Customer churn is a real problem, let’s address it!
Historically, companies have perceived that acquiring new customers is a one-stop solution to all their problems. Their approach is best described by these lines:
“Get a lot of people through the door and we are bound to keep some.”
“Customers are leaving, and we need revenue. Let’s get some more customers.”
However, this leaky bucket approach is seriously flawed. It’s called leaky because it’s like filling up a bucket that has a leak, which is emptying it anyway. So, no matter how many taps you open, the bucket would never be full.
With the emergence of the service and subscription model, churn is one of the most important metrics that should be tracked by every business – be it a service like Netflix, or a SaaS company like Slack. The impact of even a 5% increase in churn can have significant effects on the revenues of a company. Let’s look at the compounding impact of churn on two companies with different churn rates.
Image source: thinkapps.com
The impact is also substantial because returning customers will likely spend 67% more on your company’s products and services. In fact, an insightful HBR paper by Frederick Reichheld of Bain & Company (the inventor of the Net Promoter Score) and Earl Sasser of the Harvard Business School shows that increasing customer retention rates by only 5% increases profits by 25% to 95%.
According to V. Kumar, a marketing professor at Georgia State University who studies “win back” strategies, the following are three reasons companies should focus more energy on lapsed customers.
- These customers have already used your service. So, you know that they have a need for your product, making them better targets than the random prospects from a cold-calling list.
- These customers are aware of the company and its services. This reduces the marketing costs involved in taking them across the customer journey funnel.
- Recent technology, like data analysis software, can be used to craft more-successful win-back offers and to identify and go after the most profitable defectors.
Here are a few tactics that have proved to be successful in winning back lost customers for companies in the past:
Pitching the right offer
To understand more about precision messaging, Kumar and two colleagues studied data on more than 53,000 customers that left a telecom company over a seven-year period. They framed four major questions around which the study revolved – the behaviour of lost customers before cancelling, the reason for leaving, response to win-back offers, and the purchases following the re-onboarding. Here are the results:
Studying which customers would even come back
As a company, you would want to get all the eggs in your basket. But, it is important to remember that targeting each and every customer will only be a misuse of your marketing budgets. It is better to target those customers that have always been happy with your service and have also referred you to their friends and colleagues. Therefore, studying the past behaviour of customers definitely helps.
For example, customers who were happy with the service but apprehensive of the prices can be brought back. However, those who were unhappy with both are least likely to return.
Choosing your CRM carefully
Hubspot is one such service provider that enables you to manage your contacts on different parameters such as the date of onboarding, the source (inbound/paid/cold-call), SPOC, and transaction per month. The process is smooth and involves lesser manual work, unlike the process that involves traditional spreadsheets.
In fact, organizations are often confused about how to classify their customers once they hit the ex-list. Phil Vallender, a Hubspot advisor, gives a very good response to this:
Image source: Hubspot
There is no particular and defined approach. It varies massively according to the context, the targeted customers, and their individual experience.
How long will a customer stay and what to offer?
There is little point in onboarding a customer that will leave a few months down the line. Therefore, you need to shred off any common strategy that you thought would be applicable to all the customers. Reason? It simply doesn’t work.
In the telecom firm we mentioned previously, the study targeted 40,000 lapsed customers whose prior behaviour indicated they were likely to return. With help from researchers, the firm tested four inducements on such customers who were divided into small groups. One group was simply offered a discount, the second group an upgrade, the third was offered a combination of both, while the offering for the fourth group was crafted based on their reason of leaving. The bundled offer yielded the highest win-back rate (47%), followed by the tailored offer, and then the stand-alone discount offer (both 45%). The stand-alone upgrade offer yielded a 41% win-back rate.
However, focussing on crafting S.M.A.R.T retention strategies will certainly help. Don’t go ahead and offer discounts that look something like this:
You can definitely win back some of your lost customers, if not all. Make your goals clear and your strategies relevant and timely.
Would you agree? Do let us know how you have regained lost customer love.