Database : Stop the Churn

Six keys to successful, data-driven retention marketing

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 1 million customers and a 10 percent attrition rate. The first 100,000 prospects it finds and converts 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 its customer base.

The way to address this problem is to develop, test, manage and constantly improve a customer retention program. Here are the 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 for a reason. Here’s an example, taken from the health insurance industry. If a member (i.e., customer) lets a policy lapse, it’s usually for one of these reasons:

• He died.
• He bought his health care coverage through the company he worked for, and he’s no longer employed at that company.
• His spouse’s employer offered better family benefits or the same benefits at less cost.
• The company did something that displeased him greatly.
• A physician recommended to him by friends or family is not in the company’s network.
• He doesn’t like changes in the coverage.
• He feels as if he no longer can afford the coverage.
• A broker he was talking to about other insurance sold him on a different company.

In this scenario, there’s probably not much the company can do about reasons one through four. But reasons five through eight offer hope of saving the relationship. If the customer’s moved, the company can take the lead in helping him find a new physician. If he doesn’t like changes in the coverage or feels he no longer can afford it, the company can offer different coverage options more likely to fit his needs. And communicating with him in an ongoing and relevant way will make him more loyal and head off the probability that someone will talk him into switching. If the company can learn the reasons people let their policies lapse, then 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:

• 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.
• They feel OK about the product or service. It’s adequate for their needs, and they don’t think much about it.
• 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 nonresponders—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 also can 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 probably are certain customers who you can model for potential profitability and, perhaps, not overtly try to retain them. Not every customer is good, and except for in highly regulated environments, they haven’t necessarily earned the right to stay customers 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 channels 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. This means 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 it and build on the transaction to further deepen the relationship.

Every communication doesn’t need to sell. Sometimes a letter or e-mail that just thanks a customer for his 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 existing relationships and establish a 360-degree view of each customer. Quite often, this 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 it doesn’t mean that you have to start there. You can test (see Key #6) 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 the validity of a communications program before an enterprisewide 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 it builds the initiative 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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