Friends' influence helps telecom firms retain customers

August 24, 2018, Carnegie Mellon University

Retaining customers is a central concern in many industries, including IT markets, where churn rates—the rate at which subscribers to a service discontinue their subscriptions—are high. For example, cell phone companies report churn rates of as much as 2% per month, which affects companies' value and profitability. A new study tested a strategy to help a telecommunications firm manage churn. Contacting not only customers but also their friends helped reduce the customers' propensity to discontinue their ties to the company.

The study, by researchers at Carnegie Mellon University, Católica Lisbon School of Business and Economics, and Erasmus University, is published in Marketing Science.

"Our findings suggest that firms can reduce churn by contacting customers' friends even if the friends aren't likely to churn," explains Pedro Ferreira, associate professor of information systems at Carnegie Mellon University's Heinz College of Information Systems and Public Policy, who coauthored the study. "Contacting customers' friends, a strategy that we call socially based proactive churn management, can help firms reduce churn even in markets without explicit network externalities. Such externalities arise, for example, when prices depend on the firm that friends subscribe to."

The researchers worked with a major telecommunications provider to design an approach that tested whether contacting customers' friends helped reduce the customers' churn rates. First, the researchers used data from detailed call records to create a model that predicted which customers were most likely to cancel their subscriptions with the company. Then, monthly for eight months, they selected a random group of those customers to be called by trained employees in the firm's call center, and also randomly selected whether the customers' friends would also be called. The goal of the calls was to identify likely churners and offer them deals to retain them.

The study found that customers likely to cancel their subscriptions who were called but whose friends were not called reduced their likelihood of churning by 1.9% from a baseline of 17.2%. But customers likely to cancel their subscriptions who were called and whose friends were also called reduced their likelihood of churning by an additional 1.3%.

"Our results show that likely churners received a signal from their friends that reduced their propensity to churn," said Ferreira. "It appears that consumers made decisions based on their conversations with friends about their contracts—in particular, about how much they pay and about the best deals available in the market."

"If a company knows which customer is planning to leave and who that customer's friends are, it can work through these friends to reduce the likelihood that the will leave," he adds. "In the end, this increases profits for the company."

Explore further: It's not you, it's me: How customers break up with sellers

More information: Target the Ego or Target the Group: Evidence from a Randomized Experiment in Proactive Churn Management by Godinho de Matos, M, Ferreira, P., and Belo, R.

Related Stories

It's not you, it's me: How customers break up with sellers

March 5, 2018

Companies invest billions each year in expensive customer service programs, sales forces, and sophisticated discounting programs such as Groupon to lure and retain customers only to find that churn remains one of their biggest ...

Yes, AT&T, it pays to win back lost customers

July 7, 2015

The competition for customers in the service sector is fierce, and new customers are entering the market all the time. So when a company such as Time Warner, Travelocity, or AT&T loses a customer, is it worth it to try to ...

Recommended for you

Asteroids, hydrogen make great recipe for life on Mars

March 26, 2019

A new study reveals asteroid impacts on ancient Mars could have produced key ingredients for life if the Martian atmosphere was rich in hydrogen. An early hydrogen-rich atmosphere on Mars could also explain how the planet ...

Cool Earth theory sheds more light on diamonds

March 26, 2019

A QUT geologist has published a new theory on the thermal evolution of Earth billions of years ago that explains why diamonds have formed as precious gemstones rather than just lumps of common graphite.

New cellulose-based material represents three sensors in one

March 26, 2019

Cellulose soaked in a carefully designed polymer mixture acts as a sensor to measure pressure, temperature and humidity at the same time. The measurements are completely independent of each other. The ability to measure pressure, ...

Physicists discover new class of pentaquarks

March 26, 2019

Tomasz Skwarnicki, professor of physics in the College of Arts and Sciences at Syracuse University, has uncovered new information about a class of particles called pentaquarks. His findings could lead to a new understanding ...

Study finds people who feed birds impact conservation

March 26, 2019

People in many parts of the world feed birds in their backyards, often due to a desire to help wildlife or to connect with nature. In the United States alone, over 57 million households in the feed backyard birds, spending ...


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.