Contracts no aid to loyalty

Locking telecommunications customers into contracts may make them more likely to jump to a competitor, according to an analyst researching customer churn.

Using contracts to retain customers is common for the telcos, but they can work to drive customers into the arms of rivals, says Ali Wilkinson of behavioural prediction experts VortexDNA.

She says people coming off contracts are more likely to take a look at what else is on offer than those who are free to leave their telco at any time.

Telcos use contracts to recoup money spent on subsidised mobile phones and modems, free data and broadband offers, and to lock in a customer base.

At Telecom's annual results briefing last Friday, chief executive Paul Reynolds said the company was focused on reducing churn rates from 12 per cent.

"How are we targeting and managing that churn?," asked Reynolds. "It's certainly about getting a broadband base in particular on contract."

Reynolds said 58 per cent of Telecom's broadband customers were signed up to contracts.

He said contracts were only part of the story in reducing churn, saying the quality of the broadband experience helped to retain customers.

Wilkinson says VortexDNA has established that personality traits and values determine how likely a customer is to check out the competition.

Research cited by VortexDNA estimates the cost of acquiring a new customer to be seven times the annual cost of keeping an existing customer.

A mobile customer can cost between $400 and $1000 to replace.