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Cut the churn for the cream

Understanding the triggers and sensitivities which influence your customer to stay with you or leave or spread their port-folio between your organisation and a number of others, is a key competitive advantage.

It can make the biggest difference to your bottom line and long-term success. It is worth revisiting the figures quoted last week. The average increase in customer lifetime profits by a mere 5 per cent reduction in customer churn for a typical brokerage is 50 per cent. For motor or home insurance, the average increase is 84 per cent, for life insurance it is 90 per cent, according to Bain & Co.

The reasons for churn and the potential cures are not understood by most organisations. The majority concentrate resources on customer service provision and acquisition binges. Most have implemented gold-plated CRM systems but have failed to reap the prophesied rewards.

The new British consumer is informed and fickle. KMPG found 44 per cent of UK customers have changed at least one of their key product or service suppliers in the past year.

Most companies lose 10 to 40 per cent of customers each year, averaging 20 per cent.

Online, the figures are even more dramatic. E-commerce sites may turn over up to 60 per cent of their customers within six weeks. One of the key issues that online marketers must deal with is the speed at which customers come and go.

There is good and bad news. According to extensive research by Tarp, only 12 per cent of dissatisfied customers whose complaints are never heard or addressed will remain a customer. The good news is that 87 per cent of customers whose complaints are identified and handled quickly will repurchase. Quickly is key here since speed of response is the number one factor in restoring customer satisfaction.

According to the Harvard Business Review, the difference between a satisfied customer and a very satisfied customer in terms of their willingness to buy again is six times.

Consider what a 1 per cent increase in customer retention would do for your organisation.

Start by identifying the groups of customers you should concentrate on first. A sample set of questions might include the following:

What would be the cost to acquire other like customers.

What is their likely value (spend, frequency, propensity to buy diverse products)?

How long have they been our customer?

What value is remaining (where are they within their lifecycle)?

Do we know or believe them to be competitor customers also?

What are the costs of retaining these customers?

What profit is the organisation deriving from these customers?

What is the estimated referral value of these customers

If you cannot answer these questions, find a partner with specialised modelling software who can help you.

Once you have the hierarchy of groups for a churn management programme, ask:

Do we know if any of these customers have raised their hand or shown signs of dissatisfaction?

Has their purchasing pattern changed?

It is now time to engage in dialogue, taking segments of the database and always maintaining a control group against which to measure success.

Begin by interviewing 10 to 20 per cent of each group. As with satisfaction management programmes, which we looked at last week, the key is in the scripting and delivery of the questionnaire. You are seeking to establish and understand the relationships between responses to various parameters and the propensity to defect. You will only be able to probe problems through dialogue.

Fundamental to this programme is the ability to resolve, quickly, any issues or concerns. Some concerns can be allayed immediately but, for most, an effective alert system is employed, notifying the IFA or provider of the problem. Set customer expectations judiciously to avoid compounding the issue.

Consider the table below and reflect on the difference to profits of retaining an extra 1 per cent of your customer base.

The relationship between satisfaction and customer retention is strong but varies between different markets. Financial services is in a highly competitive zone with low differentiation, consumer indifference and mostly a low cost of switching.

It is no longer a case of whether we manage churn more effectively but how we do it.

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