For any marketing strategy, a fundamental variable to measure all the time is the cancellation rate; How many customers are leaving? In many service industries, cancellation is substantial.
Some telecommunications providers lose an average of 3 percent of their customers each month. Other industries could have even higher rates like the insurance industry, gyms, and streaming services, to name a few. These types of companies often spend a lot of marketing resources to try to win back all the customers they have lost to the brand.
According to studies carried out by Georgia State University (Harvard Business Review 2016), it is established that strategies to increase customers should be more focused on recovering those users who have left, rather than attracting new customers. The three reasons for this are:
- These customers have shown their interest and need for the product or service, making them more attractive to recover, rather than go for new customers.
- These customers might already be familiar with the brand, so there is no need to spend as many resources on the activation and education journey.
- This translates into cost reduction.
Having a CRM management system, you can find out which recovery offers have been the most relevant, adapt them to other clients and make them more efficient, especially with those who are at risk of being lost and who are the most profitable.
The study carried out by the University of Georgia, led by Professor V. Kumar, conducted research on more than 53,000 clients over a period of 7 years who had decided to cancel the relationship with a telecommunications company. Customers’ previous behavior before cancelling, why they had canceled and how they had responded to the various recovery offers that had been given to them were examined. The results of this study were outlined to basically answer 4 questions:
- How likely is it to win back a customer?
- How long will a recovered customer stay with the brand and how much will they spend?
- Which customer segment will accept what kind of offers?
- Which recovery strategy is the most successful?
Most companies go after all the customers they have canceled, making the marketing expense in this regard very high. It is better to focus on those consumers who are most likely to return to the brand.
There are many strategies to win back customers, some of them using large marketing budgets. At some banks, for example, strategies to win back high-value customers include waiving the card’s annual fee or giving certain free benefits, such as tickets to airport lounges. These strategies are effective at a certain moment, but in order to decide if they are profitable, they must follow the methodology of Professor V. Kumar, that is, answer the 4 questions of the study mentioned above.
Other initiatives may include calling customers who have left to ask why they have left and trying to mitigate or eliminate the nuisance that the decision to leave caused. Another tool is to monitor the NPS of the clients frequently and identify who the detractors are, since they have a high probability of abandonment.
In order not to get lost in the wide possibilities of establishing a customer recovery strategy, my recommendations are the following:
- Carry out transactional analysis of customers who have abandoned to understand if they meet a pattern of behavior in common. Related habits prior to cancellation must be identified.
- Based on the above, predictive cancellation models can be developed, so that the brand can anticipate before the customer leaves. This is more effective as there is more chance of retaining the customer and in the end it is less expensive.
- Carry out AB testing by testing different offers and incentives to win back customers. The test and learn method is very effective in these cases. The best offer(s) with the best results are then mass-produced for the rest of the clients.
- Don’t make the mistake of one recovery strategy for all your lost customers. They have to be segmented by different concepts, for example: the value of the customer over time. The same recovery strategy should not be applied to a client who stayed with the brand for 10 years vs. a client who perhaps abandoned 8 months after joining the brand. The treatments must be personalized by differentiated groups or segments.
In companies, loyalty programs, or other initiatives where the focus is mass acquisition, churn can be high. Having a journey designed to take the customer by the hand from an initial stage to an engagement stage is essential to reduce cancellation. Today with the depth of information and data on the behavior of customers at different times, even when it is a challenge, it is possible to reach reasonable abandonment rates for the business and that the acquisition initiative, even with rates of abandonment, be profitable.