Department of Economics Working Papers,
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

JEL-codes: C21; C31; L8; M2; M21; M31 March 2019

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