Major drivers of customer churn and their solutions
Experian's ClarityBlue division has developed a discussion paper that highlights the key mistakes that big brands made in 2006 in terms of marketing activity and customer retention strategies, outlining the main drivers of customer churn and some possible solutions to the problem.
According to ClarityBlue, traditional marketing efforts used to stave off customer churn are, in some cases, actually making the problem worse. In the discussion paper,'Why your marketing activity might actually be increasing your churn', the company's loyalty experts argue that three main marketing tactics are too-often used to cover over cracks that appear in customer retention strategies.
Old school practices Chris Archer-Brown, managing partner for new propositions at ClarityBlue (and the discussion paper's chief author) warns that if the effect is customer churn, the cause is probably "old school" retention marketing practices, as follows:
- We'll keep them by force Defensive marketing strategies often end up driving existing customers to competitors. For example, customers who were on a 12 month contract with a supplier are often faced with having to sign up for an 18 month contract to keep their existing relationship (mobile phone network operators provide a classic example of consumers' need to swap suppliers for a better deal than renewing with the same supplier). The fundamental flaw in this approach is that this practice actually penalises the company's most profitable and reliable customers, forcing them to defect. Similarly, in the financial services sector, customers are often penalised by costly redemption penalties, making them all the more determined to leave.
- Saying "loyalty" when it is actually simple bribery Archer-Brown argues that too often companies will use so-called loyalty schemes to bribe customers to stay with them. The problem here, according to Archer-Brown, is that customer loyalty has to be earned. It cannot be bought by simply offering customers points in return for the purchases they make. As The Wise Marketer has often said, it is an excellent customer value proposition (e.g. excellent service, demonstrable brand values, and high quality goods and services) that is decisive in building true customer loyalty. The idea of simply centring a loyalty strategy on the collection and redemption of simple points is not usually sufficient, as it is easy for competitors to copy and even surpass.
- Unbelievable deals Beating the competition on price alone does not necessarily equate to happy customers. Offering deals to attract new customers raises existing customers' expectations that they will receive similar incentives. When none materialise, the company has disenfranchised its existing customer base while having simply attracted a new set of 'cherry-picking' (deal-sensitive) customers who are likely to defect when a competitor's better deal comes along. For example, The Wise Marketer recently noted a British magazine whose subscription form promised new subscribers a free gift, while adding no extra value for existing subscribers who renew. There's no incentive for customer loyalty under such circumstances.
What needs to be done? As Archer-Brown explained: "The issue affecting some companies is that they don't focus on individual customer profitability. The only way to control customer retention is to optimise all spending at an individual customer level. This means that profitable customers are prioritised above the non-profitable ones. Our advice to businesses is that they need to view consumer value management as a continuous process rather than a series of distinct, functional activities."
The discussion paper has been made available as a free download from ClarityBlue's web site - click here (free registration required).