IT Services Research Division An Empirical Study on the Factors Influencing Customer Churning...

IT Services Research Division

An Empirical Study on the Factors Influencing Customer Churning Intention after Introducing

Mobile Number Portability in Korea

2004. 9. 5

Moon-Koo Kim, Jong-Hyun Park Jong-Hyun Paik, Seong-Ho Seol, Hee-Jin Park

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Contents

I. Background and Purpose

III. Methodology

II. Theoretical review and study tasks

IV. Results

ⅠⅠ

IIII

IIIIII

IVIV

IV. Conclusions and implicationsVV

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Background and Purpose

Paradigm shift from Voice to data in mobile service Voice market saturation in mobile service - growth rate decrease

- Accelerating of customer churning and Telco's competition

Lack of studies on customer’s churning intention or influencing factors on

churning intention with a contextual comparison between before and after

introduction of MNP

Paradigm shift from Voice to data in mobile service Voice market saturation in mobile service - growth rate decrease

- Accelerating of customer churning and Telco's competition

Lack of studies on customer’s churning intention or influencing factors on

churning intention with a contextual comparison between before and after

introduction of MNP

In this study, the factors affecting churning intention is contextually analyzed

by focusing on dissatisfaction, switching cost, switching promotion and

switching prevention to examine Korean present situation

In this study, the factors affecting churning intention is contextually analyzed

by focusing on dissatisfaction, switching cost, switching promotion and

switching prevention to examine Korean present situation

Background

Purpose

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II. Theoretical review and study tasksThe concept of MNP

The basic meaning of Number in mobile service 1st : Distinguishing a telecommunications network or a carrier 2nd : A kind of a limited resource which needs systematical and efficient management like public goods(Lee et al., 1999; Reinke, 1998)

Different characteristics compared with other service Brand asset of number is more valuable. Switching cost is larger than any other telecommunication services

Customer`s benefit Reduce switching cost, lock-in effect churning , customer surplus

effect on competition among CarriersValue of Brand assetCompetition needs to change marketing strategy

Effect of MNP introduction

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II. Theoretical review and study tasksKorean and foreign trend of

MNP

Foreign MNP was 1st introduced to U.K(1999), since then many countries, Hong

Kong, Holland, Spain, Italy, Denmark, Sweden, Australia and U.S. etc., are

examining or performing the introduction MNP effect in most counties is questioned (LEE, 2004)

Time spent on procedure for MNP, additional MNP customer`s cost,

Incumbent Carrier`s passive attitude, limited market environment Korean

After 2004, MNP was introduced, leaving 6 month interval among Carrier`s Since Jan 2004 : SKT(SMP) KTF(0.86 mil),LGT(0.57 mil) since July 2004 : SKT KTF, SKT, KTF LGT

More than about 7% of whole subscriber of SKT was churned

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Park (2002), “A study on the Evolutionary Press of Korean Mobile Telecommunication Market”

Park et al (2004), “The Effect of Sequential Introduction of Number Portability on Mobil

e Telecommunication Market and Economic Welfare”

Jeong and Park (2003), “ A study on Service Churning Intention in Korean Mobile Telecommunication Industry: Impact of MNP”

Yang and Choi (2003), “Study on customer retention strategies for the wireless telecommunication service providers at the introduction of MNP”

Related Literature Review

However, there is no study examining change of churning intention, before and after the introduction of MNP, and analyzing comparably causes affecting churning intention, by time, carriers and customer typical context about churning intention.

However, there is no study examining change of churning intention, before and after the introduction of MNP, and analyzing comparably causes affecting churning intention, by time, carriers and customer typical context about churning intention.

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Study task 1: the comparison of churning intention before and after the introduction of MNP

Task 1-1: the analysis of churning intention changes before and after the introduction of MNP Task 1-2: the comparable analysis of influential factors on churning intention before and after the introduction of MNP

Study task 2: the comparison of churning intention with carriers after the introduction of MNP

Task 2-1: the analysis on difference of churning intention with a carrier after the introduction of MNP Task 2-2: the comparable analysis on factors influencing churning intention with a carrier after the introduction of MNP

Study task 3 : the classification and comparison of customer type with churning intention

Task 3-1: the classification of customer groups with churning intention before and after introduction of MNP Task 3-2: the comparison of factors regarding churning of each customer group

Study Tasks

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III. Methodology

Study model & variable

This study estimate customers’ churning intention through the logit model. The

establishment of questionnaires composition and variables for logit analysis are

as follows.

The point of time before introduction of MNP is fixed to Sep. 2003 and that af

ter introduction of MNP is settled to the day of answering. Study variables are set like Table 1 and measurement of every variable is to

choose one among discrete answers, 0 (=no relevant data), 1(=relavant data).

Let each person answer in the point of time before the introduction and after it.

Questionnaire's items are made up based on these study variables and it is evaluated

by a pilot test done by relevant experts and company’s executives.

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III. Methodology

<Table 1> Study variable Variable Explanation

Call quality dissatisfaction 1. D=1: Perception of general dissatisfaction of conversation

Price dissatisfaction 2. D=1: Perception of general dissatisfaction of charge

Device dissatisfaction 3. D=1: Perception of general dissatisfaction of device

Value-added service dissatisfaction

4. D=1: Perception of general dissatisfaction of value-added service

Dissatisfaction

Customer support dissatisfaction 5. D=1: Perception of general dissatisfaction of customer support

Burden on changing device

6. D=1: Perception of price caused by changed device with carrier change and inconvenience

Burden on benefit loss

7. D=1: Perception of existing profit loss with carrier change

Burden on

changing

number (Before introduction)

8. D=1: Perception notice of number change and disconnection due to switching carrier

Switching cost

Burden on number portability (After introduction)

9. D=1: Perception of burden of price and procedure when changing a carrier due to MNP

Switching inducement activity

10. D=1: Perception of other carrier’s advertisement and effect of offering good chance for switching inducement

Attraction of alternative

11. D=1: Perception of other carrier’s image and quality, alternatives of when considering switching

Switching promotion

Social effect 12. D=1: Perception of effect of reference group, family and friends about switching

Switching prevention

Switching prevention activity

13. D=1: Perception of strengthening activity for customer benefit, like additional charge cutting, mileage offer to prevent switching

Switching intention 14. D=1: There is switching intention into other carrier

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III. Methodology

Survey: by interview

Number of Valid sample: 276

Statistical Package: SPSS 10.0

Distribution of Sample is similar to demographic characteristic of total

subscribers

Carrier subscriber rate : SKT(53.3%), KTF(31.5%), LGT(15.2%)

(*this rates are almost the same as those at the end of June 2004)

Monthly ARPU :most people are included to 3 to 4 thousand won group(48.8%)

Average usage period : 34.8 months(a standard deviation is 16.7 months)

Terminal device change : 2.29 times(a standard deviation is 1.02 times)

Sampling and data

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IV. Results

Result of the study task 1 comparing churning intention and the influential factor

s before and after the introduction of MNP can be seen in a Table 2 and 3 With this result, regardless of introduction MNP, the main causes of customer’s

churning are call quality dissatisfaction, price dissatisfaction and attraction of a

n alternative. And churning intention is related to switching cost, before the intro

duction and churning intention is related to switching promotion, after the introd

uction.

<Table 2> Analysis of variance on switching intention before and after the introduction Before the introduction After the introduction

Variable Mean Standard deviation

Mean Standard deviation

t-value p-value

Switching intention

.270 .440 .400 .490 -4.256 .000**

+: p<0.1, *: p<0.05, **: p<0.01

Results of study task 1

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IV. Results

<Table 3> Logit analysis on independent variable related to switching, before and after

the introduction of MNP and switching intention Before the introduction of MNP After the introduction of MNP

Independent Variable B S.E p-value B S.E p-value

Call quality dissatisfaction 2.654 0.479 0.000** 2.017 0.509 0.000** Price dissatisfaction 1.641 0.435 0.000** 2.181 0.584 0.000** Device dissatisfaction 0.382 0.432 0.377 0.982 0.647 0.129 Value-added service dissatisfaction

0.663 0.449 0.140 0.245 0.555 0.658 Dissatisfaction

Customer support dissatisfaction

0.391 0.453 0.388 0.397 0.736 0.589

Burden on changing device -1.172 0.506 0.020* -0.250 0.599 0.677

Burden on benefit loss -0.022 0.412 0.958 -0.389 0.602 0.518 Burden on changing number

-1.601 0.414 0.000** - Switching cost

Burden on number portability

- -0.616 0.744 0.408


0.303 0.481 0.529 2.879 0.557 0.000**

Attraction of Alternative

0.887 0.500 0.076+ 2.577 0.588 0.000** Switching promotion

Social effect 0.072 0.445 0.871 1.337 0.557 0.016* Switching prevention


-0.462 0.477 0.333 -0.370 0.696 0.595

Constant -3.331 0.665 0.000** -4.638 0.755 0.000** Log likelihood 168.044 128.511 Chi-square 152.875 242.664 +: p<0.1, *: p<0.05, **: p<0.01

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IV. Results

After the introduction of MNP, The Table 4 shows there is a difference of custom

er’s churning intention between an early entrant carrier and a late entrant carrier.

<Table 4> Analysis of variance on switching intention by every carrier after the introduction of

MNP Early entrant carrier Late entrant carrier

Variable Mean Standard deviation

Mean Standard deviation

t-value p-value

Switching intention

.16 .36 .67 .47 -10.287 .000**

+: p<0.1, *: p<0.05, **: p<0.01

It also indicates customers of a late entrant carrier is more likely to churn relatively. While customer’s churning intention of an early entrant carrier is influenced by other carrier’s churning inducement activity, those of a late entrant carrier is affected by both call quality dissatisfaction, churning inducement activity, attraction of alternative and churning promotion of social effect

Results of study task 2

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IV. Results

<Table 5> Logit analysis on independent variable and switching intention by every

carrier after the introduction of MNP Early entrant carrier Late entrant carrier

Independent variable B S.E p-value B S.E p-value

Call quality dissatisfaction 1.204 0.818 0.141 3.120 1.002 0.002** Price dissatisfaction 2.434 0.837 0.004** 10.568 28.139 0.707 Device dissatisfaction 1.546 1.021 0.130 1.731 1.300 0.183 Additional service dissatisfaction

0.341 1.042 0.743 0.444 0.923 0.631 Dissatisfaction


0.862 1.440 0.550 0.215 1.125 0.849


-1.006 1.007 0.318 -1.019 1.122 0.364

Burden on benefit loss -0.887 0.967 0.359 -1.080 1.164 0.354 Switching cost Burden on number portability

-9.658 25.491 0.705 -0.245 1.225 0.842


3.419 1.352 0.011* 2.383 0.946 0.012*

Attraction of alternative -7.326 93.821 0.938 2.055 0.839 0.014* Switching promotion

Social effect 1.445 0.902 0.109 2.303 1.138 0.043* Switching prevention


-1.097 1.397 0.432 -0.071 1.094 0.948

Constant -3.331 -4.959 1.163 0.000** -4.977 1.456 Log likelihood 168.044 57.376 Chi-square 152.875 70.148

+: p<0.1, *: p<0.05, **: p<0.01

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IV. Results

After performing cluster analysis based on churning intention before and after

the introduction of MNP, 2x2 matrix was made. And then customer group was

divided like a Figure 1 and naming is done

(Third Group)

Retention Switching

(Fourth Group)Continuous

Switching Intention

(First Group)Continuous

Retention intention

(Second Group)Switching

Retention

switching intention before the introduction of MNP

N(=0) Y(=1)

switching

intention after the intro

ductio

n of M

NP

Y(=

1)N

(=0)

Figure 1. Customer type regarding switching intention

And then, We did multinominal logit analysis like a table 7 in order to find out factors affecting the difference of churning by the customer type.

Analysis is done by focusing on a comparison between the first group, which are worth analyzing or have importance, and the third one, between the first one and the fourth one and between the second and the fourth one.

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IV. Results

<Table 7> Multinomial logit analysis by customer types Group 3 (0,1) vs.

Group 1 (0,0) Group 4 (1,1) vs.

Group 1 (0,0) Group 2 (1,0) vs.

Group 4 (1,1) Independent variable B S.E p-value B S.E p-value B S.E p-value

Call quality dissatisfaction

-2.422 0.760 0.001** -1.711 0.701 0.015* 1.882 1.342 0.161

Price dissatisfaction -2.616 0.927 0.005** -1.650 0.852 0.053+ 0.769 1.131 0.496

Device dissatisfaction

-1.181 0.929 0.203 -1.983 0.931 0.033* 1.670 1.583 0.292

Value-added service dissatisfaction

-0.692 0.919 0.452 -0.576 0.832 0.489 0.175 1.181 0.882

Dissatisf-action


-1.335 1.330 0.315 -0.584 0.941 0.535 0.129 1.248 0.918


1.714 0.941 0.069+ -0.494 0.910 0.587 2.074 1.885 0.271

Burden on benefit loss

0.285 0.924 0.758 0.621 0.882 0.481 -1.760 1.219 0.149 Switching cost

Burden on number portability

-0.382 1.012 0.706 2.585 1.570 0.100 -1.726 2.240 0.441


-3.485 0.844 0.000** -2.791 0.819 0.001** 2.552 1.203 0.034*

Attraction of alternative

-4.367 1.100 0.000** -2.510 0.773 0.001** 2.060 1.486 0.166 Switching promotion

Social effect -1.477 0.844 0.080+ -1.032 0.853 0.226 1.356 1.343 0.313

Switching prevention


0.099 1.149 0.931 0.139 0.908 0.878 -2.010 1.167 0.085+

Constant 6.371 1.235 0.000** 5.306 1.075 0.000** -2.219 1.704 0.193

Log likelihood 60.426 60.937 32.782

Chi-square 175.289 161.544 50.808

+: p<0.1, *: p<0.05, **: p<0.01

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IV. Results

Meaning of table 7: According to a result of the table 7, when dissatisfaction is

low before and after the introduction of MNP, in general, and switching cost about

changing device or changing number is high, customer shows their maintenance

intention continuously. However, when the dissatisfaction of core factors like call

quality or price becomes high and they are influenced by decrease of switching

cost and switching promotion activity, they changed from maintenance to

switching. In contrast, customer who shows switching intention before the

introduction, they could change into maintenance intention, when they are

affected by switching prevention activity of subscribing carrier.

Meaning of table 7: According to a result of the table 7, when dissatisfaction is

low before and after the introduction of MNP, in general, and switching cost about

changing device or changing number is high, customer shows their maintenance

intention continuously. However, when the dissatisfaction of core factors like call

quality or price becomes high and they are influenced by decrease of switching

cost and switching promotion activity, they changed from maintenance to

switching. In contrast, customer who shows switching intention before the

introduction, they could change into maintenance intention, when they are

affected by switching prevention activity of subscribing carrier.

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V. Conclusions and implications

1. Regardless of the introduction of MNP, A core factor influencing customer’s

churning intention is the dissatisfaction regarding price and call quality

Carriers have to prepare a price cut, various price-cutting, data usage

promotion pricing, customization pricing with customer segmentation, pricing considering usage characteristics, bundle pricing including voice and data, through a reformation.

2. MNP makes customer’s switching intention increased,

churning inducement activity of other carriers like continuous advertisement, PR and support, effect of neighbor or reference group changing their carriers, attraction of other carriers’ service or image promoted switching Burden of changing device has to be decreased consistently.

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3. There is a difference in customer’s churning intention of an early entrant carrier

and a late entrant carrier.

The early Carriers have to show attraction as an alternative by emphasizing on call quality, value-added service and superiority of customer benefit as well as switching inducement activity for customer’s churn-in The late Carriers have to construct competitive advantage of price as a kind of switching barrier to prevent customer’s churn-out. And also they have to let customer know there is no difference with the early entrant carrier in a service attributes and benefits, though the advertisement or various PR.

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Customer group is typed, in accordance with the introduction of MNP and

maintenance or change of switching intention

The Carriers (especially late entrants) , according to their business goal, need

to select concentration for switching promotion and prevention, considering

their limited resources

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Thank you

Contact point : [email protected]

[email protected]

IT Services Research Division An Empirical Study on the Factors Influencing Customer Churning...

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