Enhancing customer retention in case of service elimination? An empirical investigation in telecommunications

Alfred Stiassny (), Agnes Somosi () and Krisztina Kolos ()
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Alfred Stiassny: Department of Economics, Vienna University of Economics and Business
Agnes Somosi: Corvinus University of Budapest
Krisztina Kolos: Corvinus University of Budapest

Department of Economics Working Papers from Vienna University of Economics and Business, Department of Economics

Abstract: Generally, service industries require a rapid innovation of service portfolios to gain and maintain a competitive advantage. In this context, service elimination is a tool of portfolio renewal, where customer retention is a strategic priority for companies. This is especially so because service elimination usually causes higher churn rates than an average churn in telecommunications. Thus, customer retention is seen as a major aspect in enhancing service elimination success. The purpose of this paper is to investigate the factors that increase customer churn in the case of service elimination. We use one of the three Hungarian telecommunication operator’s databases containing usage data three months before and after service elimination in the course of a major service package reform. Contract-related information and demographics of 10 065 customers are used to differentiate between high and low churn factors, taking care of a possible sample selection problem. The results show that in the course of service elimination there is a significant positive relationship between price decrease, tenure, interaction intensity on the one, and customer retention on the other side. Besides these, demographics (age and residence) also play an important role in explaining churn rates during service elimination. Furthermore, we find that a higher monthly fee after elimination increases the customer’s usage intensity. This research aims to contribute both to service elimination, as well as to customer retention literature, by hierarchical modeling of retention and usage during service elimination with practical implications for decision-makers in rapidly innovating telecommunication markets.

Keywords: service elimination; customer retention; churn; switching cost; telecommunication services; Heckman sample selection (search for similar items in EconPapers)
JEL-codes: C21 C31 L8 M2 M21 M31 (search for similar items in EconPapers)
Date: 2019-03
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