Understanding Customer Churn and How to Prevent it

Philip Kotler is one of the best marketing minds the world has ever seen. In one of his books, Kotler had suggested that the average company looses anywhere between 10 to 30 percent of customers each year.

Although a number of studies disagree with this figure, there is a consensus here that customer churn, at least some of it, is unavoidable.

There are several reasons why a customer chooses to stop doing business with you. Some of it is internal – for example, the customer may no longer need your service, or they may be looking to tighten their purse strings.

Other times, you may be responsible for the churn – the customer may be unsatisfied with a price increase or the support they received.

In each case, while it may not be possible to keep each customer happy, the objective of any business should be to identify possible causes and rectify them.

Why Customers Churn 

One of the most popular ways to identify the reasons behind the churn is to ask customers who have signed out. While this is effective sometimes, it does not provide you with the right answers all the other times.

Let’s take the example of a customer who ended their subscription because of a rise in fee. Such a customer can always provide you with a coherent response about their decision.

But consider the case of a customer who moved out because they were lured in by a competitor’s marketing campaign, or simply because they no longer needed your product.

Such customers are often unable to pinpoint the specific factors that contributed to their churn.

From a marketing perspective, too, this exercise is unhelpful since it does not provide you with a list of actionable strategies you can implement to reduce the churn.

Data Mining & Hypotheses 

Data mining is one of the more effective strategies to understand customer churn. In this case, the business logs in each and every customer activity and benchmarks it against the bigger picture to identify patterns and trends.

Such data analytics campaigns can throw up some really interesting patterns. For instance, you may find that customers referred to you from Facebook ads typically churn after three months while those from Google Search stay for much longer.

Alternately, you may find that customers who shop for baby products typically churn after two years. Or that customers who use discount coupons typically churn after a price rise.

Once such patterns are identified, a marketer can apply a specific hypothesis for each case to reduce the churn.

For example, customers shopping for baby products stop buying when their kids get older. Building inventory targeted at older kids could potentially help retain these customers.

It is possible that visitors who convert from your ads are misled through your landing page communication and are hence more likely to churn when their expectations are not met.

Building such hypotheses can let you implement specific fixes to reduce churn. Track the performance of your customers before and after the implementation to see if this helps.

If the fix fails to reduce churn rate, then chances are that the hypothesis was wrong. Pick an alternate hypothesis to test.

Customer Journey Benchmarking 

Although hypothesis-based fixes can be extremely effective, they can also sometimes be expensive. This is especially true for brick and mortar businesses that have high operating costs.

For instance, building an inventory of new products can incur high procurement costs, and also need new resources to market and sell these products. If this hypothesis turns out to be false, then this is a lot of investment that did not yield the desired results.

In such cases, businesses can opt for customer journey benchmarking instead. In this process, marketers pick each stage of the customer journey and benchmark their experience against what competition offers.

For instance, you may notice that the market leader in your industry retains customers by offering reward points for loyalty. If your business does not offer such a program yet, you may consider implementing one.

You may also alternately choose to hire a consultant who may study each stage of the customer journey and identify ways to improve them.

Customer Onboarding

Marketing processes often end with customer acquisition. However, one of the biggest reasons for customers to move away comes later in the form of inadequate onboarding.

Customers typically sign up for a product or service based on marketing messages. This sets up certain expectations that the customer expects the product to fulfill.

In the absence of adequate onboarding, these expectations remain unfulfilled, leading to churn. Depending on your industry and offering, customer onboarding may be done through video conferencing, LMS, walkthroughs or coach marks.

Study the existing onboarding processes to understand its impact on customer experience. If your current onboarding techniques fail to train the customer, then it is important to fix them.

Customer Support

Bad customer support is one of the major triggers for customers to sign out. While it is not always possible to keep your customer happy, a business can implement specific policies that can keep the churn rate low.

One proven strategy is to make use of NPS scoring to identify unhappy customers. NPS (Net Promoter Score) is a survey that customers are asked during various interactions (including support requests).

The survey asks customers how likely is it for them to recommend the business to a friend or family.

Customers who rate the business poor on the NPS scale are likely to change their mind if they are instantly contacted by a higher ranking executive from the business.

It is also worth bringing down friction in the customer support process. Offering a toll-free number for support or providing multi-channel support go a long way in making the support process smooth, and this improves customer experience.

Offering incentives for future transactions during such calls may further improve the engagement and and prevent customer churn.

Communication

In a lot of cases, proper communication alone can help reduce customer churn. For instance, a hike in price always leads to higher churn. The damage can be controlled if customers are adequately informed of the reasons for the increase.

You may also precede a fee hike by announcing incentives for customers upgrading to a bigger plan or subscribing to a longer tenure.

Communication also plays a big role in building customer relationships. Customers tend to stay loyal if your executives are in personal touch with customers.

For each of these strategies, it is important for a business to benchmark your existing processes with those offered by competitors or leaders from other industries.

Such benchmarking processes can provide your organization with actionable tips to improve experience and consequently reduce churn rate.

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Aakash Patel

Aakash Patel is a marketing consultant and blogger on inbound marketing. He is a veteran and is among the first inbound marketing consultants in Asia.

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