Strategies for Understanding and Addressing Customer Churn
Customer churn is a common pain-point faced by many brands but thanks to the ability to create more actionable insight gleaned from customer data, brands are getting closer and closer to not only fully understanding customer churn but taking measures to prevent it earlier on than they previously could. Just like there is no one size fits all strategy to obtain new customers, there is not one way to prevent customer churn, and even customers who may fit the same profile of interaction with a brand may require varying strategies when it comes to re-engagement.
Researchers from Columbia Business School and London Business School recently published a study in the INFORMS journal Marketing Science entitled “Some Customers Would Rather Leave Without Saying Goodbye,” where they examine “a hybrid of the standard contractual and noncontractual categorization of customer–firm relationships” looking at two different types of churners they denoted as “overt”, those who inform an organization of their departure from the consumer base and “silent”, the consumers who simply disengage without notice, or just fade away by halting their purchase behavior.
The authors of the study posed that by understanding the different kinds of churn and how the different types of churners respond to an organization’s communications, brands can better analyze and predict churn behavior in order to develop more tailored strategies to prevent consumer attrition. In reading the study, I had some questions for the authors on the dynamics of customer churn such as predicting which customers will leave, methods of addressing their possible departure and even, how prevalent it is for an oversaturation of content intended to re-engage having the opposite effect, further driving customers away more than it reels them back in. Eva Ascarza, Associate Professor at Columbia Business School, one of the authors of the report, thoughtfully answered my questions below.
How Can a Brand Recognize a Customer is About to Churn?
Minimizing churn through the use of predictive analytics is a topic we have covered here on CMS-Connected before but, I was curious to understand from more of a behavior perspective, what are some signs a customer is likely to churn that are evident earlier than brands seem to have an awareness of now? In posing this question to Eva, I found it is not as clear cut as some might think and as she states below, it is not always absence of action that can predict churn, and understanding consumers outside of their purchase behavior can indicate a likelihood to churn perhaps even before the consumer is aware they may disengage.
“One of the most prevalent early signs for customer churn is lack of activity (e.g., not attending the gym, not logging in, not opening emails from the firm), which most firms seem to be aware of, and monitoring. However, we find that in hybrid settings such as the ones we study in the paper, lack of activity is an early sign for one type of churn (latent attrition) but not the other type of churn (overt churn). In fact, we find that high levels of certain activities (e.g., opening emails while not clicking on the content) were early signs of overt churn. Thus, we recommend companies to think about engagement not only holistically (or unidimensional) but as a combination of different behaviors, because some activities or combination of activities might be most indicative of an impending churn. For example, in our applications, we find that the combination of higher opening and lower clicking of emails is predictive of overt churn.
Thinking beyond the applications investigated in the paper, another type of signs that many firms might not be aware of are those related to customer inertia or habit. Customers are animals of habit, and changes in those habits might trigger churn from the brands they are currently buying. In the day and age of social media the information about major changes in consumers lives (e.g., moving houses, having a baby) are more observable than ever, and often well in advance of the major change itself.”
The Context and Content of Effective Customer Retention
Early on in the report it is stated that, “the two types of churners respond very differently to the firm’s communications, implying that a common retention strategy for proactive churn management is not appropriate in these hybrid settings.” With one plan of action not being enough, I was curious to know which methods Eva recommended for brands to address each type of churn.
“For customers who churn overtly are clearly active prior to churn. These customers often churn because, despite their relative high engagement levels with the firm, they don’t find the firm’s offering satisfactory. Hence, a proactive churn management towards these customers should focus on understanding their needs and to the extent possible, find a product/service offering that best matches their needs. For example, in the context of the daily deals website discussed in our paper, this implies better matching of the deals offered with the individual customer’s interest. On the other hand, latent churners are already not engaged, making it difficult for the firm to communicate with them. Hence, a proactive churn management towards these customers should involve a creative approach with respect to the channel and the message to re-engage these customers.”
Even if organizations have found the best context in reaching their prospective churners, I was wondering what advice Eva had for brands on varying the content types used to engage and communicate with their customers, and beyond that, how do they decide which is best?
"It is crucial for firms not only to understand who a customer is that is likely to churn, but also why. A deeper understanding of the reasons for churning (either latently or overtly) should guide the firm with respect to the type of content that is likely to be most effective in retaining customers. For example, for a customer who is considering leaving the firm because of a cheaper for the competitor, a price promotion is likely to be most effective. On the other hand, a customer who is not satisfied with the quality of the current product/service might be more persuaded by a higher-end (and possibly more expensive) product."
When Retention Efforts Become a Deterrent
As a consumer, I have been subject to the oversaturation of content from a brand when I have been inactive with purchases, or simply not interacted with their communications in a meaningful way for a period of time. The reasons for each have varied, but in a couple instances the abundance of communications that flooded my digital ecosystem actually turned me off of a brand more than it made me want to re-engage, which left me thinking I can’t be the only one to have this experience. I was happy to see evidence in this report that I was not alone. Towards the end it was stated: “We postulate that one of the reasons for churning overtly rather than silently could be the degree to which the customer is negatively affected by the amount and/or the content of the communication with the firm.” I inquired with Eva, based on her experience, how common would she say this is?
"While most firms recognize that customers are different in terms of their preferences for products/services, very few have applied the same rationale to consumer preferences for channel and frequency of communication.
Hence, while we are increasingly seeing brands offering personalized content (based on customers heterogeneity in preferences), we argue for firms to also personalize the frequency and channel of the communication with customers. Specifically, firms should monitor the level of engagement of the customer with the content and adapt the frequency and channel of the communication accordingly. For example, the firm might consider to reduce the frequency of communications to customers who rarely engage with the company’s communication."
Customer retention inevitably becomes a conversation of customer experience, which, according to Walker, is what will overtake price and product as the key differentiator of a brand by 2020. With this consideration, in my mind, the conversation of retention falls more under a mindfulness that should be baked in to the entire customer experience approach, more than just an add-on once the experience isn’t enough and the customer begins to stray. Some churn is inevitable, but just like any engagement strategy, brands need to appeal to and nurture opportunities both with the customers they have as well as the customers they want. And, when customers begin to stray, utilize all the data they have on your consumers to individualize their retention campaigns as granularly as their time and budget will allow.