Understanding how to increase loyalty among your prepaid subscribers

1. Understanding how to increase loyalty among your prepaid subscribers Budapest, September 27, 2004 Prepared by: Andras Kondor VP CRM, T-Mobile International

2. Margins in prepaid attractive Prepaid market is simple Attractive margins and simple business modell attract competition • No billing required • No credit check, bad debt and financial costs • Only basic customer service needed • Focus on voice and sms makes proposition simple and cover most current needs Postpaid Prepaid Illustrative Price Costs Price Costs

3. Prepaid customers want, cost control, cheaper price, but no contract Reasons for purchase and usage of postpaid: Reasons for purchase and usage of pre-paid: • Conclusions • Part of prepaid customers will never migrate to postpaid, as their fundamental needs cannot be met with postpaid (e.g. no contract or cost control) • By design, prepaid attracts more low value customers – prepaid in itself is not less profitable for similar customer • Prepaid has no contract • Prepaid is cheaper for low usage – customers pay only for what they use and not more • Prepaid has cost control • No credit checks • Anonymity (not in all countries) • Easy to buy, no hassle • Postpaid is cheaper for high usage • Subsidised handset • More roaming possibilities We know less about PrePaid customers and they are more difficult to contact In TMO 1.5% of targeted customersmigrated to postpaid on specific campaigns Prepaid and postpaid customer needs are different. Source: Ovum, “The Future of Prepaid”, 2003.

4. Prepaid market is challenging for incumbent operators • How to compete with new and/or prepaid focus operators? • How to operate in a less traditional, less information rich environment?

5. Prepaid market is challenging for incumbent operators • How to compete with new and/or prepaid focus operators? • How to operate in a less traditional, less information rich environment?

6. Know the value of your customers Already implemented To be implemented CLASS 0 CLASS 1 CLASS 2 CLASS 3 CLASS 4 Revenue Gross Contribution Customer Contribution Net Contribution Total Profit Direct costs Customer Driven Costs Per Contract, Per customer Per segment Company Driven Costs Acquisition & Renewal Costs Measuring customer usage Measuring price efficiency Segment scoring Customer reporting Renewal offer definition Prepaids and postpaids valued the same way

7.  ? • 0 Evaluate value performance against targets and use it for derivation of future measures Systematic analysis of customer base • Value creation • How well did we drive/improve value in our customer base over time? • How did potential strategic moves (e.g., changes in customer retention model, commission schemes, etc.) influence value creation? • Customer portfolio • Who are our most valuable customers and what describes them? • Did we focus our activities on the most valuable customers? • Did we optimize our measures with respect to management of low/negative value generating customers? Historic Customer Value Value • Channels • Do we have the right channel mix with respect to acquisition/retention and active marketing? • Where should we consider/apply alternative commission schemes (e.g., risk sharing) to lower acquisition/ retention cost? Contract length • Service • Do we have the right service models for the existing/current customer portfolio? • Offering • What are value creating propositions/offerings?

8. Top Hi Mid Low Focus to keep especially top and high value prepaids Value segments Prepaid value creation Top Illustrative High Med Low Customers Contribution Top and high value prepaids create a lot of value

9. Prepaid has many positive sides to TMO Prepaid postpaid split by customer value segment: Benefits Concerns • But no contract and lower usage • But no commitment • But attracts more low value customers • But more inactive customers • But lower ARPU • Higher contribution margin per minute than in postpaid • Upfront payment from customer • Easy to sell (no contract) • Reduced exposure to fraud • Lower SAC and CRC • Shorter payback period for TMO • Higher contribution margin Illustrative Conclusions: • Prepaid has many advantages over and above postpaid (e.g. upfront payment) • We should not force migration to postpaid • We have been relatively passive in trying to overcome the concerns (e.g. lock-in instead of contract) • Prepaid has also significant amount of high and top value customers Source: Ovum, “The Future of Prepaid”, 2003. DWH analysis delivered by Irene Dziergas on October 2003.

10. Base retention on three dimensional segment strategy Customer strategy formulated on the segment level, but executed and measured for individual customers Segments are established based on fundamental customer knowledge Value Churn probability Needs(Motivation) Knowledge Segments

11. Top Hi Mid Low Differentiate treatment by value segments across functions Differentiation Value segments Marketing Call Centre POS • Apply customer value approach in defining customer experience for all pre- and post-paid customers at all touch-points • Create a memorable positive experience especially at early lifecycle, which forms a strong foundation of satisfaction • Minimise the negative experiences (e.g. credit suspension and exchange of faulty handsets) Differentiation by value replaces differentiation by pre/postpaid

12. Increase loyalty along the customer lifecycle Acquisition Retention • Differentiated customer treatment: • Implement premium service • Implement new joiner differentiation • Implement improved bad debt management • Loyalty actions and programmes: • Provide tangible benefits to customers to stay and bind them also emotionally • Enhance positive customer experience and brand perception • Measure effect of loyalty processes; form the basis for improving the customer experience T-Mobile Competition T-Mobile Competition Segment based strategy needed to increase the loyalty gap over the contract lifecycle Overall strategy Prepaid focus • Differentiated customer treatment: • Diminish difference between pre- and postpaid • Provide web-based service support • Loyalty actions and programmes: • Provide tangible benefits to customers to stay and bind them also emotionally • Provide additional benefits for more commitment • Value tenure Source: IM14

13. 10 points/year of tenure (each month) 1 point/2 minutes of incoming call 1 point/each 50HUF (€0.20) of turnover Gold Limit: 420 points Example: T-Mobile Hungary Prepaids get benefits based on their tenure and value Prepaid Gold Prepaid Platinium • 10 points/year of tenure (each month • 1 point/2 minutes of incoming call • 1 point/each 50HUF (€0.20) of turnover • Gold Limit: 2,250 points • Benefits: • Handset discounts • Usage (voice, sms, content) discounts • Special customer treatment

14. Prepaid market is challenging for incumbent operators • How to compete with new and/or prepaid focus operators? • How to operate in a less traditional, less information rich environment?

15. Ø 0,5 Ø 1.0 Develop segment based development strategy and leverage contact potential by increasing contact rates Customer development strategy Contact strategy Segment 1 Segment 2 Segment 1 Segment 2 Illustrative Top High value content Voice & SMS High Value for money content Medium Low

16. "COC mapping" allows to identify and target individual (cross-/upsell) offerings based on usage of current customer, offer, and channel data Offers • Each single cube provides info on an individual customer's (C) propensity to provide additional value by using a given product (P) when offered via a given channel (CH) • Example COC info includes: • For customer C2, offer P2 is most compelling, economically most attractive when provided via channel CH2 • Within current base, X customers show high usage affinity foroffer Y, yielding profit potential of Z Channels CH2 CH1 P1 P2 P3 P4 Customers C1 CH1 Which offeringsdo we sell a givencustomer? C2 C3 Which channel touse? Whomdo we sell a givenoffering? C4 ''COC cube''

17. Customer development will be based on e-channels Channel evaluation mail email SMS inbound Call Outbound Call Outbound Call MMS • Focus on e-mail, and SMS • Get and update e-mail addresses • Secure permission • Gather information on customer preferences

18. A number of initiatives to support targets Cornerstones Killer initiatives Description Increase quality of acquisition “More value for commitment” tariff • Digressive tariff or access to specific loyalty tariff plan upon minimum commitment of time or usage • Depends on competitive environment 1 1.1 Acquisition Youth tariff/options • Specific rat-plan (adapted off-peak, mobile to mobile rates, SMS rates), specific top up voice data ratio • Time lag effect 1.2 Increase ARPU “More value for commitment” tariff • Digressive tariff or access to specific loyalty tariff plan upon minimum commitment of time or usage • Depends on competitive environment 2 2.1 Development & service Top-up rewards • Additional free credit depending on top up value(free credit for high value) / frequency (free credit for minimum amount in pre-defined timeframe) or channel (direct debit) • Reward proportional to trigger 2.2 Ease of Top-up • Top up channels: e-Top-up / ATM • Top up abroad within TM /partners countries • Direct SMS upload 2.3 Retain high value customers Lock-in offers • Top up: buy monthly allowance (in credit) for several months • Bundle: buy monthly allowance (in usage) for several months 3 3.1 Retention & win-back Prepaid tariff linked to direct debit • Access to post-paid like tariffs • No contract, but direct debit 3.2 Loyalty programmes • Reward (handset renewal, free credit, free usage, other partners) upon usage / revenue s.a. Kläxchen/TMA, Nectar/Vodafone UK 3.3

19. A quantitative assessment of value generation, planning and targetting along the lifecycle is needed Acquisition Development & service Retention & win-back €

20. Conclusions • Focus on high value prepaids • Know the value of your customers • Differentiate them based on their value • Provide them with tangible benefits along the lifecycle based on their value • Customise your development plan • Develop customer specific cross/upselling • Leverage e-channels • Control the lifecycle