Customer churn is a common term in the loyalty industry, yet often misunderstood. Customer churn poses a significant threat to a company’s customer list and loyalty marketers should focus on customer retention as much as possible.

Loyalty360 talked to Steve Offsey, VP Marketing, Pointillist, to learn more about the very important topic for loyalty marketers.

Why should brands care about customer churn?

Offsey: Industries that use a subscription-based business model have traditionally focused more on churn than others. Banks, telecom companies, insurance firms, energy services companies, are among the many types of businesses that often use customer churn rates as one of their key business metrics. With an increasing number of businesses based on recurring revenue models, such as Software as a Service (SaaS), its usage continues to grow.

Here are a few reasons why you should care about churn:

● Customer churn reduces profitability through revenue loss
● Churn results in greater marketing and re-acquisition costs
● The probability of selling to an existing customer is a lot higher than to a new prospect
● Knowing the customer churn rate is helpful for calculating customer lifetime value
● It is a measure of the company’s health and long-term prospects
● It helps identify which customers and segments are the best fit for your product

What are the benefits for a brand to know its customer churn rate and how can that knowledge be leveraged positively?

Offsey: You can’t reduce what you don’t measure, so the first step to reduce churn is to calculate your customer churn rate. Calculating customer churn rate is essential to determine whether your customer retention efforts are working.

Calculating your churn rate can be tricky. Netflix, for example, was sued by its shareholders over the way it reported churn rates. The shareholders’ argument was that Netflix used an improper calculation that resulted in an artificially low churn rate. The case was thrown out by a judge, ruling that there is no single, industry-wide approach for calculating churn.

The two main ways to measure churn are: Customer churn and revenue churn. Customer churn is the proportion of contractual customers or subscribers who leave a supplier during a given time period. Revenue churn, on the other hand, is the proportion of recurring revenue lost in a given time period. For an in-depth look at various ways to calculate churn, see How To Reduce Churn Using Customer Journey Analytics.
Once you start measuring your churn rate, you can then monitor it over time, as well as determine the impact of programs aimed at reducing churn.

How do brands identify at-risk customers and what kinds of behavior are more predictive of churn?

Offsey: Some customer behaviors are more predictive of churn than others. But it is hard to spot these behaviors proactively and in real-time, so you can take steps to influence these at-risk customers to stay.
Thanks to a wave of technological advancements in recent years, new behavior-based approaches to customer analytics have emerged. Customer journey analytics, for instance, enables organizations to discover valuable real-time insights about their customers and make smarter decisions, faster than ever before.

A call into your call center to sign-up for a new service, for example, may be a point at which most of your customers are abandoning their journey. However, a deeper investigation could reveal that the average wait time for a particular set of customers is higher than average. Armed with this knowledge, you can take remedial steps and monitor the journey to see if there have been improvements in the signup rate for these customers.

What are the challenges associated with retaining customers who are deemed “at-risk”?

Offsey: There are a number of challenges associated with retaining at-risk customers, including:

1. Looking beyond the last touch and focusing on the entire customer journey

Many companies try to address churn by focusing on only the final interaction with the customer before they churn. In reality, poor experiences accumulate over a period of time. An incorrect bill, repeated follow-ups, poor installation, non-personal customer service are all factors that erode your customer’s confidence and trust. As a result, they are primed to churn when they receive an attractive offer from your competitor. If you are only focusing on the last interaction, rather than the entire customer journey, you will have a difficult time reducing churn.

2. Keeping your focus on your most profitable customers

While you may want to retain all of your customers, your resources aren’t unlimited. So, you should focus your efforts on retaining your most profitable customers first. This can be accomplished by segmenting your customers by behavior and profitability. Then prioritize and personalize your retention efforts for your most profitable customers.

3. Engaging with your customers at optimal times and through their preferred channels

As consumers, we’ve all experienced that many companies only communicate with customers when they either want to upsell us or when we complain the loudest. For many companies, it’s a challenge to communicate with their customers with the right messages through the optimal channel at the best times.

How can customer journey analytics help brands reduce churn?

Offsey: Customer journey analytics is a new analytics approach that has emerged as a powerful tool to help reduce customer churn. It’s a data-driven approach to discovering, analyzing, and influencing your customers’ journeys. Customer journey analytics enables marketers and customer experience professionals to understand customer behavior and engage with individual customers on a personal level, at scale.

By employing customer journey analytics, your efforts to woo back your former customer are significantly more likely to succeed, as you reach out to them with the right message through their preferred channel within the right timeframe. Even if you fail at winning back that customer, the information you gather will help you take proactive steps before customer churn becomes a more significant problem.

Customer journey analytics tools can be used to calculate your churn rate directly in real-time. The beauty of this calculation is that you not only get the quantitative metric, but you can actually visualize the entire customer journey and know precisely which interactions contributed to churn.

Customer journey analytics tools can also help you better target and segment customers based on behavioral, demographic and product attributes. Journey analytics tools discover the most predictable paths and the key attributes of prospects who eventually turn into long-term, profitable customers. Armed with this information, you can more precisely target the right audience, set the appropriate customer expectations and significantly reduce the possibility of eventual churn.

Using predictive analytics and machine learning algorithms, journey analytics can also be used to identify which customers are most likely to churn. This valuable data can be used to prevent churn by automating engagement with each customer at the best time, and in a relevant, personalized way.

Customer journey analytics tools help you identify touch point problems and at-risk customers, discover profitable customers, build quantitative links between customer behavior and churn, and help communicate with customers in a relevant, personalized manner.

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