TY - JOUR
T1 - The effect of friends’ churn on consumer behavior in mobile networks
AU - Ferreira, Pedro
AU - Telang, Rahul
AU - Matos, Miguel Godinho de
N1 - Funding Information:
Miguel Godinho de Matos was supported by the Portuguese Foundation for Science and Technology [Grant UID/GES/00407/2013] and [Grant PTDC/EGE-OGE/27968/2017].
Funding Information:
RAHUL TELANG ([email protected]) is a Professor at Heinz College, Carnegie Mellon University. His research interests lie in digital media industry with a particular focus on how the digitization of songs, movies, TV shows, and books is affecting the incentives of content provider, content distributors, as well presents public policy challenges in terms of innovation and copyright. Recently, he is investigating the role of social networks on music diffusion, technology adoption, and employee job search. Some of his prior work explored the challenges of interaction of multiple platforms. Dr. Telang was the recipient of Sloan Foundation Industry Study fellowship for his work in this domain and is a co-director of Digital Media Research Center at the Heinz College. His work is also funded extensively by industry participants, including Google.
Publisher Copyright:
©, Copyright © Taylor & Francis Group, LLC.
PY - 2019/4/3
Y1 - 2019/4/3
N2 - We study how consumers decide which tariff plan to choose and whether to churn when their friends churn in the mobile industry. We develop a theoretical model showing conditions under which users remain with their carrier and conditions under which they churn when their friends do. We then use a large and rich anonymized longitudinal panel of call detailed records to characterize the consumers’ path to death with unprecedented level of detail. We explore the structure of the network inferred from these data to derive instruments for friends’ churn, which is typically endogenous in network settings. This allows us to econometrically identify the effect of peer influence in our setting. On average, we find that each additional friend that churns increases the monthly churn rate by 0.06 percent. The observed monthly churn rate across our dataset is 2.15 percent. We also find that firms introducing the pre-paid tariff plans that charge the same price to call users inside and outside the carrier help retain consumers that would otherwise churn. In our setting, without this tariff plan the monthly churn rate could have been as high as 8.09 percent. We perform a number of robustness checks, in particular to how we define friends in the social graph, and show that our results remain unchanged. Our paper shows that the traditional definition of customer lifetime value underestimates the value of consumers and, in particular, that of consumers with more friends due to the effect of contagious churn and, therefore, managers should actively take into account the structure of the social network when prioritizing whom to target during retention campaigns.
AB - We study how consumers decide which tariff plan to choose and whether to churn when their friends churn in the mobile industry. We develop a theoretical model showing conditions under which users remain with their carrier and conditions under which they churn when their friends do. We then use a large and rich anonymized longitudinal panel of call detailed records to characterize the consumers’ path to death with unprecedented level of detail. We explore the structure of the network inferred from these data to derive instruments for friends’ churn, which is typically endogenous in network settings. This allows us to econometrically identify the effect of peer influence in our setting. On average, we find that each additional friend that churns increases the monthly churn rate by 0.06 percent. The observed monthly churn rate across our dataset is 2.15 percent. We also find that firms introducing the pre-paid tariff plans that charge the same price to call users inside and outside the carrier help retain consumers that would otherwise churn. In our setting, without this tariff plan the monthly churn rate could have been as high as 8.09 percent. We perform a number of robustness checks, in particular to how we define friends in the social graph, and show that our results remain unchanged. Our paper shows that the traditional definition of customer lifetime value underestimates the value of consumers and, in particular, that of consumers with more friends due to the effect of contagious churn and, therefore, managers should actively take into account the structure of the social network when prioritizing whom to target during retention campaigns.
KW - Telecommunications tariffs
KW - Contagious churn
KW - Mobile churn
KW - Tariff plans
KW - Telecommunications industry
UR - http://www.scopus.com/inward/record.url?scp=85067339510&partnerID=8YFLogxK
U2 - 10.1080/07421222.2019.1598683
DO - 10.1080/07421222.2019.1598683
M3 - Article
AN - SCOPUS:85067339510
SN - 0742-1222
VL - 36
SP - 355
EP - 390
JO - Journal of Management Information Systems
JF - Journal of Management Information Systems
IS - 2
ER -