2011). One may expect O2 to have grouped customers into different categories and directed unique offers to each of these categories depending on their needs, expectations, and nature of relationship.

Telefónica UK Limited’s focus on competitive spending in an integrated approach has greatly enhanced its standing in the country’s mobile communications sector. This is indeed one of the reasons why the company has acquired an industry leadership position in this area. However, the company faces stiff competition from Orange and T-Mobile as indicated by the Customer Satisfaction Index of November 2011. In this index, the percentage of satisfied customers for both T-Mobile and Orange were equal to those of O2. The only factor that pushed O2 ahead of these two competitors was that the percentage of customers expressing dissatisfaction was much lower.

Regarding data services, O2 is faced with an equally enormous task of moving further ahead of competitors. Established ISPs (Internet Service Providers) such as PlusNet, Sky Broadband, and Virgin Media have exhibited satisfaction levels that are nearly as high as those of O2. It should be borne in mind that the level of competition in the ISPs sector is very high, and survival is largely dependent on companies’ ability to reinvent themselves and put in place strategies of increasing competitiveness.

The issue of O2’s efforts to venture into education and health sectors stood kept resurfacing in literature. The health sector presents more challenges than the education sector. However, going by the huge budget of the NHS in the course of service delivery, the health sector promises to be a lucrative venture for O2. Owing to the limited scope of the present study, no comparison was made between O2’s diversification efforts and those of its fiercest competitors. If other mobile service providers choose to venture into such value-added services, this could mark the beginning of a new era in mobile communications.

In conclusion, it is clear that O2’s Mobile’s customer retention strategy has proven to be effective in creating trust, satisfaction, and loyalty. It has helped a lot in building a strong brand that makes the company’s products acceptable to both the existing and new customers. However, competition in the mobile communications sector remains cutthroat not only in the core areas of voice and data, but also in value-added services that are not traditionally associated with the telecommunications industry. The decision by the company to venture into new areas, notably education, health, and entertainment is a step in the right direction. However, an integrated approach, similar to the one that the company adopted in 2005, is needed if the company is to continue leading the pack in both customer retention and service delivery.

Theoretical implications

In this study, many theories were mentioned, some in the literature review and others in the chapter on data and analysis. Specifically, though, close attention was on goal-gradient hypothesis, customer lifetime value, share of wallet, and attitude-behavior model. A glaring limitation, though, was that an analysis of each of these theories was not possible, considering that the case study methodology was adopted. Instead of an analysis of the theories, the paper dwelt largely on an in-depth description and analysis of O2’s customer retention efforts. It is from such an analysis that a number of implications can be drawn relating to each of these theories.

In the case of goal gradient hypothesis, it turned out to be true that when customers perceive a continued movement towards a goal, they are motivated to buy a company’s products. In the case study, O2 has endeavored to provide deals that translate into tangible benefits to customers. This makes customers perceive a continued sense of movement towards a goal, thereby leading to satisfaction, loyalty, trust, and retention.

On the theory of customer lifetime value, the greatest contribution would have been characterized by a debate on how the CLV of O2 customers is calculated (Kumar 2010, p. 65). Unfortunately, such a debate did not surface in primary data relating to the company. The closest that company’s strategists came to mentioning CLV is their emphasis on customer value. The main problem here, it seems, is determining what the value of the customer will be in the future. To determine this value, it would be necessary for longitudinal studies to be carried out, whereby trends in customer behavior are used to obtain information for use in making future CLV predictions.

Regarding the share of the wallet, the implications are rather clear and significant contributions to the theory very evident. The share-of-wallet approach, it turns out, is a cheaper alternative to the market-share approach. In the context of O2’s operations, increasing the share of wallet is a more effective approach than that of increasing the market penetration of the company’s products. By increasing the share of wallet, the company is able to target the existing customers and increase the range of services available to them. However, for this approach to work best, a company has to determine the likelihood of staying among different customers before targeting them with new products and deals.

The attitude-behavior model, on the other hand, is of great relevance for marketing professionals with a great interest in understanding customer behavior from a critical perspective. The theory can greatly help these professionals not only in understanding the factors that determine customer satisfaction and retention, but also the underlying perceptions of customers’ own behavioral dispositions. Ordinarily, customers would like to feel that the choices they have made are the right ones both in their own eyes and in the eyes of society. To create this understanding, the marketing strategies used have to grasp and reflect certain fundamental social truths, which can best be appreciated through critical analysis.

Additionally, there are many other areas of marketing theory that are in need of further research, elaboration, and improvement. This is specifically the case with regard to those theories pertaining to CRM. One of the greatest shortcomings is the lack of a link between organizational and technological components with regard to the implementation of CRM systems. As noted by Becker (2009, p. 215), there are variations in the way performance is impacted upon by various components of the CRM systems. These variations were also observed in the case of O2’s marketing strategy. It is upon researchers to explain this impact in simple terms, using a coherent marketing theory.

Chapter 6: Recommendations

The recommendations made in this paper have a strong bearing on the aforementioned conclusions. They relate to both the practical and theoretical aspects of marketing, particularly strategies aimed at customer retention in the mobile communications industry. Owing to the global nature of today’s corporate environment, the practical aspects of these recommendations may be of great relevance not only to European mobile communications companies but also in other parts of the world. Here is the list of the recommendations:

  1. Re-launch efforts by mobile communications companies can be highly effective if properly planned and executed

In order to establish a competitive edge, mobile communications companies may at some point need to engage in re-launches similar to the ones that BT Cellnet carried out in 2002 to become O2. Such a re-launch provides the companies with a great opportunity to reposition and reorient their brands, all the while focusing more on customer retention and trust-building.

Although re-launches may take many forms, it would be best if the company in question adopted an entirely new name that reflects its new outlook. Indeed, such a re-launch would be incomplete until there is a succinctly defined marketing strategy in place for not just attracting new customers but also retaining the existing ones.

  1. Focus on customers should form the core of campaigns aimed at customer retention

Customers’ needs should form the core of all corporate activities of a company. These needs should be reflected in all the slogans adopted during marketing campaigns as well as in the names given to offers and strategic deals. Whereas there are no strict provisions on how to design the messages to be communicated in such campaigns, marketing professionals need to be savvy in their efforts to ensure that emphasis is put on the need to meets the needs of all customers. The messages should be communicated in such a way that customers easily find a reason to be loyal to the company’s products.

  1. Understanding customers’ behavior and expectations is an integral part of an effective marketing strategy

In any marketing strategy, it is crucial for the strategists to understand the behavioral dispositions underlying their buying behavior and response to different products. Such an understanding requires an appreciation of customers’ social contexts, attitudes, and expectations. A theoretical background in marketing theory may help the marketing professional come up with a highly integrated marketing strategy that is cost-effective.

  1. There is need for CRM theories to be reformed in light of new evidence in practice

In CRM literature, many theories of retention have been proposed, yet no significant efforts have been made to align them with evidence in practice. In future studies on customer retention, researchers should focus most of their energies on synthesizing this new evidence, establishing trends, and using the findings to make changes to CRM theories. Such changes can be of great use in companies, particularly those whose employees have a firm grounding on the academic aspects in the field of marketing.

  1. In today’s highly dynamic mobile communications industry, it pays to prioritize customer value over physical numbers

The telecommunications industry continues to change at an alarming rate, largely because of technological changes. A company may invest in a product, only for a newly introduced technology to render it obsolete, making it look like a fad. In such an environment, it is normal for customers to keep switching among service providers in search of the latest products. This leads to a high rate of customer turnover in the industry, and this tends to be injurious to business. To avoid this eventuality, companies have to learn to prioritize customer value over mere numbers.

Yet it is more expensive to attract new customers than to retain the existing ones. Moreover, the value contributed to the company differs from one customer to the other, hence the need for categorization. Within such categories, it becomes easy for a company to determine the value that different customers bring into the company. With this information on record, marketing strategists can know where to direct their energies most when designing new products. After all, it is better to have a small number of loyal customers instead of holding onto many dissatisfied customers, who will soon switch to other service providers.

  1. Data mining can greatly help in both determining customer value and in the design of effective customer retention campaigns

There is abundance of literature on data mining and its importance in customer retention. Moreover, corporate executives appear to be conversant with the term ‘data mining’. Yet scholars and company managers alike continue to give a wide berth to the discussion on how to use data mining strategies to calculate customer lifetime value. In simple terms, marketing strategists do not seem very concerned with ways of determining the value of customers over the longer term. It is upon managers and researchers alike to design strategies of determining the value of all customers by referring to data that has been mined within corporations.

  1. For companies holding market leadership positions such as O2, ventures into non-core products is crucial

The strategy that O2 has adopted of venturing into new areas such as healthcare and education is commendable. The strategy can succeed if properly planned and executed with the same vigor that characterized the re-launch of the mobile communications company. In these ventures, focus should be on retaining as many customers as possible. The company should take time to understand the mode of operation in these sectors in order to identify the products that would be most suitable to O2’s customers. These ventures may give O2 a competitive edge in an industry characterized by cutthroat competition. It appears that in future, other mobile phone service providers are going to follow suit and venture into these areas. In efforts to offer value-added services, the ultimate winners will definitely be those companies that are able to build on their existing strengths to give their customers better deals.

  1. Customer profitability should be the basis of determining whether specific CRM campaigns are worth undertaking

O2 has neglected the issue of customer profitability as a basis of determining whether certain customer retention campaigns are worth undertaking. This significant weakness probably also exists in other major telecommunications companies across the world. In this regard, a comparison between profitability and risks brought about by the target customers is crucial in determining whether a certain marketing campaign should be launched or not. Such a comparison can also greatly help in predicting the level of success of a customer retention strategy. Moreover, the information obtained in such comparisons can be of great use in designing future marketing campaigns.

Every service provider knows that all customers are not of the same value, and therefore not all of them are worth retaining. Therefore, there is a significant amount of risk in CRM campaigns that adopt a ‘blanket’ of offers to each customer. Through some deals, some customers end up taking more from the service provider than they give in the long run, thus posing a considerable risk. Such customers are a liability to the service providers and efforts should be made to single them out. In the absence of such efforts, the cost of buying customer loyalty may end up being way higher than the total value that they bring into the company in the long run.

However, it may be virtually to single low-value customers. After all, the mobile service provider may be accused of discriminatory practices. A viable alternative, though, would be to maintain a balance between the cost of retaining customers and the total value that they add to the company (Tsiptsis 2009, p. 219). Through such considerations, companies can manage to set a limit on the highest cost of offers that are acceptable in every CRM campaign, thereby reducing risks relating to customer profitability to the barest minimum.

  1. There is need to increase the cost of switching

Some companies increase the cost of switching, albeit covertly. In O2, for instance, efforts to provide products and deals that touch on different aspects of a customers’ life end up creating disincentives for such a customer to switch. It becomes costly for such a customer to switch because this would lead to disruption in many aspects of his life and business. Such efforts need to be undertaken across the industry so as to reduce customer churn. At O2, the use of customer clubs may help in reinforcing the goal of increasing switching costs.

 

References

 

Books

Berson, A, 2010, Building data mining applications for CRM (Fifth Edition), Prentice-Hall, New York.

Huber, M, 2008, From customer retention to a holistic stakeholder management system: living a vision, Springer-Verlag, Berlin.

Linoff, G, 2011, Data Mining Techniques: For Marketing, Sales, and Customer Relationship Management, (Third Edition), Wiley Publishing, Indianapolis, IN.

Lüdicke, M, 2007, A Theory of Marketing: Outline of a Social Systems Perspective, Free Press, New York.

Pang, S, 2009, Successful Service Design for Telecommunications: A Comprehensive Guide to Design and Implementation, John Wiley & Sons, London.

Richard, G, 2009, Telecommunications and business strategy, Routledge, New York.

Richard, G, 2009, Telecommunications and business strategy, Routledge, New York.

Tsiptsis, K, 2009, Data Mining Techniques in CRM: Inside Customer Segmentation, John Wiley & Sons, London.

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