Analyzing Customer Retention
Earlier this week, the Market Research Group of the Atlanta Chapter of the American Marketing Association heard two different perspectives on "Utilizing Customer Analytics Towards Increasing Customer Retention and Corporate Profitability." Both presenters discussed how to use analytics to better understand the composition of your customer base in terms of loyalty, satisfaction, share of wallet and profitability.
One presenter nicely laid out the traditional customer lifecycle as acquisition, growth, retention and win-back, focusing on the retention part of the customer lifecycle for his presentation.�From a research perspective, another way to think about it is:
Prospective Customer/Competitive Customer
New Customer or Early Life Customers
Lost Customers (Customer Churn)
Customer retention and lost customer research differ by the type of respondent. Churn research is traditionally performed exclusively with former (lost) customers while customer retention research is performed with former and/or current customers. While lost customer research focuses on why they left, customer retention focuses on why they might be considering leaving and what might make them stay. Otherwise, the two surveys focus on the same thing � a better understanding of what can be done to increase customer satisfaction and retention rates. As one presenter correctly pointed out, performing marketing research to measure current customer satisfaction, likelihood for retention and reasons for customer loss is only one part of retention analytics process.�
When a company realizes it is losing customers at an unacceptable rate, and that keeping customers is up to 10 times less expensive compared with acquiring new ones, they have begun the first phase of the process, which is recognition of a potential problem.�The next phase is leveraging historical customer activity data and creating customer profiles to identify the specific points along the customer lifecycle continuum that customers are leaving or canceling. Once the key continuum points are identified, more in-depth research and analysis can be conducted to pinpoint the specific drivers of customer churn at those key continuum points.
For those of you that have attempted retention analysis, you know that the above can be the easy part, for the next phase is to take specific and measured actions at each of the continuum points based upon findings from the analysis. For example, a trigger can be set for all customers fitting profile A that reach the 90th day of doing business with your company � perhaps it is a reminder postcard, special offer or personalized phone call.�Setting up these triggers and executing a sales and marketing driven strategy based upon multiple trigger points can be tricky, time consuming and expensive.�For that reason, it is critical that you know the true lifetime value of customers within each of your established profiles so that you can perform a cost benefit analysis and decide to what degree you are willing to take proactive retention measures.�
In completing the cycle, it is then critical to measure the success of your program in real terms, such as customer retention/profitability and performance changes on the key churn drivers as measured by your marketing research tracking program.�Due to the comprehensive nature of retention analytics programs such as these, time and money costs are high, as is the need for very senior level corporate involvement across multiple divisions/functions.�Depending upon many variables within your business and industry, it may be time to consider a retention analytics program -- large scale or small.�
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