Ericsson ConsumerLab: Keeping smartphone users loyal

Assessing the impact of network performance
on consumer loyalty to operators
consumerlab
An Ericsson Consumer Insight Summary Report
June 2013
Keeping
Smartphone
users loyal

2 ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL
contents
USER BEHAVIOR IS CHANGING 3
TELECOM INDUSTRY HAS FALLEN BEHIND 4
EXPECTATIONS greater than reality 5
INCREASING VALUE THROUGH performance 6
Room for improvemen t 7
USER EXPERIENCE IS A DIFFERENTIATOR 8
THE EQUATION FOR CUSTOMER VALUE 9
LOYALTY MEANS REVENUE 10
A MEASURE FOR SUCCESS 11
Ericsson consumerlab
voice of the consumer
Ericsson ConsumerLab has more than 15 years’ experience
of studying people’s behaviors and values, including the way
they act and think about ICT products and services. Ericsson
ConsumerLab provides unique insights on market and
consumer trends.
Ericsson ConsumerLab gains its knowledge through a
global consumer research program based on interviews
with 100,000 individuals each year, in more than 40 countries
and 15 megacities – statistically representing the views of
1.1 billion people.
Both quantitative and qualitative methods are used,
and hundreds of hours are spent with consumers from
different cultures.
To be close to the market and consumers, Ericsson
ConsumerLab has analysts in all regions where Ericsson is
present, which gives a thorough global understanding of the
ICT market and business models.
All ConsumerLab reports can be found at:
www.ericsson.com/consumerlab
METHODOLOGY
The main purpose of the study was to identify
what drives customer loyalty to operators, and
in addition the monetary value that can be
gained by improving network performance.
Ericsson ConsumerLab undertook an online
study across 12 countries, gathering quantitative
results from 1,000 smartphone users per
country.These countries include US, Mexico,
Brazil, Chile, UK, Sweden, Russia,Turkey,
South Korea, China, Japan and Indonesia.
Those interviewed were users aged 18-69
who use their smartphones to access the
internet at least once a week. Overall, the
study is representative of more than
350 million smartphone users.

ERICSSON CONSUMERLAB KEEPING SMARTPHONE USERS LOYAL 3
USER BEHAVIOR
IS CHANGING
The ever increasing ubiquity
of smartphones has seen
consumers accessing the internet
more frequently throughout the day,
both indoors and outdoors. Over
time, apps and data have become
just as much an integrated part
of everyday life as SMS and voice
calls. This widespread change in
user behavior has consequences
for mobile network operators.
Operators are struggling to
maintain their reputation within
the mobile ecosystem alongside
handset manufacturers, operating
systems and content suppliers. This
creates a challenging environment,
with increased churn and customer
disloyalty. This report assesses
the influence of various factors
on customer loyalty to operators,
with a focus on network
performance in particular.
> Loyalty below average
The telecoms industry
is lagging behind other
industries when it comes
to user satisfaction. Mobile
operators are rated lowest
compared with other players
in the ecosystem.
Delayed gratification
High expectations affect
customer loyalty when not
met with a sufficient standard
of performance, particularly
among heavy users.
Insufficient coverage and
perceptibly long waiting times
when browsing or using apps
are two of the main causes
for dissatisfaction.
Performance and value
Network performance is
currently the main driver of
loyalty to operators.This is
closely linked with value for
money. When you improve
satisfaction with network
performance, perceived value
for money also improves.
Room for improvement
User perception is that data
speed and coverage are poor,
especially on public transport.
Introducing measures
to improve network
performance would help
to alter this perception and
differentiate offerings.
Loyalty makes money
Increasing customer loyalty
has a significant impact on
Customer Total Value (CTV),
a metric used to assess
future value from customers.
This means there is potential
for each subscriber to
generate more revenue
across his/her lifetime.
Key findings

Consumer loyalty and satisfaction can be measured
by an industry or business’s Net Promoter Score
(NPS). This score gauges how likely consumers are to
recommend a certain brand or service to others.
When observing consumer loyalty across a range of
industries, it becomes clear that many consumers are
not particularly satisfied with the performance of their
mobile operators. Figure 1 shows that the NPS for
operators is significantly lower than the average,
at more than 10 percent below other industries.
Deeper analysis of brand performance reveals that even
amongst other players in the mobile industry, consumers
still rank operators lower in terms of satisfaction. In
order to improve customer loyalty, operators first need
to understand the reasons behind this.
TELECOM INDUSTRY
HAS FALLEN BEHIND
11%average Net
Promoter Score in
telecommunications
Figure 1: Telecommunications trail behind other industries when it comes to brand loyalty, based on Net Promoter Score (NPS)
Source: Satmetrix 2012
Study of US consumers
46%
37%
28%
24%
23%
76%
71%
66%
83%
74%
-21%
11%
38%
-15%
-15%
-9%
6%
13%
Retail
Online services
Technology
Travel/hospitality
Financial services
Insurance
Telecommunications
-40% -20% 0% 20% 40% 60% 80% 100%
26%
50%
73%
Average

No two operators are the same, and improving
loyalty means evaluating important parameters such as
customer care, pricing and network performance.
An analysis of the latter reveals that on average, just
over 30 percent of users state that they experience
problems every day when using their smartphones
to browse the web or use apps, and as many as
60 percent experience these problems weekly.
However, there are marked regional differences
when 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 experience
them daily. By comparison, less than half of users in
the US, UK and Sweden experience problems weekly,
and under 20 percent experience them daily. As a
result of these issues, overall satisfaction with network
performance is rated lower than other factors.
In order to ensure a good user experience, content
needs to appear quickly on the screen. Often, low
satisfaction with network performance is a result of
smartphone users becoming fed up with waiting.
Slow browsing and content download speeds
are the most common issues reported by users,
followed by lack of internet access and apps crashing
when in use. 15-20 percent claim to experience
these issues very often, and a further 45-50 percent
experience them on occasion.
The problem seems to lie in users’ expectations
being higher than the service they usually receive.
More and more, users are coming to expect shorter
loading and buffering times – and they also expect
their services to work whatever the location. Even in
poorly ranked areas such as public transport, 40-50
percent of people still attempt to access the internet
and use social networks. An analysis of the most
frequent smartphone issues indicates that many
perceive their networks to not be meeting basic
performance standards.
Expectations
greater than reality
60%of smartphone users
experience problems weekly
Source: Ericsson ConsumerLab Network Performance Study 2013
Base: Smartphone users in BR, CHN, ID, SK, JP, US, UK, SE, RU, TUR, CHL, MX
Figure 2: Frequency of problems experienced when browsing or using apps connected to the internet
Daily (several times
a 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%
Brazil
China
Indonesia
South Korea
Japan
US
UK
Sweden
Turkey
Russia
Mexico
Chile
AVERAGE

By breaking down loyalty
into separate factors, we can
understand which areas are the
most important for boosting
consumer loyalty.
Figure 3, based on Shapley
regression analysis, shows
the relative impact between
each driver and loyalty to the
operator brand (NPS). From
this we can determine that
network performance is currently
the principal driver behind
subscribers’ loyalty to mobile
operators, followed by value
for money. Addressing network
performance has twice the impact
on customer loyalty compared
to measures such as improving
customer support, and is four
times more effective at increasing
satisfaction than loyalty rewards.
Network performance and value
for money are closely correlated,
as demonstrated in figure 4.This
suggests that improving network
quality also improves perceived
value for money – without actually
lowering tariffs. Spending less on
network performance and passing
on savings to the consumer may
also improve perceived value
for money, however lowering
prices provides little sustainable
differentiation and may produce
negative effects, such as price wars.
Increasing value
through performance
19%
16%
10%
10%
10%
8%
7%
7%
6%
5%
Network performance
Value for money
Ongoing communication
Tariff plans offered
Customer support
Account management
Billing and payment
Handset/devices offered
Initial purchase
Loyalty rewards
Network
Offer
Marketing
Customer service
Figure 3: Drivers of loyalty to operator brand (NPS)
Source: Ericsson ConsumerLab
Network Performance Study 2013
Base: Smartphone users in BR, CHN, ID,
SK, JP, US, UK, SE, RU, TUR, CHL, MX
Figure 4: The correlation between value for money and network performance
0 2 4 6 8 10
0
2
4
6
8
10
Satisfactionwithvalueformoney
Satisfaction with network performance
NETWORK
PERFORMANCE
has twice the impact on loyalty
compared to tariff plans and
customer support

Users were asked to rate their
network operators according
to several different aspects
of the overall experience. The
results found that despite the
clear importance of network
performance in creating a good
customer experience, it ranked
below many other areas in terms
of satisfaction level. This suggests
that although users may not be
unhappy with network performance
in general, there is certainly scope
for improvement.
Figure 5 illustrates the importance
of certain customer loyalty drivers
in relation to user satisfaction.
From this we can see that
network performance is not the
only significant factor to get a
low satisfaction rating – value for
money follows closely behind,
reinforcing the link between the
two. Those factors associated with
high satisfaction levels tend to
be of lesser importance. In order
to have any significant impact
on customer loyalty, network
performance has to be addressed.
However, improved performance
won’t necessarily impress everyone.
It is most likely to impress those
who interact with the network
often, in other words, heavy users.
Around 20 percent of heavy users
report that they ‘always’ experience
problems, and put this down to
the speed of the mobile network.
For data-heavy services such as
video streaming, this figure rises
to 60 percent. As a group who are
more aware of usage problems and
therefore more likely to consider
switching, they would be receptive
to marketing strategies based
on improving performance.
A key thing for operators to
consider is how to manage user
expectations. In order to build
trust, they need to be absolutely
clear on what they can and can’t
deliver. Since performance is
perceived differently by everyone,
users need to be addressed on an
individual level, enabling improved
performance in areas that matter
to them. Operators should also
consider proactively advising
their customers on other ways of
improving performance, such as
changing their phone model or
upgrading their operating system.
Room for
improvement
Initial purchase
Billing
Handset/devices
offered
Customer support
Account
management
Tariffs
Ongoing
communication
Value for money
Network
performance
Loyalty rewards
Areas to sustain
Areas of concern Areas to improve
Strongest areas
Satisfaction
Low High
Derived importance
Customer service Offer Marketing Network
Figure 5: Satisfaction vs. importance
of heavy users always
experience problems
20%

Quality perception differs when it comes to voice
and data.Voice is considered highly important when
it comes to overall quality perception – this has
always been the case. It remains the principal loyalty
driver, and must remain strong in order to maintain
network performance.
But when it comes to embracing new growth
opportunities, data is a key differentiator with
an important role to play in generating user
recommendations. Successfully promoting these
aspects to consumers could have a significant
impact on loyalty.
As it stands, user perception of data speed and
coverage is lagging behind. In comparison, voice is
doing well, as shown in figure 6. It is also clear that users
have difficulties in distinguishing between data coverage
and data speed. Other, more meaningful terms are
needed to help users understand what apps or services
they can use with satisfactory performance. Promoting
measures to increase the speed of the network
would help to change this perception, and would be
appreciated by users.
Figure 6 shows how users rate their experience in
different locations, with airports, home and out in the
street rated highest, and public transport rated lowest.
On average, people are spending 1-1.5 hours a day
on transport. Around 40-50 percent of users access
social networks and browse the web while in transit,
meaning people are still using smartphones in places
that currently are ranked quite poorly.
User experience
is a differentiator
Figure 6: User satisfaction relating to data speed, data coverage and voice quality (on a scale of 0-10)
Voice quality
Data speed
Data coverage
At an airport
Outdoors (street or park)
Home
School/work
Bus/train station
Inside shop/mall
In a car
At a stadium
Outdoors (countryside)
Bus/train
Subway/metro 5.9 6.1
6.7
7.0
7.0
7.1
7.3
7.4
7.5
7.6
7.7
7.1
6.4
6.4
6.7
6.6
6.7
6.8
7.0
6.9
7.0
7.1

What makes a customer valuable? Spending alone is
not enough to assess whether a customer is valuable or
not – there are other factors which must be taken into
account. Our calculations for CustomerTotalValue (CTV)
take into account the effect that loyalty has on customer
value by combining this with spending habits.
Increasing customer loyalty has significant benefits
when it comes to generating long-term value. CTV
represents the total projected revenues that a customer
will generate over the course of their time with an
operator. It can be calculated by using a simplified
equation (disregarding cost per user, acquisition
cost, and discount rate) based on the more complex
calculation for Customer LifetimeValue* (CLV).This
multiplies each customer’s annual average spend by
how likely they are to stay with their current provider.
Figure 7 shows the differences in CTV across several
user categories. When it comes to different age groups,
we can see that users aged 18-24 have a CTV that is
32 percent lower than the average. CTV then increases
as you move up the age groups, with those aged
55+ at 128 percent above the average. This suggests
that older customers are much more loyal.
Interestingly, what figure 7 also demonstrates
is that heavy users generate less value during
their lifetimes than low users. The reason for this
is loyalty. Heavy users have high expectations,
and won’t think twice about switching to get the
service quality they want. Being more exposed
to the network they notice problems more, and
will be bothered to a higher extent than low/medium
users. In order to retain heavy users, ensuring
good network performance is key.
ARPU 12 Churn factor CTV
THE EQUATION FOR
CUSTOMER VALUE
Figure 7: Differences in CTV across various subgroups
CTV is the total projected revenues that a customer will generate during their lifetime
Xx =
Annual average spend
with provider
Likelihood of staying
with provider
Age Smartphone usage
-32% -25%
13%
16%
-9%
17%
42%
128%
18-24
25-34
35-44
45-54
55+
Heavy
Medium
Low
Total CTV (USD)
% negative value gap compared to the total
% positive value gap compared to the total
1,563
CTV = ARPU x 12 x
1
churn
*Journal of Service Research, Volume 9, No. 2, November 2006
-1

LOYALTY MEANS
REVENUE
In order to show why CTV is a superior metric than
ARPU alone when assessing valuable customers,
we calculated the average revenue per user (ARPU)
for three separate customer groups: those with high
satisfaction, those with medium satisfaction, and
those with low satisfaction. The results, as shown in
figure 8, found that highly satisfied customers do not
spend more money with their operators as one might
expect – in fact, their ARPU is lower than the average.
By comparison, customers with low satisfaction
actually spend more.
However, highly satisfied customers generate much
greater revenue when it comes to CTV. Because they
are less inclined to switch operator and their churn
rates are low, they create more value over their lifetime.
In order to maximize customer value, ARPU must be
combined with loyalty – on which network performance
has the highest impact.
Network performance is really about user perception.
Operators need to relate to this when they are
measuring network performance, introducing more
customer-focused KPIs. Understanding the logic
behind perceived and actual value puts operators in
a strong position when it comes to making changes.
Figure 9 demonstrates the projected results
that would come from improving users satisfaction
with network performance by 5 percent. The ratio of
promoters to detractors would shift favorably, lifting
the NPS from -1 to +6. This translates to an additional
USD 69 per customer over the course of their lifetime,
or the number of years spent with that operator. With
a customer base of more than 1 million, the resulting
revenue gains would be substantial.
Figure 9: The projected benefits of improving
satisfaction with network performance
Network Performance
Increase +5%: 7.1 (mean)
Network Performance
Today: 6.76 (mean)
Promoters
Detractors
CTV (USD) (USD): +69
NPS: +6
29
30
33
27
NPS: -1
1,563 1,632
Figure 8: Impact of network satisfaction on ARPU and CTV
All users
Satisfaction with network operator:
High satisfaction (8-10)
Medium satisfaction (4-7)
Low satisfaction (0-3)
Postpaid
ARPU
(USD)
CTV
(USD)
63 2,086
60 3,572
63 1,956
74 582

A MEASURE
FOR SUCCESS
Many operators consider loyalty, or NPS, to be
a measure of their success. When it comes to
increasing loyalty, it’s clear that network performance
is currently the most influential factor. In order for
network 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 in
doing so have a negative impact on loyalty. A pleasant
smartphone usage experience is also likely to stimulate
and encourage more usage, and potentially
increase the ARPU for each user if data plans
are designed correctly.
However, it is not enough for operators to simply improve
network performance in the hope that their customers
will notice. In order to effectively change customer
perception, communication is key. Users need to be
aware that things have changed for there to be an impact
on satisfaction, and in turn boost loyalty to their operator.
at a speed considered
reasonable within
that market
content loads
Operators need to ensure that
quickly

EAB-13:031464 Uen
© Ericsson AB 2013
Ericsson
SE-126 25 Stockholm, Sweden
Telephone +46 10 719 00 00
Fax +46 8 18 40 85
www.ericsson.com
Ericsson is a world-leading provider of communications technology
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more freely, in sustainable societies around the world.
Our offering comprises services, software and infrastructure within
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Stockholm and NASDAQ, New York stock exchanges.
The content of this document is subject to revision without
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Ericsson ConsumerLab: Keeping smartphone users loyal

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Ericsson ConsumerLab: Keeping smartphone users loyal