Ericsson ConsumerLab: Keeping smartphone users loyal


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This report assesses the impact of network performance on consumer loyalty to operators.

The main purpose of the report was to identify what drives customer loyalty to operators, and in addition the monetary value that can be gained by improving network performance.

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Ericsson ConsumerLab: Keeping smartphone users loyal

  1. 1. Assessing the impact of network performanceon consumer loyalty to operatorsconsumerlabAn Ericsson Consumer Insight Summary ReportJune 2013KeepingSmartphoneusers loyal
  2. 2. 2  ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYALcontentsUSER BEHAVIOR IS CHANGING 3TELECOM INDUSTRY HAS FALLEN BEHIND 4EXPECTATIONS greater than reality 5INCREASING VALUE THROUGH performance 6Room for improvemen t 7USER EXPERIENCE IS A DIFFERENTIATOR 8THE EQUATION FOR CUSTOMER VALUE 9LOYALTY MEANS REVENUE 10A MEASURE FOR SUCCESS 11Ericsson consumerlabvoice of the consumerEricsson ConsumerLab has more than 15 years’ experienceof studying people’s behaviors and values, including the waythey act and think about ICT products and services. EricssonConsumerLab provides unique insights on market andconsumer trends.Ericsson ConsumerLab gains its knowledge through aglobal consumer research program based on interviewswith 100,000 individuals each year, in more than 40 countriesand 15 megacities – statistically representing the views of1.1 billion people.Both quantitative and qualitative methods are used,and hundreds of hours are spent with consumers fromdifferent cultures.To be close to the market and consumers, EricssonConsumerLab has analysts in all regions where Ericsson ispresent, which gives a thorough global understanding of theICT market and business models.All ConsumerLab reports can be found main purpose of the study was to identifywhat drives customer loyalty to operators, andin addition the monetary value that can begained by improving network performance.Ericsson ConsumerLab undertook an onlinestudy across 12 countries, gathering quantitativeresults from 1,000 smartphone users percountry.These countries include US, Mexico,Brazil, Chile, UK, Sweden, Russia,Turkey,South Korea, China, Japan and Indonesia.Those interviewed were users aged 18-69who use their smartphones to access theinternet at least once a week. Overall, thestudy is representative of more than350 million smartphone users.
  3. 3. ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL  3USER BEHAVIORIS CHANGINGThe ever increasing ubiquityof smartphones has seenconsumers accessing the internetmore frequently throughout the day,both indoors and outdoors. Overtime, apps and data have becomejust as much an integrated partof everyday life as SMS and voicecalls. This widespread change inuser behavior has consequencesfor mobile network operators.Operators are struggling tomaintain their reputation withinthe mobile ecosystem alongsidehandset manufacturers, operatingsystems and content suppliers. Thiscreates a challenging environment,with increased churn and customerdisloyalty. This report assessesthe influence of various factorson customer loyalty to operators,with a focus on networkperformance in particular.> Loyalty below average The telecoms industryis lagging behind otherindustries when it comesto user satisfaction. Mobileoperators are rated lowestcompared with other playersin the ecosystem. Delayed gratification High expectations affectcustomer loyalty when notmet with a sufficient standardof performance, particularlyamong heavy users.Insufficient coverage andperceptibly long waiting timeswhen browsing or using appsare two of the main causesfor dissatisfaction. Performance and value Network performance iscurrently the main driver ofloyalty to operators.This isclosely linked with value formoney. When you improvesatisfaction with networkperformance, perceived valuefor money also improves. Room for improvementUser perception is that dataspeed and coverage are poor,especially on public transport.Introducing measuresto improve networkperformance would helpto alter this perception anddifferentiate offerings. Loyalty makes money Increasing customer loyaltyhas a significant impact onCustomer Total Value (CTV),a metric used to assessfuture value from customers.This means there is potentialfor each subscriber togenerate more revenueacross his/her lifetime.Key findings
  4. 4. Consumer loyalty and satisfaction can be measuredby an industry or business’s Net Promoter Score(NPS). This score gauges how likely consumers are torecommend a certain brand or service to others.When observing consumer loyalty across a range ofindustries, it becomes clear that many consumers arenot particularly satisfied with the performance of theirmobile operators. Figure 1 shows that the NPS foroperators is significantly lower than the average,at more than 10 percent below other industries.Deeper analysis of brand performance reveals that evenamongst other players in the mobile industry, consumersstill rank operators lower in terms of satisfaction. Inorder to improve customer loyalty, operators first needto understand the reasons behind this.4  ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYALTELECOM INDUSTRYHAS FALLEN BEHIND11%average NetPromoter Score intelecommunicationsFigure 1: Telecommunications trail behind other industries when it comes to brand loyalty, based on Net Promoter Score (NPS)Source: Satmetrix 2012Study of US consumers46%37%28%24%23%76%71%66%83%74%-21%11%38%-15%-15%-9%6%13%RetailOnline servicesTechnologyTravel/hospitalityFinancial servicesInsuranceTelecommunications-40% -20% 0% 20% 40% 60% 80% 100%26%50%73%Average
  5. 5. No two operators are the same, and improvingloyalty means evaluating important parameters such ascustomer care, pricing and network performance.An analysis of the latter reveals that on average, justover 30 percent of users state that they experienceproblems every day when using their smartphonesto browse the web or use apps, and as many as60 percent experience these problems weekly.However, there are marked regional differenceswhen it comes to the perceived frequency of problems,as seen in figure 2. In Mexico, Brazil and Indonesia,over 70 percent of users experience problems weekly,and more than half of users in Indonesia experiencethem daily. By comparison, less than half of users inthe US, UK and Sweden experience problems weekly,and under 20 percent experience them daily. As aresult of these issues, overall satisfaction with networkperformance is rated lower than other factors.In order to ensure a good user experience, contentneeds to appear quickly on the screen. Often, lowsatisfaction with network performance is a result ofsmartphone users becoming fed up with waiting.Slow browsing and content download speedsare the most common issues reported by users,followed by lack of internet access and apps crashingwhen in use. 15-20 percent claim to experiencethese issues very often, and a further 45-50 percentexperience them on occasion.The problem seems to lie in users’ expectationsbeing higher than the service they usually receive.More and more, users are coming to expect shorterloading and buffering times – and they also expecttheir services to work whatever the location. Even inpoorly ranked areas such as public transport, 40-50percent of people still attempt to access the internetand use social networks. An analysis of the mostfrequent smartphone issues indicates that manyperceive their networks to not be meeting basicperformance standards.ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL  5Expectationsgreater than reality60%of smartphone usersexperience problems weeklySource: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MXFigure 2: Frequency of problems experienced when browsing or using apps connected to the internetDaily (several timesa day/once a day)Weekly (including daily)44%71%35%52%63%79%30%63%36%60%14%38%19%46%17%49%36%65%28%58%61%45%41%71%33%74%BrazilChinaIndonesiaSouth KoreaJapanUSUKSwedenTurkeyRussiaMexicoChileAVERAGE
  6. 6. By breaking down loyaltyinto separate factors, we canunderstand which areas are themost important for boostingconsumer loyalty.Figure 3, based on Shapleyregression analysis, showsthe relative impact betweeneach driver and loyalty to theoperator brand (NPS). Fromthis we can determine thatnetwork performance is currentlythe principal driver behindsubscribers’ loyalty to mobileoperators, followed by valuefor money. Addressing networkperformance has twice the impacton customer loyalty comparedto measures such as improvingcustomer support, and is fourtimes more effective at increasingsatisfaction than loyalty rewards.Network performance and valuefor money are closely correlated,as demonstrated in figure 4.Thissuggests that improving networkquality also improves perceivedvalue for money – without actuallylowering tariffs. Spending less onnetwork performance and passingon savings to the consumer mayalso improve perceived valuefor money, however loweringprices provides little sustainabledifferentiation and may producenegative effects, such as price wars.6  ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYALIncreasing valuethrough performance19%16%10%10%10%8%7%7%6%5%Network performanceValue for moneyOngoing communicationTariff plans offeredCustomer supportAccount managementBilling and paymentHandset/devices offeredInitial purchaseLoyalty rewardsNetworkOfferMarketingCustomer serviceFigure 3: Drivers of loyalty to operator brand (NPS)Source: Ericsson ConsumerLabNetwork Performance Study 2013Base: Smartphone users in BR, CHN, ID,SK, JP, US, UK, SE, RU, TUR, CHL, MXSource: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MXFigure 4: The correlation between value for money and network performance0 2 4 6 8 100246810SatisfactionwithvalueformoneySatisfaction with network performanceNETWORKPERFORMANCEhas twice the impact on loyaltycompared to tariff plans andcustomer support
  7. 7. Users were asked to rate theirnetwork operators accordingto several different aspectsof the overall experience. Theresults found that despite theclear importance of networkperformance in creating a goodcustomer experience, it rankedbelow many other areas in termsof satisfaction level. This suggeststhat although users may not beunhappy with network performancein general, there is certainly scopefor improvement.Figure 5 illustrates the importanceof certain customer loyalty driversin relation to user satisfaction.From this we can see thatnetwork performance is not theonly significant factor to get alow satisfaction rating – value formoney follows closely behind,reinforcing the link between thetwo. Those factors associated withhigh satisfaction levels tend tobe of lesser importance. In orderto have any significant impacton customer loyalty, networkperformance has to be addressed.However, improved performancewon’t necessarily impress everyone.It is most likely to impress thosewho interact with the networkoften, in other words, heavy users.Around 20 percent of heavy usersreport that they ‘always’ experienceproblems, and put this down tothe speed of the mobile network.For data-heavy services such asvideo streaming, this figure risesto 60 percent. As a group who aremore aware of usage problems andtherefore more likely to considerswitching, they would be receptiveto marketing strategies basedon improving performance.A key thing for operators toconsider is how to manage userexpectations. In order to buildtrust, they need to be absolutelyclear on what they can and can’tdeliver. Since performance isperceived differently by everyone,users need to be addressed on anindividual level, enabling improvedperformance in areas that matterto them. Operators should alsoconsider proactively advisingtheir customers on other ways ofimproving performance, such aschanging their phone model orupgrading their operating system.ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL  7Room forimprovementInitial purchaseBillingHandset/devicesofferedCustomer supportAccountmanagementTariffsOngoingcommunicationValue for moneyNetworkperformanceLoyalty rewardsAreas to sustainAreas of concern Areas to improveStrongest areasSatisfactionLow HighDerived importanceCustomer service Offer Marketing NetworkFigure 5: Satisfaction vs. importanceSource: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MXof heavy users alwaysexperience problems20%
  8. 8. Quality perception differs when it comes to voiceand data.Voice is considered highly important whenit comes to overall quality perception – this hasalways been the case. It remains the principal loyaltydriver, and must remain strong in order to maintainnetwork performance.But when it comes to embracing new growthopportunities, data is a key differentiator withan important role to play in generating userrecommendations. Successfully promoting theseaspects to consumers could have a significantimpact on loyalty.As it stands, user perception of data speed andcoverage is lagging behind. In comparison, voice isdoing well, as shown in figure 6. It is also clear that usershave difficulties in distinguishing between data coverageand data speed. Other, more meaningful terms areneeded to help users understand what apps or servicesthey can use with satisfactory performance. Promotingmeasures to increase the speed of the networkwould help to change this perception, and would beappreciated by users.Figure 6 shows how users rate their experience indifferent locations, with airports, home and out in thestreet rated highest, and public transport rated lowest.On average, people are spending 1-1.5 hours a dayon transport. Around 40-50 percent of users accesssocial networks and browse the web while in transit,meaning people are still using smartphones in placesthat currently are ranked quite poorly.8  ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYALUser experienceis a differentiatorFigure 6: User satisfaction relating to data speed, data coverage and voice quality (on a scale of 0-10)Voice qualityData speedData coverageAt an airportOutdoors (street or park)HomeSchool/workBus/train stationInside shop/mallIn a carAt a stadiumOutdoors (countryside)Bus/trainSubway/metro 5.9 Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MX
  9. 9. What makes a customer valuable? Spending alone isnot enough to assess whether a customer is valuable ornot – there are other factors which must be taken intoaccount. Our calculations for CustomerTotalValue (CTV)take into account the effect that loyalty has on customervalue by combining this with spending habits.Increasing customer loyalty has significant benefitswhen it comes to generating long-term value. CTVrepresents the total projected revenues that a customerwill generate over the course of their time with anoperator. It can be calculated by using a simplifiedequation (disregarding cost per user, acquisitioncost, and discount rate) based on the more complexcalculation for Customer LifetimeValue* (CLV).Thismultiplies each customer’s annual average spend byhow likely they are to stay with their current provider.Figure 7 shows the differences in CTV across severaluser categories. When it comes to different age groups,we can see that users aged 18-24 have a CTV that is32 percent lower than the average. CTV then increasesas you move up the age groups, with those aged55+ at 128 percent above the average. This suggeststhat older customers are much more loyal.Interestingly, what figure 7 also demonstratesis that heavy users generate less value duringtheir lifetimes than low users. The reason for thisis loyalty. Heavy users have high expectations,and won’t think twice about switching to get theservice quality they want. Being more exposedto the network they notice problems more, andwill be bothered to a higher extent than low/mediumusers. In order to retain heavy users, ensuringgood network performance is key.ARPU 12 Churn factor CTVERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL  9THE EQUATION FORCUSTOMER VALUEFigure 7: Differences in CTV across various subgroupsCTV is the total projected revenues that a customer will generate during their lifetimeXx =Annual average spendwith providerLikelihood of stayingwith providerAge Smartphone usage-32% -25%13%16%-9%17%42%128%18-2425-3435-4445-5455+HeavyMediumLowTotal CTV (USD)% negative value gap compared to the total% positive value gap compared to the total1,563CTV = ARPU x 12 x1churn*Journal of Service Research, Volume 9, No. 2, November 2006-1Source: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MX
  10. 10. 10  ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYALLOYALTY MEANSREVENUEIn order to show why CTV is a superior metric thanARPU alone when assessing valuable customers,we calculated the average revenue per user (ARPU)for three separate customer groups: those with highsatisfaction, those with medium satisfaction, andthose with low satisfaction. The results, as shown infigure 8, found that highly satisfied customers do notspend more money with their operators as one mightexpect – in fact, their ARPU is lower than the average.By comparison, customers with low satisfactionactually spend more.However, highly satisfied customers generate muchgreater revenue when it comes to CTV. Because theyare less inclined to switch operator and their churnrates are low, they create more value over their lifetime.In order to maximize customer value, ARPU must becombined with loyalty – on which network performancehas the highest impact.Network performance is really about user perception.Operators need to relate to this when they aremeasuring network performance, introducing morecustomer-focused KPIs. Understanding the logicbehind perceived and actual value puts operators ina strong position when it comes to making changes.Figure 9 demonstrates the projected resultsthat would come from improving users satisfactionwith network performance by 5 percent. The ratio ofpromoters to detractors would shift favorably, liftingthe NPS from -1 to +6. This translates to an additionalUSD 69 per customer over the course of their lifetime,or the number of years spent with that operator. Witha customer base of more than 1 million, the resultingrevenue gains would be substantial.Figure 9: The projected benefits of improvingsatisfaction with network performanceNetwork PerformanceIncrease +5%: 7.1 (mean)Network PerformanceToday: 6.76 (mean)PromotersDetractorsCTV (USD) (USD): +69NPS: +629303327NPS: -11,563 1,632Source: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MXFigure 8: Impact of network satisfaction on ARPU and CTVAll usersSatisfaction with network operator:High satisfaction (8-10)Medium satisfaction (4-7)Low satisfaction (0-3)PostpaidARPU(USD)CTV(USD)63 2,08660 3,57263 1,95674 582Source: Ericsson ConsumerLab Network Performance Study 2013Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MX
  11. 11. ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL  11A MEASUREFOR SUCCESSMany operators consider loyalty, or NPS, to bea measure of their success. When it comes toincreasing loyalty, it’s clear that network performanceis currently the most influential factor. In order fornetwork performance to be perceived as good quality,operators need to ensure that content loads quickly –at a speed considered reasonable within that market.Anything slower than this will frustrate users, and indoing so have a negative impact on loyalty. A pleasantsmartphone usage experience is also likely to stimulateand encourage more usage, and potentiallyincrease the ARPU for each user if data plansare designed correctly.However, it is not enough for operators to simply improvenetwork performance in the hope that their customerswill notice. In order to effectively change customerperception, communication is key. Users need to beaware that things have changed for there to be an impacton satisfaction, and in turn boost loyalty to their a speed consideredreasonable withinthat marketcontent loadsOperators need to ensure thatquickly
  12. 12. EAB-13:031464 Uen© Ericsson AB 2013EricssonSE-126 25 Stockholm, SwedenTelephone +46 10 719 00 00Fax +46 8 18 40 is a world-leading provider of communications technologyand services. We are enabling the Networked Society with efficientreal-time solutions that allow us all to study, work and live our livesmore freely, in sustainable societies around the world.Our offering comprises services, software and infrastructure withinInformation and Communications Technology for telecom operatorsand other industries. Today 40 percent of the world’s mobile trafficgoes through Ericsson networks and we support customers’networks servicing more than 2.5 billion subscriptions.We are more than 110,000 people working with customers in morethan 180 countries. Founded in 1876, Ericsson is headquarteredin Stockholm, Sweden. In 2012 the company’s net sales were SEK227.8 billion (USD 33.8 billion). Ericsson is listed on NASDAQ OMX,Stockholm and NASDAQ, New York stock exchanges.The content of this document is subject to revision withoutnotice due to continued progress in methodology, design andmanufacturing. Ericsson shall have no liability for any error ordamage of any kind resulting from the use of this document.