Thanks to overwhelming choice and increasing competition, some of which appear to come out of nowhere, it is increasingly difficult for companies to retain customers for the long term. With a growing range of products and services, customers are also becoming more and more fickle. Smart companies have understood this and are no longer focusing solely on attracting new customers. Strengthening ties with regular customers and reducing emigration rates are at least as important. There is no question that investment in reducing churn – also called Churn Management – is worthwhile. This is shown by the following conclusion of an investigation: If a company succeeds in reducing its rate of emigration by only 5%, it can enormously increase profits. This is because more than 70% of sales are generated only in subsequent purchases, i.e. after the first sale.
Churn Management: Definition and Objectives
Churn is a portmanteau composed of the words “change” and “turn”. The term describes the situation where a customer would like to alter the provider (change), but this migration is to be stopped (turn). In short, Churn means changing or losing customers. Thus, Churn Management deals with the task of reactivating customers who have terminated a contract or are considering changing their buying or usage behavior.
Churn Management has two objectives:
- Identifying customers at risk of migration and
- Reducing the churn rate, and recovering former users through active customer relationship management.
These clearly are objectives that should play an important role in every company. Churn Management has only been in the focus of conceptual and empirical research for about 20 years and is, in addition to new customer acquisition and customer loyalty, part of Customer Relationship Management (CRM).
After Stauss and Friege (1999), Churn Management is divided into 3 stages:
- Analysis of lost and emigration-prone customers (recovery and migration analysis)
- Definition of a recovery concept and derivation of appropriate marketing activities
- Controlling and optimizing recovery
Schüller (2007) divided Churn Management into 5 steps:
1. Identification of customers who have cancelled or want to cancel 2. Analysis of the causes that lead to termination 3. Planning and implementation of recovery concepts 4. Success control and optimization of measures 5. Churn prevention
Churn Management: Areas of Application
The aim is to reduce the costs of customer retention programs and to increase their success rate by targeting, and at best recovering, those who wish to terminate their business relationship. This can increase sales and help achieve overall goals. As part of a CRM strategy, Churn Management is defined as how customers at risk of migration are to be addressed and processes optimized.
Companies, of course, try to retain their customers as best they can and keep the churn rate as low as possible. Especially in contractual business, Churn Management takes a vital role as it is generally easy to check whether the customer is actually prepared to terminate – or has already – terminated their contract. In the case of non-contract-based customer relationships, the definition of the customer as such becomes more difficult, which is why customer loyalty programs in the form of loyalty cards, bonus programs, clubs, and other marketing tools to identify individual customers become more and more popular.
Churn Rate and Churn Score
The Churn Rate is now highly relevant in almost all industries. In Churn Management, it describes the rate of core customers, i.e. the number of customers lost. Specifically, it represents the percentage of customer losses compared to the entire tribe of users of the company. The task of Churn Management is to identify the customers before they cancel and to prevent them from doing so. This requires a unit of measurement to classify customers into possible “customers” and “non-customers”. This is done using the Churn Score, which indicates the probability of a customer canceling their contract. The Churn score is calculated based on certain criteria, such as a reduced purchasing power, which can indicate the will to change.
The 3 Most Common Types of Customer Churn & Solutions:
- Decrease in expenditure
A fall in expenditure is the first sign of a customer’s willingness to cancel. The reasons for this can be manifold and should be identified precisely using CRM. For this purpose, customer accounts can be equipped with a warning message, which issues a message to Customer Relationship Management at a defined minimum limit for each account.
- Reduction in product attractiveness
Sometimes it is not individual customers who migrate, but products or product lines that lose their attractiveness and thus affect the same number of customer accounts. In order to detect losses in a single product at an early stage, a warning system should also be established to monitor the typical order backlog of a product. For example, the sales team can intervene when the acceptance limits fall.
- Loss of the entire customer account
The most radical type of migration is the spontaneous abandonment of the customer account. As a rule, the customer has already been lost and switched to the competition. To avoid customer bounce, Churn Management must take proactive methods and intervene at different stages of the customer lifecycle.
Reasons for Customer Churn and How to Counter Them
If a company wants to retain its customers, it should be aware of one important fact: According to a study by MasterCard, existing customers do not usually cancel because of visibility or price, but due to inadequate service. It can be very difficult to identify faults and faulty processes in service. Only 1 out of 27 users inform the company about the problem that has occurred, thus giving it the chance to optimize their service.
Customer Churn Due to Service
Errors in service that lead to an exodus of customers can be versatile:
- Poor onboarding
- Ineffective customer care / Insufficient building of customer loyalty
- Poor customer approach and overselling
- Erratic and missing communication
- Poor customer service
- Ineffective customer marketing
Most service errors occur due to incorrect employee behaviour. For this reason, it is important for successful customer relationship management to continuously train all employees and to regularly check business processes for their efficiency and effectiveness.
Churn Prevention – This is How!
1. The Onboarding should be as simple as possible for new customers, as 40-60% of users who have signed up for a service or SaaS application will otherwise use it only once. The more understandable the onboarding process, the more customers will reach the next step in the customer lifecycle.
2. Customer care is the magic word: if the contact with the customers is maintained and strong customer loyalty is established, the probability of customer churn decreases significantly. This can be achieved, for example, by simple processes: By defining key figures that indicate the decline in customer engagement, active work can be done on the customer relationship, thus increasing the customer’s commitment.
3. If customers are flooded with too many uninteresting products and services by the marketing department, this quickly drives the probability of emigration. By analyzing purchasing habits along the customer lifecycle, individual sales processes can be created that counteract overselling.
4. Incomplete communication is usually difficult to identify due to the use of different channels. Therefore, companies should implement communication processes that strengthen the relationship with the customer and respond to their needs and problems.
5. In order not to motivate customers to churn through poor customer service, not only should the employees be adequately trained, but also processes should be established that prioritize customers according to defined value standards. Batch processes are also possible, which segment prospective customers and customers according to their current status in the customer lifecycle instead of according to the order of the requests.
6. In order to support the customer in the best possible way through marketing measures, in addition to successful inbound marketing, attention should also be paid to marketing-based support for the sale. In addition, documenting your service, gathering information about engagement, and building the bond, as well as providing interesting documents such as white papers and e-books for existing customers, is essential.
Finding Churn Models and Methods
For Churn Management, there are not only solutions but also individual action plans. Depending on the products offered, customers to be addressed, and the type of company, you can choose the right method here. In general, however, all processes can be summarized in six steps:
1. Identifying Customers Who Want to Leave
In order to create an appropriate concept for the recovery of emigrated customers, they must first be identified and classified. To do this, you analyze which customers are generating significantly less revenue over their customer life cycle or those who have officially ended customer relationships. This requires an efficient CRM system that collects and evaluates data. For customer contact, it is recommended to prioritize customers and address those with the highest margins first.
2. Analysis of Customer Recovery
After customer identification, you may be able to discover trends that can explain migrations for entire customer groups or products. Therefore, companies should ask themselves what types of emigration they are dealing with.
When faced with active churn, reflect on the fact that existing customers cancel for a variety of reasons. These should be identified and brought back into the company through recovery measures. If satisfied customers leave, this is often due to the fact that they only had a limited time requirement for a product or service.
A passive exodus occurs when users forget to renew their products or services. Here you should work with reminders to update this same service. It is also important to ask about the types of customers who choose to migrate. In this way, customer relationship management can act specifically on these segments. If the company offers different types of subscriptions, it is also worth taking a look at them. If only individual service packages have a high churn rate, the product department should optimize the offer once again and highlight possible benefits for customers more clearly. In addition, CRM can identify further trends through surveys and one-on-one interviews. The costs and benefits of the recovery measures to be chosen should also be calculated at this stage.
3. Win Back and Recovery Measures
The problems already analyzed should be resolved as soon as possible and the resulting solutions should be communicated to the customer. This makes the customer feel their needs are taken seriously and his trust in the company increases. In the best case, communication with the customer takes place via the channel he prefers. Based on the customer recovery analysis, different recovery offers can be presented to the customer in this step, for example:
- Modifications of the product or an improvement of the service through increased and targeted communication
- Confidence-building steps
- New contact people or
- Updated agreements
To prioritize the specific methods, companies should consider the amount of the churn score, the value score, and the risk score, which are presented in the following matrix:
4. Get Feedback
The customer should sense that companies not only show an active interest in order to keep their business but for a long-term partnership, and are therefore striving for increased customer satisfaction. To achieve this, you should implement steps to drive customer loyalty as well as obtaining feedback.
Side Note: Net Promoter Score® to Determine Customer Satisfaction
With the help of the NPS®, it is possible to capture the current mood of the customer landscape and thus identify customers who tend to migrate early. Thanks to the question of whether customers would recommend a product or service, so-called detractors and promoters can be easily identified. Detractors who would not recommend the product are therefore are less likely to mention the product to others or to make repeat purchases.
5. Evaluate Data Correctly
In order to optimize successful recovery, a detailed evaluation of collected data is required. Customer behavior usually helps to address product deficiencies, service issues, and communication gaps. This is not only important for churn management and customer relationship management, but also helps the marketing, product, sales and many other departments optimize their performance.
6. Controlling Churn Strategies
Every concept and every plan is only as good as the controlling used for the purpose. It is only by verifying whether the Churn measures have paid off that economic success can ultimately be measured. In this way, processes can be further optimized, to bring greater long term success.
The Conclusion to Churn Management
Successful Churn Management starts with the identification of customers who have a high risk of churning but does not end with a one-time approach to these. As shown in this article, Churn Management must find its permanent place in the company as part of Customer Relationship Management, in addition to new customer acquisition and customer loyalty. With the help of personalized surveys and IT-supported analysis, potential emigrants with a high churn rate are thus identified and successfully recovered through targeted, individual measures.
Tags: Customer Retention