The mid-market segment is poised for growth due to an expanding portfolio of managed IT, software and services. To ensure that this growth is sustainable, operators need to start focusing on analytics driven churn management now. Mid-market churn management is unique and therefore replicating churn models from other segments is not sufficient.

Growth in Mid-Market and the Importance of Churn Management

By Sidhant Jalan and Jacob Roscoe

Service Providers have been steadily expanding their addressable market via software and Managed IT services for the mid-market. The impact of the network design on cloud-based IT services has made service providers more strategic in the overall technology landscape. Overall, service providers find themselves in an interesting moment of growth in their Mid-Market segment. Critical to a sustainable growth path is efficient churn management for this segment. Churn management for the mid-market is quite unique due to the account hierarchies, client impacting factors and range of services included. In this post, we outline our rationale for these positions based on our understanding of the market and experience from recent client engagements.

Mid-Market Segment is Poised to Grow

Service providers have developed and expanded the product portfolio and delivery capabilities for mid-market customers

Service providers have been introducing and enhancing IT software and services offerings, productizing offers, training sales force and building back-end support capabilities.

Mid-Market IT services spend and CLEC product announcements 2.jpg

(Source: Gartner, Cartesian)

This focus makes sense both as a response to the decline in traditional telecom revenue and projected growth in IT software and services spending. As offerings mature and become productized, they will increasingly tap into the Mid-Market segment more effectively. In-fact we have seen impressive growth in Managed IT services from CLECs such as Consolidated, Broadview and Telepacific who have focused heavily on IT Managed Services delivery and believe the model is replicable for larger CLECs and ILECs for their mid-market business segments. Even in larger CLECs we have seen evidence of a focus on mid-market Software and IT services. As an example for Windstream seven of eleven product announcements were related to IT software and services products including: UC, Managed WiFi, Bandwidth-on-demand, disaster recovery and managed backup services, and managed security.

There has been a shift in focus to growing share of wallet

As a response to entry of Cable in previous years, we had seen a focus on preserving market share by network upgrades, pricing and offer rationalization in the service provider ecosystem. Going forward, we think that the market will experience overall growth not just for cable but also ILECs and CLECs, due to the growth in IT services. The future is about refocusing on growing share of wallet as opposed to simply protecting or expanding telecom services base.

The mid-market is a unique and fast growing segment

Several market estimates indicate that Mid-Market will be one of the top segments of the industry to grow spending. Per an Ovum survey of telecom industry participants, 30% indicated the Mid-Market segment would exhibit the highest growth, second only to consumer.

Survey of segment growth prospects.jpg

(Source: Ovum)

Mid-market needs and purchasing patterns are unique and should be carefully adapted to. Compared to larger organizations, mid-market sales will call for shorter sales cycles and fewer representatives for sales, this would require greater sales enablement. From a post-sales delivery perspective, mid-market companies would rely more heavily on providers’ support and escalation paths.

Churn Management Is Critical to Ensure a Sustainable Growth Path

Analysis of churn is one of the most effective tools to manage overall products and service experience. Churn provides indications of quality for service and support, product relevance and targeting amongst many others. These should be fed as inputs to the further buildout of portfolio offerings targeted at the mid-market and will create a strong foundation for sustainable growth. The competition in the managed services space has sophisticated tooling and customer success teams to manage and oversee churn and service providers need to build such capabilities to compete effectively.

Mid-market churn management is unique and needs to be developed systematically. At the low end of the spectrum, churn management methodologies are well established for the consumer segment. On the other end, the large enterprise segment is managed via strategic account management teams. Unfortunately, Mid-Market customers so far have not received methodical churn management focus and are extremely varied for individual focus. Our recent project experiences show that there are opportunities to utilize analytics oriented churn management methodologies for the mid-market segment. With the benefit of prior consumer churn management experience, we learnt that modeling needs for mid-market are unique and need to be adapted. As examples, i) a key first step is to make sure a complete customer view is developed by integrating various data sources from multiple products and sub-accounts, ii) account hierarchy establishment is crucial since many branch offices and subsidiaries may be differently represented, iii) churn needs to be clearly defined and accepted by various groups prior to embarking on analytical exercises to manage it.

Call for Operators to Understand and Manage Churn

Our work in Mid-Market churn management shows tremendous opportunity for growing the Mid-Market base effectively. As the broader technology market moves to the -as-a-service model, the competition is closely monitoring and managing churn for all segments of the market. Moreover, for Telcos with high dependency on the indirect channel – churn management support could be a key differentiator to strengthen partnership value.

How Cartesian Can Help

Cartesian works with service providers to understand churn in their business services segments. We conduct competitive research, overlay demographic analysis to determine optimal pricing strategies, and implement analytics-oriented churn management strategies to improve retention.

Project Example: Service Provider Predictive Churn: In Fall 2016, we helped a leading operator identify factors causing churn with correlation analysis and provided a lead list of high risk accounts to target for churn management focus. Cartesian developed and provides ongoing support for dashboards to observe and manage the operator’s churn trends.

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