78% of the world’s mobile subscribers are prepaid – equating to billions of price-sensitive transient consumers. In emerging markets, where prepaid penetration is even higher, mobile network operators (MNOs) are fighting head-to-head to win them over.
They’re stuck in a cycle: price wars continue, multi-SIM consumers churn, and operators try yet again to win back the same customer. But with MNOs’ margins becoming increasingly thin, operators must change tack. The lack of an identity-based relationship with the prepaid customer - as well as an uncertain model - makes forward planning and base management almost impossible. The focus needs to be on quickly and actively engaging to grow a loyal subscriber base, not simply winning back old ones.
In this saturated market, MNOs need to offer meaningful - or contextually relevant - incentives and progressive rewards to drive subscriber loyalty. Digital financial services are already helping to set apart some MNOs in emerging markets, enabling them to build on prepaid subscriber bases by opening up access to new and life-changing services and ultimately increasing customer lifetime value.
The Status Quo
As of 2017, mobile penetration has exceeded half of the world’s population. But despite having customer reach unlike any other product or service on earth, MNOs struggle to fully engage users in emerging markets where prepaid subscribers are the norm. Global carrier revenues have been on the decline, pushing leadership teams to explore new business opportunities in sectors that they may not have otherwise considered.
Status quo base management strategies aren’t working. Most practices are focused on postpaid subscribers — or converting subscribers from prepaid to postpaid. The problem with this approach is that people in cash-based societies don’t have the financial tools or credit histories to sign up for long-term subscriptions. They buy minutes by walking to top-up locations.
This sociology explains why people switch SIMs. According to research on customer base management in prepaid mobile markets, people make daily decisions on “when to recharge, which of the SIMs to recharge, and what to do with the recharge.” It’s a daily micro-choice. And so, for these users, it makes more sense to use prepaid SIMs from multiple carriers than to sign up for dedicated plans from a mobile operator.
So how can new business models help MNOs coax postpaid loyalty from prepaid users to reach, retain and maximise engagement from customers?
Getting Ahead of the Curve: Engagement
To get ahead of the curve in creating a proactive base management strategy, telcos need to consider context. Developing feedback loops will empower MNOs to better understand their customers and, ultimately, boost revenue through the delivery of more relevant and engaging services.
- Cable and Wireless Communications (CWC) implemented a model that offers airtime credit extensions to people during times of need. This resolves a basic barrier to purchasing minutes — an incentive for staying loyal to a single SIM. A person may live in a neighbourhood where it’s unsafe to walk to a prepaid top-up centre for minutes.
- In Tanzania, Millicom launched a solution tailored to cashew nut members of 40 cashew nut Agricultural Marketing Cooperative Unions (AMCOs) which provided reliable, secure, and direct access to send and receive money.
Access to fair financial services can open doors, and MNOs can provide valuable opportunities while improving their own bottom lines, through the offer of personalised services that drive engagement and reimagine the prepaid user experience. The creation of digital financial identities for the unbanked means that MNOs can offer prepaid subscribers access to services that may have otherwise been exclusively available for postpaid users.
It’s these higher level digital financial services that are giving some telcos a competitive edge in emerging markets. For instance, Millicom is spearheading lending initiatives that are tailored to personal needs, to support economic mobility. In addition to providing lending options, Millicom connects audiences with content through services like cable subscriptions. This tailored approach has enabled Milicom to grow its base of cable and mobile services customers. Since 2016, Millicom has more than doubled its number of 4G data users.
And so, through offering these additional services to people who are often creditworthy but underbanked, MNOs could unlock new revenue streams and encourage postpaid loyalty from a predominantly prepaid user base, while still benefiting from the higher prepaid margin.
Graduation: Postpaid Loyalty from Prepaid Subscribers
Over time, MNOs will learn more about their customers if they take an active role in making data actionable. Prepaid customer bases can be erratic, and can be challenging to understand individual user behaviour.
Graduation into new products and services provides a feedback loop, yielding more complex and thorough datasets. MNOs can graduate people into higher value services, engaging prepaid users into postpaid-like behaviour. For example, game mechanics can create subscriber-like behaviour leading to greater use of more services, meanwhile reducing the risk of people slipping off networks. This migration of prepaid users into a postpaid sense of loyalty creates a predictable revenue stream.
Take device adoption, for instance. Even though mobile penetration rates are high, the bulk of people around the world don’t use smartphones. According to research from Gartner, smartphone growth decreased by 5.6% in Q4 2017.
And yet, for many people, a smartphone will offer the first opportunity to access the Internet, including services such as digital banking. One of the greatest barriers across emerging markets remains a lack of access to capital, cash or credit, to obtain a smart device.
Companies like Samsung are partnering with MNOs to launch credit-based options to obtain smartphones. Users take incremental steps, starting from airtime credit extensions to become eligible for a smartphone—and open doors for more services.
To reach this point, there must be a progression up a value ladder. There are several levers that can guide this process. Transitions include:
- Feature phone to smartphone
- 2G/3G to 4G networks
- Text based engagement to rich, app-based experiences
- Transformation to postpaid behaviour - i.e. ‘virtual postpaid’
- The ability to offer personalised offers by pinpointing qualified users for subsidies, deposit waivers, and other financial incentives
MNOs across the world are suffering from uncertainty in the prepaid model while their customers are suffering from uncertainty of access. The focus needs to shift to changing this model, offering credit and graduating these individuals into 'virtual postpaid' users to drive better engagement, reduce churn and to benefit from more predictable revenues, without missing out on the higher margins that come with prepaid users. By offering customers the opportunity to build their own financial identity and access to more reliable communications, MNOs gain a significant competitive advantage over local rivals. Thus, 'doing good is good for telcos'.
Jacquie Amacher is the VP of Marketing at Juvo.