Stop the Churn - Six keys to successful, data-driven retention marketing

The conventional direct marketing wisdom has always been that it costs seven times as much to find and convert a prospect to a customer than it costs to retain a customer you already have. That specific number might not be accurate for some industries, but the basic concept crosses all business models.

No company that we know of has a goal of having fewer customers next year than it has this year. The objective is always to grow the business, and customer attrition makes growth more difficult. To put that in perspective, consider the example of a company with a million customers and a 10% attrition rate. The first 100,000 prospects they find and convert to customers each year – usually at great expense – will not generate any growth. It will take that many just to keep from shrinking the size of their customer base.

The way to address this problem is to develop, test, manage and constantly improve a customer retention program. In our experience, there are six keys to making a retention program really pay off.

Key #1: Deliver What You Promise. We’re not going to belabor this point because it should be fairly obvious to most people. If your products and services don’t meet your customers’ expectations, nothing else you do will matter much. If you have problems living up to your claims, fix those before you do anything else.

Key #2: Understand Attrition. Every customer you lose leaves you for a reason. Here’s an example, taken from the health insurance industry. If a member (customer) lets a policy lapse, it’s usually for one of these reasons:

1. They died.
2. They bought their healthcare coverage through the company they worked for and they’re no longer employed there.
3. Their spouse’s employer offered better family benefits or the same benefits at less cost.
4. The company did something that displeased them greatly.
5. A physician recommended to them by friends or family is not in the company’s network.
6. They don’t like changes in the coverage.
7. They feel as if they can no longer afford the coverage.
8. A broker they were talking to about other insurance sold them on a different company.

In this scenario, there’s probably not much the company can do about reasons 1-4. But reasons 5-8 offer hope of saving the relationship. If they’ve moved, the company can take the lead in helping them find a new physician. If they don’t like changes in the coverage or feel they can no longer afford it, the company can offer different coverage options more likely to fit their needs. And communicating with them in an ongoing and relevant way will make them more loyal and head off the probability that someone will talk them into switching.  If the company can learn the reasons people let their policies lapse, models can help to predict other customers that are at risk before it happens.

How can any company find out why customers left?

• Ask them, and keep the answers as data points that can be used for modeling.
• Profile them to discover what they have in common (demographically, behaviorally and/or attitudinally) with other customers who have attrited.

Key #3: Understand Retention. Just as you need to know what people who leave you have in common, you also need to learn as much as you can about the customers who stay. Generally, there are three reasons people will stay in a business relationship:

1. They’re so happy with the product or service that they become evangelists for the company. These people are rare, and should be cherished and nurtured.
2. They feel OK about the product or service. It ‘s adequate for their needs and they don’t think much about it.
3. They’re unhappy, but not enough to go to the trouble of finding a new source. Inertia prevails.

If you know which of your customers fit each of these categories – you can ask them and use information provided by the responders to model the non-responders – you can develop ongoing communications streams (see Key #4 below) to move some of them up the ladder.  Some people who feel just OK about your company will become evangelists, and some that are unhappy can be turned into satisfied customers.

Modeling can also help a company define what kinds of customers to acquire. If attrition and retention can be predicted, why spend precious marketing dollars chasing prospects who are unlikely to stay with you?

Similarly, there are probably certain customers that you can model for potential profitability and perhaps not overtly try to retain them. Not every customer is good, and except for highly-regulated environments, they haven’t necessarily earned the right to stay a customer forever simply by buying from you once.

Key #4: Create Personalized Communications Streams. One of the great benefits that direct and integrated marketing offers is the ability to communicate with consumers on a personal level. Usually, this involves messaging that is relevant to them, using their individual channel of choice.

To do an effective job of communications, each message must be part of an overall master plan to educate, inform and motivate the customer, rather than each communication being a stand-alone effort. Think of it as a dialogue, rather than a monologue; one that takes place over an extended period of time. That means that the stream of communications should be reactive, as well as proactive. If the customer takes a specific action defined as important by business rules – such as buying again or upgrading a product or service – you should acknowledge that and build on the transaction to further deepen the relationship.

Every communication doesn’t need to sell. Sometimes a letter or email that just thanks a customer for their business can work wonders. Service quality surveys are important, too. It’s a little-known fact, for example, that simply asking people to grade your service raises their perception about the quality of your service. You ask, therefore you care.

Key #5: Get your Hands Around the Data. All of this presupposes that you have access to the data needed to determine which customers are likely to stay or leave, with enough depth of information to fully understand the existing relationship and establish a 360° view of the customer. Quite often that means gaining access to internal information you don’t presently have, as well as externally-sourced consumer information that you can append for modeling, profiling, and other forms of segmentation. A mature program needs to be driven by a database, but that doesn’t mean that you have to start there. You can test (see Key #6 below)using data integration capabilities before investing in a database if you don’t have one.

Key #6: Pilot and Test. You don’t have to institute a retention program all at once for every customer. Within every company there are almost always high-value segments that can be tested to prove out the validity of a communications program before an enterprise-wide rollout is funded. And once a program is funded and implemented, testing to improve it should continue – forever.

Almost any company can make a retention program work if they build it around these six keys to successful, data-driven retention marketing.

Kurt Seemar is vice president, analytic strategy; Deborah Stewart  is health care strategist; and Richard N. Tooker  is vice president/solutions architect at KnowledgeBase Marketing, a data-driven marketing solutions firm based in Richardson, Texas. They can be reached at (972) 664-3600.

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